Throughout the merger process, HD Radio was a hot topic of discussion. There were proposals brought forth that wanted to mandate that satellite radio would have to include HD technology in every radio sold. Thankfully, capitalistic thoughts won out the debate, and the success of HD Radio would not be hinged on being coupled with satellite radio.

I am always a fan of letting the quality of a product or service, and the marketplace be the judge of whether a business succeeds or fails. To that end, it was always my opinion that HD Radio needed to put together a quality product and market it themselves. To their credit, they forged an early relationship with Ford, but momentum behind that relationship seemed lacking.

This week I found myself in Washington DC in a rental car that had neither HD Radio or satellite radio. I scanned the dial, and settled on a local station featuring Ryan Seacrest. As I listened, I heard spot after spot pushing HD Radio. This struck me as odd, because in other markets, I did not get that same exposure to HD. Then again, I was in Washington DC, home of the NAB, and the battlefront for royalty debates, etc. The ads were compelling enough that if I was an average listener, and a car happened to be equipped with HD Radio, I would likely tune in. I began to consider what that might mean to satellite radio if other markets ran similar campaigns. I quickly dismissed the idea, as in my travels, I had never really seen such a concentration of HD advertising.

Then I got home, and checked my e-mail. Amongst the items in my inbox was an email from Volvo. Knowing the importance of the OEM channel to SDARS, I opened it up and was surprised by what I saw. The advertisement, featured below, boasted that Volvo has established a "New Standard for What Comes Standard". Among the standard features was Sirius Satellite Radio AND HD Radio. Wow. The two competing services were right there and even on the same line.

volvohd

For satellite radio investors, the news is a mixed bag. The good news is that this Volvo features SDARS as a standard feature. The bad news is that it also features a free HD Radio service. There was a point in time where Mel Karmazin stated that satellite radio "has to compete with free". This has always been the case, but HD Radio does have a leg up on AM and FM in that the consumer perception is that it is something new and special. Some will say that HD is simply the same content with a higher sound quality. This is not entirely true. HD also allows for MORE content. Should HD Radio take hold, they can begin to fill up that additional content. Bear in mind that this will take time. Radio stations as well as satellite are having enough trouble selling advertising on the current content load. Adding more channels that are supported solely by ads is a challenge right now. This phenomenon will not last forever though.

Looking deeper, if Ford is a big benefactor of the troubles being experienced by GM and Chrysler, then HD Radio will benefit as well. The ever changing audio entertainment sector will be interesting to watch in the coming months. Clearly HD is not on a record setting pace in gaining market share, but they have laid out a foundation that makes it viable. Only time will tell if HD will demonstrate success, or impact SDARS substantially.

Position - Long Sirius XM, No Position OEM's