In a filing by the National Association of Broadcasters, there seems to be concern that satellite radio threatens the very viability and existence of AM, FM, and HD radio in cars. What a concept. Terrestrial radio is a wonderful service, and does indeed provide great programming, but to say that SDARS will push terrestrial radio out of cars is taking a bit too far is it not?
In thinking more deeply about what the NAB is saying, it highlights a fact that many often overlook. Terrestrial radio has gotten a free ride. Terrestrial pays no subsidies to install radios into vehicles. Not one thin dime is paid to Ford, GM, Toyota, Honda, etc. from terrestrial radio. Cars simply come with radios because that is what is expected. If radio makes billions in ad revenue, none is shared with Ford, GM, etc. In fact, the auto manufacturers get charged to put their ads on radio. Isn't that grand! Ford pays their own money to install a radio into a car, and then pays again to advertise on that radio. Ford provides the platform for radio to be heard, and they get charged for doing so!
The NAB in, an effort to at least get something out of the deal, appears to be on the bandwagon of at least including an HD chipset into all SDARS receivers.
Ever wonder why OEM's are not so quick to adopt HD? I have covered this issue in the past. OEM's get money from satellite radio. HD through this point has refused to give OEM's a revenue share. One can imagine how the negotiations conversation goes:
HD REP Hello Mr. OEM. We would like to see HD Radio installed in all of your cars. We offer wonderful sound quality, and great programming all in a state of the art digital format. Consumers want digital, and you can give consumers what they want by installing HD. The best news is HD Radio has no subscription fees, so consumers get it free.
OEM REP Sounds good. It will take some time to add HD chipsets to the assembly line though. Lets talk about the installation subsidy.
HD REP Ummmm.... what installation subsidy?
OEM REP Well, we offer satellite radio in our cars, but we don't do it for free. This is a business MR. HD Rep. We have trouble enough making a profit in any given quarter. You can't expect us to absorb the cost of your business desires.
HD REP Well, Ummmmm, yes, but consumers will want this great digital service that is free. HD is in it's infancy. We can't subsidize each installation. It would bury us before we get started!
OEM REP We understand that. We think you have a fine product. Tell you what. We'll waive the front end subsidy for a nice revenue share arrangement on the advertising on the back end. That will let you build your business, and in the end we will all profit.
HD REP But advertising is how we make money. We can't give up that kind of revenue. Did I tell you that HD Radio is digital, and that consumers will love it?
For decades terrestrial radio has had a free ride in cars. The radios are simply there, generating dollars for the radio companies, and nothing but expenses for the OEM's. Things have indeed changed. OEM's seem unwilling to give HD radio a free ride, and perhaps they are right in playing hard ball.
Media has evolved in a major way over the past decade. Terrestrial radio has been slow to see the impacts. Terrestrial radio wants to stick to the status quo. What they are forgetting is that consumers have changed. The old business plan is no longer viable. Terrestrial radio needs to change with the times. The free ride on music royalties is the common subject we are all familiar with. We need to also see the free ride that terrestrial gets in the dashboard.
Terrestrial has a competitive advantage in royalties, OEM installations, and price. One would think that with all of those advantages, that they would be a bit less worried.
AM and FM disappearing from dashboards? Not any time soon. However, don't look for cash strapped OEM's to keep financing everything that comes along either. If HD is that great, then perhaps it is the mechanism where terrestrial radio can maintain a presence in the decades to come. However, by the time they figure all of this out, the Internet will be in the dashboard as well.
Position - Long Sirius, XM.