Clear Channel Communications
Traditional-radio broadcasters are facing a slowdown in advertising sales as their listening audience declines. Instead of tuning in to FM radio stations, music fans can listen to their favorite tunes on digital music players such as Apple's
To counter this new listening revolution, Clear Channel has employed iBiquity Digital to convert most of its 1,200 radio stations to digital high-definition (HD) radio, a new format. The privately held technology company, which designs transmission and receiver equipment, is co-owned by several top radio broadcasters, including Clear Channel, Disney
The new technology, according to Clear Channel, will not only allow terrestrial radio broadcasters to deliver CD-quality radio but also offer new products such as subscription-based services to complement the company's reliance on advertising sales. By the end of 2007, digital HD radio will serve an estimated 90% of the U.S. population.
Sounds good, right? Ah, but here are a couple of wrinkles. First, to receive the new HD radio broadcasts, consumers will have to buy a pricey HD-capable receiver, in the same way that HDTV viewers had to shell out big bucks for new equipment. Matsushita Electric
Secondly, selling music downloads is a slim-margin business. For example, of the $0.99 Apple charges for a song, the company pays $0.65 to $0.80 in wholesale costs to the music labels. Subtract credit card transaction fees and site maintenance costs, and the resulting profit becomes razor-thin. What drove Apple's record-breaking quarters last year wasn't the sale of the songs but the 20% profit margins on sales of the iPod. That's a popular piece of hardware the broadcasters don't currently have.
Clear Channel is betting that HD radio will give consumers what they're looking for. If listeners decide it's worth the money to buy the HD equipment to get feature-rich services such as downloading or recording, then traditional radio can keep its consumers tuned in. For investors in Clear Channel, that would be music to their ears.
For more on the developing battle between terrestrial and satellite radio, check out:
- Sirius Impressions
- The Death of Radio
- Are Sirius' Ambitions Premature?
- Clear Channel's Clearer Skies
Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.