AI
IBOC Digital AM and FM Technology Launch
Transcript of NAB 2002 Press Conference
NAB 2002, Las Vegas, Nevada (April 8, 2002)
David Salemi:
I’m very delighted that so many of you were able to join us today on this special occasion, which marks one of the most important milestones of radio broadcast history. I’m Dave Salemi, Vice President of Marketing, for iBiquity Digital Corporation. It’s my pleasure to welcome you this morning to our press conference announcing the official launch of IBOC AM and FM broadcast technology.
Let me take a moment to go over some show logistics. In the back of the room, there are press kits, which you are free to take. Also press releases have been posted to our website at www.ibiquity.com. As well, there are refreshments at the back of the room, help yourself.
iBiquity’s booth is located at L-2475, as you’re coming across from the Hilton into the radio hall, we are right there.
We have prototype demonstrations in our booth from several receiver-manufacturing partners: Kenwood, Visteon, Harman/Kardon, and JVC, receiving live broadcasts from Las Vegas stations, KLUC-FM and KSFN-AM.
Our president Bob Struble will be on a panel tomorrow, Going Digital to IBOC, hosted by Paul McLane, editor of Radio World, tomorrow morning at 10:30am.
iBiquity will also present four technical papers. Information is provided in the media advisory, located in the press kit.
Following our press conference today, you will have the opportunity to meet with our partners, Harris, Broadcast Electronics, and Nautel, on the exhibit floor, showcasing commercial IBOC Exciters now available to Broadcasters. As you’ll hear during this press conference, IBOC for broadcasters is now a reality.
As many of you know, this has been an extensive effort, supported by a number of industry groups. This unprecedented support has been critical to the success that is being celebrated today. It will be equally valuable as IBOC is introduced to the listening public. As in the past, iBiquity will continue to lead a coordinated approach, supporting the commercial launch of IBOC with members of the panel and others playing an important role in this process. During today’s press conference, we’ll ask each of our participants to highlight their role in the rollout of IBOC digital AM and FM. At the end of our discussion, you’ll have the opportunity to ask questions.
I’d like to begin our program this morning by introducing Bob Struble, iBiquity Digital’s President and CEO. Bob has been instrumental in the development of IBOC. First, in his role at CBS, where he headed up early efforts of USA Digital Radio, and later, by completing the merger with Lucent Digital Radio, to form iBiquity Digital. Bob’s leadership is one of the key reasons that we are here today celebrating the launch of IBOC digital AM and FM broadcasting and it is my pleasure to welcome him to the podium.
Bob Struble:
Thanks Dave.
In his introduction, Dave mentioned a few of the key points that I would like to highlight today.
First, as demonstrated by its availability on the show floor today, IBOC is now a reality.
Second, that this successful launch would not have been possible without many companies and industries coming together around a single solution. Because of this unprecedented cooperation and support, we are ready to deliver a technology that will greatly benefit each and every one of these industries, and perhaps more importantly, the listening public.
And finally, I’d like to address our plans to build on this success to seamlessly and rapidly introduce digital radio to the American public.
Let me begin by asking Jeff Mendenhall, Vice President of Advanced Development, of Harris Corporation, John Pedlow, President and CEO of Broadcast Electronics, and Scott Campbell, Vice President and Chief Operating Officer of Nautel to stand.
These are the companies responsible for getting IBOC exciters on the show floor and the prime reason we are welcoming a new era of broadcasting today. Thanks guys, and behalf of all of us at iBiquity, we know you will have a great show and please sell a lot of stuff.
In addition to the commercial availability of IBOC exciters, IBOC has recently crossed another important milestone. Over the weekend, the National Radio Systems Committee, the industry standard-setting body, jointly sponsored by the NAB and the Consumer Electronics Association formally endorsed AM IBOC, and recommended that the FCC authorize the technology for daytime use. The report noted, “IBOC offers the chance to revitalize AM broadcasting with its FM quality stereo reception, and improved immunity from noise and other impairments typical of AM broadcasting today.” The NRSC urged the FCC to move forward immediately with the approval of AM IBOC. The NRSC stated in its report that “by the FCC authorizing the digital services for daytime only, AM listeners will immediately derive the benefits of improved quality and durability with minimal potential of additional interference.” We are planning additional tests with the NRSC for nighttime operation, with the goal of obtaining an endorsement of nighttime later this year.
With the continuing support of the NAB and the CEA, and others who have seen the benefits of IBOC, we are fully confident that our good friends at the FCC will indorse IBOC this summer.
You know, despite all of the recent discussion of new media, one fact is often forgotten. And that is, radio is still a fabulous industry. AM and FM radio today still has unprecedented reach, with 95% of the American public tuning in to radio each week. This is due in no small part to radios unmatched ability to address local concerns, tastes, and needs. Throughout their history, radio broadcasters have demonstrated their ability to address these needs in their programming and have consistently evolved to meet changing tastes. We believe that one of the most important challenges that radio broadcasters face in keeping this industry so vital is a technical one. A challenge to offer the level of quality and interactivity that a generation raised on digital technology has now come to expect. Through the new capabilities that are being brought to market today, I am confident that broadcasters will continue to meet their audience’s needs with even greater success.
Beginning early next year, consumers will be able to purchase a new generation of IBOC-equipped radios, offering CD quality sound on the FM band and FM-like sound on the AM band. In addition, they will enjoy enhanced reception without static, hiss, fades that have challenged radio since its inception. And for those who do not immediately buy digital radios, they will continue to have access to analog AM and FM, because IBOC is designed and has been proven to work seamlessly in conjunction with the existing analog transmissions. IBOC not only offers this radically upgraded audio quality and reception, but also enables new wireless data capability, which will enhance the experience of all listeners.
Throughout its history, localized information has served as a key differentiator for radio broadcasters and will continue to do so. Nearly all stations depend on a mix of local news, traffic, weather, sports, and business coverage to serve their audiences. While the specific mix may vary from station to station, we believe IBOC will enhance all of these services. Through its ability to transmit information such as data and text, broadcasters can now share real-time information throughout the day, without interrupting their regular broadcasts. Something as simple as displaying the artist and song title, or the speaker featured in a call-in discussion can have a significant impact on attracting and retaining listenership. How about customized and on-demand traffic, weather, or headlines? All this and more will soon be available through wireless data transmitted in conjunction with the station’s audio. Advertisers are equally appreciative of a station’s local focus, as it has allowed radio to deliver targeted audiences with unmatched precision. Imagine now the benefits to advertising effectiveness and to a broadcaster’s bottom line, offered by the combination of radio’s strong demographics and the interactivity offered by wireless data. Information for contacting and acting on a specific ad will soon be displayed in conjunction with its broadcast in order to dramatically increase overall effectiveness. Over time, expect to see the development of new receivers that can capture this information for later recall as well as communicating buy orders directly to the advertiser, all at the touch of a button.
The scope of these benefits against their minimal cost might seem too good to be true, but this is the reality that we welcome and are celebrating today. One reflection of the strength of IBOC’s value proposition is the significant long-term support that it has received from the NAB and the CEA. We thank Eddie Fritts and Gary Shapiro (who should join us shortly), the presidents and CEO’s of these great organizations for that critical support, and for joining us today.
In addition, broadcasters themselves have demonstrated their commitment to iBiquity through equity investments by fourteen of the industry’s twenty largest broadcast groups. These groups have all supported the development of IBOC because they understand the importance of bringing digital technology to consumers, both to improve their service and to position themselves against new competitive threats.
John Dille, President of Federated Media and current Chairman of the NAB Radio Board, joins us today, representing radio broadcasters.
We also recognize that broadcasters alone cannot ensure the success of IBOC, and have tried to work closely with a number of other industry groups to ensure widespread consumer adoption. Consumer introduction of IBOC-equipped receivers is schedules to begin at next January’s Consumer Electronics Show, here in Las Vegas. You all may know that during the most recent CES, just three months ago, leading consumer electronics manufacturers, Harman/Kardon, JVC, Kenwood and Visteon, showcased prototype IBOC receivers using chip sets developed by Texas Instruments. Also at CES, we announced agreements with Ford and Visteon demonstrating critical support from the automotive industry for IBOC. In the past few weeks, we have announced that Alpine and Clarion have joined the growing list of companies licensing our technology for IBOC radios. And this morning we issued a press release announcing the support of IBOC by prominent retailers Crutchfield, Good Guys, Tweeter, Ultimate Electronics and the Progressive Retailers Organization.
Joining us today from the retail side, we have David Workman, President and Chief Operating Officer of Ultimate Electronics. To represent receiver manufacturers, we have Bob Law, Vice President of Sales and Marketing for Kenwood, USA, and Hiroakai Takama, Senior Manager of Alpine Electronics. I will introduce each one shortly and ask them to share their thoughts and plans for IBOC digital AM and FM.
One of the key issues uniting all of these groups is their understanding that IBOC receivers will service the digital gateway to the home and auto. Instead of asking consumers to change their current behavior, IBOC offers them the opportunity to enjoy the emerging benefits of the digital revolution, such as telematics and on-demand programming, through a familiar interface, the radio, that has always been an integral part of their lives. One need only look at the rapid adoption of other digital consumer technologies, be it CD’s, cameras, cell-phones, and most recently, and perhaps most successfully, DVD’s, to understand that digital technology is defining the media and entertainment industries in the 21st century. With the launch of IBOC, radio can now claim its seat at the digital table.
Over the coming year we will be working closely with leading manufacturers as well as retailers, to foster consumer demand for IBOC. As part of this effort, we have identified six target markets: New York, Miami, Chicago, Los Angeles, San Francisco, and Seattle, to focus the initial launch of IBOC. With each of these markets, we are working closely with all stakeholders: automakers, broadcasters, manufacturers and retailers to ensure that all is in place for a successful roll out. We will certainly hear more of this in the coming months, so stay tuned.
Let me now continue, by introducing someone who needs no introduction in these halls. Eddie Fritts began his 20th year as President and CEO of NAB this fall. During this time, NAB has become one of the most respected and effective lobbying organizations in the country. As a former owner of a group of radio stations in the mid-south, Eddie recognizes the value of local broadcaster's involvement of local broadcasters in the nation’s capital. Eddie has been a great and important friend to iBiquity, and it’s my pleasure to welcome him now to the podium.
Eddie Fritts:
Well we are very excited, needless to say, that we are rolling out IBOC at the NAB show. We think it’s appropriate and we are supportive, obviously, and have been for a long time. We talked earlier today about the relevancy of broadcasting in our opening remarks and obviously we have not been found wanting because indeed it is, in our view at least, certainly relevant to the consumers of America. If we can improve that, we can offer better quality radio through IBOC and iBiquity. We think that it will validate us to the broadcasters, who are on the cutting edge, that we are not an old technology, and that radio is for tomorrow’s listener, and we are very proud of that. We think that iBiquity has it right, they are not using additional spectrum, they are able to conform this miracle, if you will, within the same allocated spectrum that radio has, and that is very important when you deal with government regulators and legislators who understand the importance of spectrum. So I think that is really terrific. And the second item that is very good about this process, to me, is that it is going to use, and will not make obsolete, your existing radio. We can have an orderly transition, and we can move forward, and existing radios will continue to “hear” radio, not as good as the IBOC, but they will be able to so that they can make that transition at the natural pace of the consumer. We also think that it is important that broadcasters, as they adopt IBOC, would be able to look at new opportunities for business. And in today’s climate, anything that provides an opportunity for business is going to be welcomed by local radio stations. We also think that it provides us the ability to push back on competitive threats, if you will. We know that the world is going digital. We know that cable, satellite, telephone companies, and computers are all moving into the digital ring, or are already there, for all intensive purposes. Television is moving into the digital arena and for radio to sit back and not have an avenue to be able to step forward, I think would certainly be a tragedy. We are very encouraged and enthusiastic about IBOC and iBiquity and in moving forward, and we think that when the consumer hears about it, they are going to love it and they’ll want more of it. That is something that I think will be very important, at least from the perch I sit, for our industry. So we are very excited about what is going to take place.
Something a little unusual occurred earlier this week. Bob mention that we are participating in the NRSC, The National Radio Systems Committee who are basically charged with making sure that commercial broadcasting and radio today looks at tomorrow and adopts tomorrow’s opportunities. As such, we have some forty people or so, in NRSC. These are highly trained technical people, who are from a diverse group, a combination of CEA designees and NAB designees. As I understand, they came to a unanimous decision. And it is very difficult to get forty broadcasters to agree on anything. But when you get forty technology people, who are also broadcasters who look at this and say “this is terrific” and “let’s go forward”, which I understand is part of this process, it’s important for us to get the FCC to adopt by NRSC recommendations. And we will do anything in our power to help expedite this process at the FCC. I think we have the right climate at the FCC now, we have the right technology, and we have the right product to move forward. So from the NAB prospective, and I know for the radio broadcaster’s job later, or from a radio broadcaster point of view, this is welcome news. This is a great opportunity for broadcasters to step forward and for radio to be able to participate in this digital era. We are pleased that Bob has had the perseverance, if you will, to stick through some tough times to get to this point. You talk about a fellow with a lot of political skills and a lot of negotiating ability, and this is true because his job has not been easy. There have been mountain after mountain for him to climb, and he has done a good job of that. And I think he’s brought us all together at this point in time. I’m excited, and I can’t wait to get out on the exhibit floor and see the products that are available, and to see exactly, and hear, how great this IBOC is going to be.
So, congratulations Bob, and to all of your colleagues, who have worked so hard, for so long to bring this day to us, that we are delighted to be a part of.
Bob Struble:
I hope more of this press conference is good for my ego. And Eddie, there are a few other hurdles to climb, so hopefully we will be able to put those political skills to good use going forward. Thanks as well, your support, and the support of the NAB has been absolutely essential to our IBOC commercialization efforts.
Now I’d like to introduce John Dille, President of Federated Media, and current Chairman of the NAB Radio Board. Throughout his years in radio, John has been very active in industry affairs, in addition to his current role as Chairman of the NAB Radio Board; he previously chaired the Radio Advertising Bureau, the NAB Congressional Relations Committee, and is the former President to the Indiana Radio Broadcasters Association.
John Dille:
Note that I am from Elkhart, Indiana; we are not a test market, at least not currently. Thanks Bob.
When I first heard about digital broadcasting, I thought this was going to be a marketer’s nightmare. Because when we first started talking about it, it was Eureka 147. Without quarreling with the technical aspects of it, I am sure that is excellent, it is the European standard and so forth. But for broadcasters in this country with well-established brands, if you will, the idea of moving to a whole new portion of the band was, to me, a nightmare. Well, thanks to Bob and his folks, and many others, IBOC has turned into, at least as far as I am concerned, a marketer’s dream. We don’t have to do anything, that’s what it is, in-band, on-channel. It’s a simple thing. I’m concerned that all these boxes and things are finished; I’ve got to please my listeners and convert it to money, and stay competitive. And that’s what this does. To me, it’s sort of a digital thermos bottle. How does it know? I don’t care whether it’s hot or cold, I don’t care whether it’s digital or not, it works. And it’s a good quality signal, and that’s a good thing. It provides us a seamless transition to keep our listeners happy, and keeps us competitive.
So Bob, let me just conclude by saying, get out your order book, I’ll deal today.
Bob Struble:
Guys in the front row, he’s your man, we’ve got our business development folks in the back, so John Dille, I think that was just an order. I hope so anyway.
Thanks John.
I am now honored to introduce Bob Law, who is the Senior Vice President of Sales and Marketing for Kenwood USA. We started working with Bob and Kenwood in 1998, and in May of 1999, we announced Kenwood was the first receiver manufacturer to join us in bringing digital AM and FM radio to consumers. Over the years, Bob has been a great friend to iBiquity, we have called on him many times to run ideas by him and to gain insight into the consumer electronics industry. Kenwood is licensing our technology for a new line of digital after-market and home receivers that they plan to launch at the Consumer Electronics Show in January 2003.
Bob Law:
Thank you Bob.
You know, it wasn’t so many years ago that one of the most important specifications we published about our products was the tuner specs: sensitivity, selectivity, those types of things. In those days consumers always questioned the tuner performance. Well, for the past few years, I think they’ve come to take that for granted, and it really is a seldom-asked question anymore. And from a sales side, I think complacency for the product like that is not good for sales or good for our industry. We are very excited about the attention that we think digital radio is going to bring back to the category, and about the excitement it’s going to rekindle in the performance of the tuner section of our products and in radio in general. So, we are aggressively working with iBiquity with some of the digital content people, and so on, as we look for new ways to put this technology into our product. It’s been mentioned that we will be introducing hardware to the market in January 2003 at CES in both the home space, and the car space. I think that we look for this as a major opportunity and a major area of growth for us as we move forward. We’ve got significant engineering resources working on it within our company. And have made a really major effort as we move everything to digital. We have either stopped production, or dramatically reduced production probably on every other category of analog product within the consumer audio space. And radio remained one of the last that was going to convert to digital. I think that in 2003 probably 95% of our product line will be digital, and our digital tuners will now be part of it. So, we’re very excited and have enjoyed working very much with the iBiquity team.
Bob Struble:
Thanks Bob. The assistance you have given us has been absolutely critical.
Our next speaker is Hiroakai Takama, of Alpine Electronics. As I mentioned earlier, two weeks ago, Alpine announced it is licensing our technology for integration into receivers for the after market and for automotive manufacturers. Alpine is a tier one supplier of automotive electronics to BMW, Daimler-Chrysler, Ford Motor Company, Honda, Mercedes, and other leading automakers.
Hiroakai Takama:
Good morning ladies and gentlemen. I am happy to have the opportunity speaking in front of you today.
First of all, with Alpine’s ongoing development of multimedia platform concept, we are excited about digitalization of AM and FM radio band. And we think iBiquity’s IBOC technology is the final step in realizing a 100% digital media platform for mobile electronic products. We are looking forward to introducing leading edge radios that will receive IBOC broadcasts in 2003.
And finally, we are very pleased to be one of the first manufacturers to market with this significant technology.
That is all for me, thank you.
Bob Struble:
Thank you.
As I mentioned, to represent the consumer electronics retailers today, is David Workman, President and Chief Operating Officer of Ultimate Electronics.
Ultimate Electronics operates 46 consumer electronics stores in the Rocky Mountain region of the country under the brand names of Soundtrack, Ultimate Electronics and Audio King. David is also a board member of the Progressive Retailers Association, a 15-member retail industry trade association.
David Workman:
Well, speaking from the retail community, I couldn’t be more excited about a new technology to support the audio arena. We have had our share of new technology introductions and over the last few years, obviously, digital has been the driving force in those new technologies. I don’t know what Bob did, but now we have a new game to play where we don’t have competing standards, we don’t have a lot of confusion for the consumer. What we have is just a clear benefit and technology which we can take forward into the consumer marketplace.
We look forward, from the retail side, to work both with our manufacturing partners, as well as the local station groups, as we are a very large advertiser in the radio medium, to producing “consuminars” (consumer seminars) in those local markets to where we could get product in front of the consumer. With the track record that other digital products have had, we expect a very rapid adoption on the part of the consumer, assuming our manufacturing partners support us with product and the station groups support the local broadcast with digital signals. So, we’re very excited about it and look forward to a very prosperous couple of years ahead.
Bob Struble:
Thanks.
We were expecting, and still are expecting, Gary Shapiro, the head of the CEA, to stop by, he had another commitment.
Rather than wait for him now, what we would like to do is open it up for questions. Eddie’s got another engagement at 11:30, so, if you have questions for him, you might want to get them out of the way first. And I’m not sure if we have phone-in capability, but we’d like to take the questions from the floor here first. I guess we probably want you to step to the mike and read the questions there, because I think we are recording.
Why don’t you say who you are, too, as you ask?
Question One:
Hi, my name is [Marge Costello], CE Online News.
If I could address this question to the folks from CE hardware and retail community: Dave, you said that there wouldn’t be confusion among consumers and Bob, I know that Kenwood is supporting Sirius Satellite Radio, and Alpine is also involved in support for XM Radio right? Don’t you think that there will be some confusion in the mind of the consumer with all of these digital radio systems? I guess that’s a broad question, and secondly, as two manufacturers and retailers supporting satellite radio, how are you going to draw a distinction between what iBiquity wants to launch, and what you are supporting in the satellite radio field?
David Workman:
I’ll take the first shot.
I think that satellite radio companies really are marketing choice, channel count, but it really is a digital story. And obviously, iBiquity is marketing digitalization of the local stations that we are all very familiar with. The key, I think, in terms of the confusion statement that I mentioned, is that you have one standard in the market. Customers freeze up, basically, when they think that they can make a wrong choice relative to a digital product. And here, we are going to have one platform that will basically convert, seamlessly, the local market broadcasters over to a digital standard. So, I think that satellite radio, actually, I see these two products working very compatibly with each other, expanding the consumer awareness of digital broadcast. And one, obviously, is being marketed more on choice, but with a monthly fee, and the other, of course, is the free radio that we have known and loved for years. But, the fact is, is that it’s digital, and of course Bob and Hiro here will do the best they can to make sure that it’s seamless on the product side, so that the customer doesn’t have to go jump through hoops.
Bob Law:
I think that from our standpoint as a manufacturer, our job is to deliver the pipe, and then the consumer has to decide what they want to listen to. I think as a manufacturer, we absolutely believe, and I personally believe, that there is a tremendous value to local radio and what that is going to continue to deliver in terms of value to the consumer. And we think that there is definitely a market for both, but many consumers are going to want access to their local information and their local entertainment, and I think this just gives the local, terrestrial, broadcasters an equal footing with the satellite people in terms of the ability to deliver the content and digital quality.
Hiroakai Takama:
First of all, I think satellite radio and digital IBOC will coexist very well. And, I think we need effort, marketing effort, for making a clear understanding in the consumer: What is satellite radio and what is IBOC radio?
Question Two:
Yes, I have a question about what needs to be done to get radio stations signed in order to do broadcasts that would be received by the IBOC. Eddie, or anyone else in the panel who wants to talk about what the radio station has to do to get it running, and how much that costs.
Bob Struble:
I can take that one.
First of all, it’s a whole lot easier than television, which a lot of broadcasters are familiar with. I’ll give you cost figures, and I’ll give you what is involved. You see those three boxes over there on the table; those are the IBOC exciters, which will be marketed by our three manufacturing partners at this show. That is the bare minimum equipment that the station would need to go digital. And what else they might need depends on really, what their infrastructure is. We have used a range of cost for a typical station. At the low end, that would be around $30,000, at the high end, something like $200,000. We believe a fair average is about $75,000. So, again, to draw the comparison, tens of thousands of dollars for a radio station versus millions of dollars for a TV station. And the reason for that is because on TV you have to basically turn out the whole studio. You need new cameras, you need new studio equipment, you need new antennas, you need new towers, you need everything. With IBOC, you roll in, what we have done at our stations, twenty across the country that we have tested on, you roll in two refrigerator-sized racks that would fit in that corner over there, you plug them into the existing equipment. And three days later, or a week tops, you’ve got a digital radio station. That’s because we reuse the existing equipment.
The range is, of course, dependant on what you have. If you have a have a 1950 Gates tube transmitter, and there are still a lot of those out there, that will not pass a digital waveform, you are going to have to buy a new transmitter. If you bought something in the last ten years, odds are it is linear, odds are it is solid state, you’ve got a little bit of headroom, you probably would be just buying an exciter and some ancillary equipment, and be it the lower end of that range. So we think it, from an economic, and sort of, ease-of-transition standpoint, presents the broadcasters a much more effective and easy transition than that which we have seen with television.
Question Three:
And can you talk about; have stations already started doing this? Or when you would expect people to start?
Bob Struble:
Well, we have tested, with our prototype equipment around the country, as I mentioned, probably twenty different stations, commercial stations, have broadcast IBOC as part of the NRSC test program. These guys are just getting ready to sell exciters today, so, commercially no, no one has bought them yet. What we anticipate is that in the second half of this year, you will see broadcasters in those six target markets begin to light up stations. So, we would expect by the end of this year to have a fair penetration in at least those six key markets, and we expect some others as well.
Question Four:
Good Morning. [Gary Merson], HDTV Insider Newsletter. I have two questions…
How much initially will the cost of the IBOC technology add to the price of car as well as home receivers?
And my second question is; is the digital signal more robust in terms of reach and also in intercity, than the analog counterpart of the given station?
Bob Struble:
A couple questions there, and I’ll let the others also comment.
On the cost side, what we’ve tried to do, this was based on some experience with Eureka, as John mentioned which was really, continues to be, a disastrous roll out, because of the price of the receivers that were launched. What you see initially is a $100 dollar increment, in terms of cost, on radios going out. So if a radio were to cost $500 with the analog component, expect to pay $600 for the digital one. That will obviously work in some segments, these guys represent them. It will work in a high-end home stereo, it will work in an after market auto stereo, it will work in an OEM auto. It’s not going to work in a Walkman, or a boom box, or a clock radio. Now the good news is that Moore’s law works and ship prices come down. So, you can expect to see, roughly, a halving of those increments over time, so, 100 becomes 50, becomes 25, becomes 10. And then, what you would see is those lower end segments coming in afterward. So the classic launch will be, classically, those early adopter segments who can tolerate that $100 increment.
The second question you asked was, and guys, you can comment as well, the second question, before we get that, is the reach and the robustness of the signal. Two ways to answer that: in terms of robustness, what we define as performance against interference, the IBOC is much more durable than existing analog. We ran a test called the clicker test, which every time a listener heard interference, they pressed a button that was counted up. What turned out is that IBOC is seven times more immune to interference than the existing analog. So you do eliminate the hiss, the statics, the pops, multi-path goes away. It’s much more durable sound.
In terms of coverage, the answer is it replicates the existing analog coverage, and that is all it can do. Not technically, but because of a regulatory reason. We could easily boost the IBOC power, but guess what, then that steps on the station next door. And so, it’s a regulatory question because the band is so crowded, all you can really hope to do is replicate the existing analog coverage.
I don’t know if you guys had more thoughts on cost.
I’ve noticed my good friend, Gary, has shown up, so I’d like to give him a chance to say a few words. First I’m going to give a glowing introduction though.
A key factor in the success we have achieved to date has been the support of the CEA, under the leadership of Gary. Along with Eddie, Gary has been at the forefront of the profound changes that have swept through the media and entertainment industry over the past several years. Their joint work on behalf of IBOC has demonstrated an effective partnership between the broadcast, and the consumer electronics associations.
As President and CEO of the CEA, Gary has been a powerful advocate for the development of new technologies, and a staunch defender of consumer rights, and he is a key reason for the ongoing success of the annual CES show here in Vegas. Within all of these capacities, Gary’s success is due to his ability to build consensus positions that bring together various groups under a single umbrella that result in formative change.
Gary, you have been a great friend to iBiquity for a number of years, and as such it is my pleasure to welcome you to our program this morning.
Gary Shapiro:
Thank you, and Bob, I really appreciate it. I had a pre-existing commitment, a speaking commitment, here, at a keynote speech, so I, the fact that I showed up late only indicates that I had to keep another commitment. But it doesn’t reflect at all the strong commitment that we feel to iBiquity and in-band, on-channel, digital radio.
It’s been a very long haul, and the stirrings in the room, and when the book is written, we’ll talk about how Eddie and I didn’t used to sit at the same table on this issue. But, now that we do, on behalf of the 1,000 members of the Consumer Electronics Association, including dozens in virtually every radio receiver manufacturer, I’m really thrilled to be here to mark this very, very historic occasion.
Manufacturers, there is no question, are extraordinarily excited to see the rollout of AM and FM digital radio broadcasting come together. I’m happy to report, even as many of the nations largest broadcasters and retailers are announcing their support for this launch, major receiver manufactures are building IBOC capable radios for introduction at our 2003 International CES, which will be held here in Las Vegas, in January.
As digital products continue to drive consumer interest in consumer electronics, we believe that retailers involved in this launch have a tremendous opportunity to add a great new category of products to their shelves, and pull customers into their stores. We have been very active in this, as I indicated earlier, in making this dream of IBOC radio become a reality. We have participated in the National Radio Systems Committee with our partners at NAB, and we have brought together the receiver manufacturers working with the broadcasters and the equipment makers to set the standard for IBOC broadcasting. And, as you, I’m sure have heard, just this Saturday, the NRSC voted favorably to indorse iBiquity’s system.
At this year’s CES, Texas Instruments and iBiquity along with five receiver manufacturers demonstrated the first IBOC digital radio receiver chip set. Manufacturers including Alpine, Delphi, Harman/Kardon, Kenwood, Visteon, and several others demonstrated the new chip set at the CES. We expect these manufacturers will be joined by many others in showcasing new IBOC receivers at the 2003 show. Today’s announcement comes as a result of tremendous cooperation and a huge number of partnerships struck by the parties involved. We see an opportunity to expand upon this cooperation and coordination as we maximize the retail market for this technology. It is the consumers who really are going to benefit from this as they experience iBiquity radio. We look forward to the next step in the commercialization process and that’s clearly the launch of the actual receivers, both mobile and home receivers here next January.
Thank you.
Bob Struble:
Thanks Gary, let us continue with questions, thanks for rushing over, too.
Question Five:
[Jim Boyle, Wakovia], formerly First Union.
Mr. Struble, anyone in the top ten radio groups who haven’t committed formally or informally to this?
Bob Struble:
None that I am aware of, Jim. We are working hard and we would expect that you would see, now that equipment is available, that’s clearly step one. What we would expect you to see over the coarse of the summer, would be a series of announcements with broadcaster X and group Y about station A and station B and market Q and market R, getting ready to roll out for IBOC. So, we are working hard on those deals. I can say for sure that all major radio groups have been working hard to evaluate individual stations, what conversion requirements are going to be, what we need to do to move things along, what those costs are going to be, working them into their capital budgets, so we’ve got every confidence.
Scott [Stull], you might want to help me out. Is there anybody in the second ten who said, “No way, forget it”?
Scott Stull:
No, I think everyone at that level is evaluating it at the station level.
Bob Struble:
And our focus Jim, has been, clearly, on those top six markets, and if you do the analysis on who the station owners are in those markets, it’s pretty much, not exclusively, but pretty much our investors, so we have had long and productive relationships with those guys. And working with them on the transition has been a pretty natural evolution.
Jim Boyle:
Well, the top twenty would give you 50% of the industry, so, that gives you a good ramp up.
Mr. Shapiro, do you have any major holdouts in the manufacturers on this?
Gary Shapiro:
I think manufacturers are generally very excited about this. You know, some manufacturers will with any new technology take a wait and see attitude. Some are very good at getting new products to market, and others, you know, want to sell at Wal-Mart, and they may wait a little longer. But, no one comes to my mind who is not excited about the whole concept of this new category.
Jim Boyle:
John and Eddie, do you think this will be launched by the radio groups for offensive reasons, defensive reasons, or both?
Eddie Fritts:
I’d say both, that’s certainly our plan…
(Tape Change)
…it’s here, and it’s a good thing. We’re anxious to get going. We’ve been waiting for a while.
Question Six:
[Leslie Stimson] with Radio World.
Yesterday, the NRSC endorsed the AM IBOC system for daytime use only. Are AM stations going to want a system that is only good for the day?
Bob Struble:
We don’t think it is going to be just for the day. There is what the NRSC said, and we agreed, and concurred, and thought the action they took was appropriate and welcome, was that with the complexities of the AM band at night, more testing was required. So, we’ve got a program right now going on with the NRSC, with some major broadcasters, to do additional testing at night. That’s going on, we hope that the test program will be complete, and we can submit those results and get the issue behind us through the course of the summer. What the NRSC did say though, and we think this was a great vote of confidence, is, rather than bog down the process and wait for those nighttime results, we know we love it in the daytime, we know it represents, I think their words, a revitalization of the AM band. Let us come forward with the daytime endorsement, so we can keep the whole process moving forward both with broadcasters, with manufacturers, and with the FCC, as opposed to waiting for additional data that we are going to need to make a good determination at night. We believe we will have a nighttime system; we just need to do a little bit more testing. I would like to add though, even as we speak, this is the most thoroughly tested system in US broadcasting history. If you would compare it to some of the testing that was done on high definition television, or on low power FM for example, this has been orders of magnitude more testing. That being said, AM is a pretty complicated animal at night, and if we need to do some more testing, we will certainly do so.
Leslie Stimson:
And you think you can get those tests done by the summer?
Bob Struble:
I think it will be late summer, yes.
Leslie Stimson:
And I had a question for Bob Law and Mr. Takama; are you guys also talking with Sirius and XM about producing combined chip sets for combined receivers? So, AM and FM analog satellite IBOC?
Bob Law:
I think from manufacturing standpoint, ideally, to get to the point where we can combine the different technologies and then allow the consumer to make their decision in the case of the satellite folks, as to which one they want to subscribe to, or if they want to subscribe to either of them, and reduce the overall cost of the hardware to the consumer, that would certainly be the desirable direction to go. I don’t think that is going to happen in the near term certainly, there are a lot of things that need to be done to be able to pull this together. But I think that is definitely the objective of most of the hardware manufacturers and in discussions with the chip set providers.
Leslie Stimson:
How far down the line do you think that will be?
Bob Law:
I think it’s really difficult to speculate exactly. My guess would be at least two or three years.
Leslie Stimson:
Mr. Takama?
Hiroakai Takama:
I don’t have pre-ideas when those technologies will be combined in radio. But all of the media is based on digital technology. That is why we can expect good, efficient, combinations of those combining medias in one kind of platform.
Eddie Fritts:
Free over-the-air radio and television broadcasters will not be charging consumers a price for the end product in IBOC to get digital unlike other technologies, which we think is important.
Question Seven:
I’m [Jimmy Sheffler] with the Carmel Group. Bob, I have a couple questions aimed primarily at you, but I’d welcome comments from the other gentlemen.
On a micro and a macro level, who do you see as your main competitors? Micro being other companies, and Macro being other industry sub-sectors?
Bob Struble:
Micro, I never like to say we don’t have competitors, and we never say never, but, one of the key, defining features of our company is it’s clear that there will be a single standard in radio and all of the industry groups and the regulators of the NAB, the CEA, broadcasters, and consumer electronics manufacturers encouraged us, back in the day when there were multiple companies developing IBOC systems to get those companies together. We have been able to do that, so, iBiquity is now here, where before you had a USA digital radio and a [Lucent] digital radio, and further back, a Digital Radio Express. So, in the field of IBOC, we know of no other IBOC proponents. The competitors, on a more macro sense, I think you can ask yourself who are the competitors to radio broadcasters? Clearly if AM and FM radio would cease to be as vital and vibrant and as widespread as it is today, that would be a problem for our company. We don’t view that that is going to be the case, even in the wildest fantasies or predictions, I should say, of the satellite radio guys, a five or ten percent penetration into the radio market would be a huge success. So, if that were the case, and certainly radio broadcasters are working hard to make sure that it’s not even five or ten percent, let’s just hypothesize that that were the case, we still have that other 90 percent which are still listening to AM and FM radio. So, we think that that is a pretty good space. Broader, and farther a field, if you define radio as we do, as mobile information and entertainment, it’s any number of new services that can provide mobile information and entertainment to folks driving around. So, that’s web-enabled phones, that’s wireless palms, that’s pagers, telematics and cars. What we’ve consistently said to broadcasters is that the world is going digital, it’s probably important that you upgrade your technology to not only compete against those new competitive threats, but also to get your foot in the door of some important new revenue streams.
I hope that that was responsive.
Jimmy Sheffler:
I think it was.
As you took on your new position, August of two years ago, since that time, what would you say has been your single foremost challenge?
Bob Struble:
It has been, for awhile, I mean, after the merger got done, which was a challenge in itself, and of course, we had to integrate the companies, which is always challenging, but happily, in this case, went rather successfully. It’s all about commercialization. We have technology that we know works. It’s been tested on twenty stations over the last three years, we’ve got all kinds of data and mounds of public record that high, that says it works. But, it all works on a $30,000 prototype receiver, and I don’t think Bob Law is going to sell a lot of $30,000 receivers. So, we have needed to take that $30,000 receiver down to a $30 chip. We crossed that first milestone at the CES show when we showed our credit card sized development module working on a bunch of different radios, and we are well on track to make that happen in the near term, as we mentioned, CES next year with our manufacturing partners. For us, it’s really been not particularly sexy, but keeping our nose to the grindstone and executing on a commercialization challenge.
Jimmy Sheffler:
Okay, and my final question is, when you transition from analog to digital, typically, the bandwidth is enhanced considerably. How do all of the players in this field deal with the enhanced bandwidth?
Bob Struble:
In this case, remember again, we are using the same spectrum, so, the fact that digital performs better in a given bandwidth is important to us, but in the initial stage of the technology hybrid, where you have the analog simulcast, you don’t get any more bandwidth. What you are doing is recapturing unused portions of the spectrum, currently occupied by the analog broadcast. So, the fact that digital is such a good performer, has enabled us to pull off that somewhat challenging feat of introducing an entirely new service in the same existing spectrum as the analog, so you really don’t get that benefit initially.
Question Eight:
[Paul McLane], from Radio World. I have a question for John Dille. Perhaps we saw the historic first purchase order for IBOC placed today, but for your group, and others in the industry, if we use iBiquity’s numbers of a rough average of $75,000 for hardware and additional licensing fees, which we haven’t discussed…
Bob Struble:
That’s in that number Paul.
Paul McLane:
That’s in the number, okay. So, $75,000 for an average station, some more, some less. Our industry doesn’t have a great record for adopting expensive technology without a mandate from the FCC. The AM stereo debate comes up all of the time in that regard. So, is this money in your group’s budget, and the budgets of radio stations around the country for the next two years? And, in a time where the economy has been down, and radio revenue has been down, are groups really prepared to spend that money now, to adopt it in time for these receivers to actually use this IBOC signal?
John Dille:
I think so. I mean, for the reasons you cite, and others, it will likely be staged in. But, we’re ready to go. And we will do a portion this year, a small portion, this year, and then put it in the budget for this fall for 2003, and so forth. And I think there will be a significant number of others, and I think that the top twenty groups are into it.
Bob Struble:
Just for comparison purposes, Paul, I’ll probably mess these numbers up, but we can get you the right numbers. What our business plan calls for and what is necessary this year is to get, roughly, 100 stations on the air in 2002. There are 13,000 radio stations out there. 100 stations out of 13,000, I think, is less than one half of one percent. In terms of cost, if you look at it in a revenue basis, if I use the 18 billion dollars of radio revenue, and you do 100 stations times $75,000, I think you come to a figure that is something like point zero one percent of industry sales. So, we would argue that as an initial rollout, and as insurance against some of this new competition, we think that makes quite a reasonable bet. Actually, if you compare them to some of these large numbers, absolutely trivial, in terms of cost.
Question Nine:
Good morning. My name is [Ronald Bakbrosen], I am from Brazil, and I represent the Brazilian Association of Broadcasting and the Brazilian Society of Engineering. I’d like to ask you one question. In the ITU, the International Telecommunications Union, there was an agreement for the development of a common digital system for HF. I’d like to know what iBiquity thinks about development of a common receiver for the IBOC and HF? There are two receivers for separating IBOC digital AM and FM and one receiver for HF digital transmission.
Bob Struble:
When you say HF, you are speaking of the Eureka system?
Okay, let me first update the group on some of the international activity.
The International Telecommunications Union, which in many ways serves as the FCC of the world, has endorsed both our AM and FM systems, as worldwide standards. Note carefully, not the worldwide standard, but as a worldwide standard. This basically means that any country in the world can adopt IBOC as their broadcasting technology, and they will have the full support of the ITU in doing that. There are also other standards out there. Eureka 147 is the European system, which has been up and operating, I think now, for five or six years. There is also a system for shortwave created by the Digital Radio Mondiale. And, all of those are basically digital radio standards.
Will there be integrated radios out there? Our answer would be to let the marketplace decide. If consumers or manufacturers or automakers demand that integration, then we would do it.
A couple stats on Eureka, at least the last I checked, Eureka has been around for six years in Europe. They have sold a grand total of 50,000 radios, 50,000. So the question that we get most on Eureka, and we’ve got good friends there, is, with Eureka such an abject failure, how is it that digital radio is going to be successful in the States? And we think that the advantages of using the same spectrum, the advantages of reusing the existing infrastructure, the advantages of reusing content, will quickly answer that question. But, if Eureka were to take a major turn, and somehow go through the roof, and become wildly successful, yes, I think you would see manufacturers demanding that we build combined radios, and we certainly would endeavor to do that. At this point, we see no reason to consider that. We have enough to worry about getting our own stuff out there, without trying to be integrated with a system that sold about 50,000 radios.
The DRM, by the way, has not come out with their technology yet, so there is nothing yet to integrate. But without losing focus, we believe the international market is extremely important. Brazil is a fantastic example. And our basic premise is that anywhere that there is AM and FM radio, which is everywhere, IBOC is a very viable product. And the same arguments that we have used in the States, a cheap conversion, an easy conversion, a seamless conversion, market-driven conversion, we think those apply in other markets as well.
Question Ten:
I realized I forgot to identify myself on my earlier question. [Katherine Lewis] with Bloomberg News.
I just wanted to clarify, when we were talking about the costs to radio stations, is there any licensing component to use the IBOC technology?
Bob Struble:
Yes, there is a software license, which is paid to us for the use of the system. It’s a small number, based essentially on the station’s FCC fee, so the stations which will benefit more and which are most able to pay, will pay a little bit more. The stations which are non-commercial, or smaller stations will pay a little bit less. If you would, I will give you some average numbers.
There is a choice that the broadcasters can make. If they want to pay us once, full up license, that’s about $15,000, on average. Again, it goes up and down, depending on your station classification. So, it’s like buying your accounting software. If broadcasters, being a somewhat cash-flow-sensitive lot, would like to pay us over time, they can do that as well. And I think those numbers are about $2,500 a year, for a period of ten years. So, we’re not talking about a huge amount of dollars. The major expenditure for a broadcaster on this goes to our friends seated up here, and that’s on the capital side.
Katherine Lewis:
And can you talk about the FCC process? How important is action by the FCC to the successful launch of this technology, and when do you expect some kind of move?
Bob Struble:
There are arguments that can be made, that say because we are using the same spectrum, and because there are no new allocations, and no new licenses required, there does not need to be FCC action. We don’t support that view, but we believe that because radio has such an important position in the national heritage and in the infrastructure of the nation, that the FCC needs to act and set a standard for IBOC technology. It is inconceivable that you could start driving in Washington and have your radio not work when you got to New York because there were different standards out there. So, we believe that the FCC has a responsibility to do that, and we believe that they will.
What we think is going to happen at the FCC is a two-step process. The FCC has already received the FM report from the NRSC. They put that out for public comments, there have been reply comments. The story was universally positive. Everybody basically says, “Yes, we like it” and “Move forward”. That same process will go forward now with AM. The FCC will get the AM report, we believe, next week. They will put that out for comments, everybody in the whole world can say what they think, and then there will be reply comments. And what we expect to happen at the end of this summer is that the commission will come out with a ruling that says: it’s digital, it’s IBOC, and it’s iBiquity, and it’s okay to start moving forward. The last the commission spoke publicly on this, at least on the record, they were considering other options: new band solutions, other things. We expect them to put that all to rest this summer and say, “Yes, it is in band, and it is iBiquity”. We also then, expect them to take a little bit more time and consider the detailed technical rules, which need to be in place to set an actual standard that will go through the same comments and reply comments period, and we would expect by late this year, more realistically, early next year, you will see the final adoption of a standard. So, that’s the plan.
Question Eleven:
Hi Bob. [Mark Roberts, Wachovia Securities]
You’ve been very cautious this morning about setting expectations for the rollout. It occurs to me in looking…
Bob Struble:
My guys would say I’ve been wildly optimistic, but thank you.
Mark Roberts:
This may sound a little bit out of left field, but if you look at other communications networks that involve an infrastructure deployment and subscriber equipment like digital satellite, or digital TV, or cellular, the capital cost of the infrastructure per radio station is quite marginal, relative to those networks. In addition, you are not charging the subscriber fee on the subscription side. So, looking at the mass-market adoption rate of those technologies, it seems to me that this could move much faster.
What is the production capacity per year of your partners per radio station? If the adoption rate accelerates faster than you expect, how many stations per year could deploy the new technology, and how big could the waiting list get?
Bob Struble:
You might want to ask our manufacturing partners, but the good news is that this gang has been through this with high definition television, and there was a substantial ramp up of production in the early stages of HDTV, I think that production is still around, and if our estimates were low, let’s say, and instead of converting 100 stations this year, we converted 1,000, my take would be that this year would be tough because we are still in the first generation of equipment. But, certainly into 2003, we would expect that there could very rapidly be a ramp up of production and a meeting of that need. So, I think this is possible, Mark, if there is a tremendous upside in the plan, let’s say, we have every confidence that on the transmitter side, which is where the bottleneck will really be, those guys will do what they need to do to ramp up production. You know, you’ve got 13,000 stations out there if my numbers are correct, I think we sell, guys in the industry, about 1,000 transmitters a year, 800 to 1,000, something like that. So, we have always assumed something like an eight to ten year transition period. If that were to get done in four to five years, instead of eight to ten, I would hazard a guess that these guys would be able to meet that need.
Anything else?
(Seeing none.)
Thanks for coming, thanks for participating in what we hope is a historic event, and for any broadcasters in the audience, go out and buy!
I will mention again, you’ve got exciters over there, this is the actual commercial IBOC equipment, take a look, take pictures, ask questions.
Thanks everybody!
Transcript of NAB 2002 Press Conference
NAB 2002, Las Vegas, Nevada (April 8, 2002)
David Salemi:
I’m very delighted that so many of you were able to join us today on this special occasion, which marks one of the most important milestones of radio broadcast history. I’m Dave Salemi, Vice President of Marketing, for iBiquity Digital Corporation. It’s my pleasure to welcome you this morning to our press conference announcing the official launch of IBOC AM and FM broadcast technology.
Let me take a moment to go over some show logistics. In the back of the room, there are press kits, which you are free to take. Also press releases have been posted to our website at www.ibiquity.com. As well, there are refreshments at the back of the room, help yourself.
iBiquity’s booth is located at L-2475, as you’re coming across from the Hilton into the radio hall, we are right there.
We have prototype demonstrations in our booth from several receiver-manufacturing partners: Kenwood, Visteon, Harman/Kardon, and JVC, receiving live broadcasts from Las Vegas stations, KLUC-FM and KSFN-AM.
Our president Bob Struble will be on a panel tomorrow, Going Digital to IBOC, hosted by Paul McLane, editor of Radio World, tomorrow morning at 10:30am.
iBiquity will also present four technical papers. Information is provided in the media advisory, located in the press kit.
Following our press conference today, you will have the opportunity to meet with our partners, Harris, Broadcast Electronics, and Nautel, on the exhibit floor, showcasing commercial IBOC Exciters now available to Broadcasters. As you’ll hear during this press conference, IBOC for broadcasters is now a reality.
As many of you know, this has been an extensive effort, supported by a number of industry groups. This unprecedented support has been critical to the success that is being celebrated today. It will be equally valuable as IBOC is introduced to the listening public. As in the past, iBiquity will continue to lead a coordinated approach, supporting the commercial launch of IBOC with members of the panel and others playing an important role in this process. During today’s press conference, we’ll ask each of our participants to highlight their role in the rollout of IBOC digital AM and FM. At the end of our discussion, you’ll have the opportunity to ask questions.
I’d like to begin our program this morning by introducing Bob Struble, iBiquity Digital’s President and CEO. Bob has been instrumental in the development of IBOC. First, in his role at CBS, where he headed up early efforts of USA Digital Radio, and later, by completing the merger with Lucent Digital Radio, to form iBiquity Digital. Bob’s leadership is one of the key reasons that we are here today celebrating the launch of IBOC digital AM and FM broadcasting and it is my pleasure to welcome him to the podium.
Bob Struble:
Thanks Dave.
In his introduction, Dave mentioned a few of the key points that I would like to highlight today.
First, as demonstrated by its availability on the show floor today, IBOC is now a reality.
Second, that this successful launch would not have been possible without many companies and industries coming together around a single solution. Because of this unprecedented cooperation and support, we are ready to deliver a technology that will greatly benefit each and every one of these industries, and perhaps more importantly, the listening public.
And finally, I’d like to address our plans to build on this success to seamlessly and rapidly introduce digital radio to the American public.
Let me begin by asking Jeff Mendenhall, Vice President of Advanced Development, of Harris Corporation, John Pedlow, President and CEO of Broadcast Electronics, and Scott Campbell, Vice President and Chief Operating Officer of Nautel to stand.
These are the companies responsible for getting IBOC exciters on the show floor and the prime reason we are welcoming a new era of broadcasting today. Thanks guys, and behalf of all of us at iBiquity, we know you will have a great show and please sell a lot of stuff.
In addition to the commercial availability of IBOC exciters, IBOC has recently crossed another important milestone. Over the weekend, the National Radio Systems Committee, the industry standard-setting body, jointly sponsored by the NAB and the Consumer Electronics Association formally endorsed AM IBOC, and recommended that the FCC authorize the technology for daytime use. The report noted, “IBOC offers the chance to revitalize AM broadcasting with its FM quality stereo reception, and improved immunity from noise and other impairments typical of AM broadcasting today.” The NRSC urged the FCC to move forward immediately with the approval of AM IBOC. The NRSC stated in its report that “by the FCC authorizing the digital services for daytime only, AM listeners will immediately derive the benefits of improved quality and durability with minimal potential of additional interference.” We are planning additional tests with the NRSC for nighttime operation, with the goal of obtaining an endorsement of nighttime later this year.
With the continuing support of the NAB and the CEA, and others who have seen the benefits of IBOC, we are fully confident that our good friends at the FCC will indorse IBOC this summer.
You know, despite all of the recent discussion of new media, one fact is often forgotten. And that is, radio is still a fabulous industry. AM and FM radio today still has unprecedented reach, with 95% of the American public tuning in to radio each week. This is due in no small part to radios unmatched ability to address local concerns, tastes, and needs. Throughout their history, radio broadcasters have demonstrated their ability to address these needs in their programming and have consistently evolved to meet changing tastes. We believe that one of the most important challenges that radio broadcasters face in keeping this industry so vital is a technical one. A challenge to offer the level of quality and interactivity that a generation raised on digital technology has now come to expect. Through the new capabilities that are being brought to market today, I am confident that broadcasters will continue to meet their audience’s needs with even greater success.
Beginning early next year, consumers will be able to purchase a new generation of IBOC-equipped radios, offering CD quality sound on the FM band and FM-like sound on the AM band. In addition, they will enjoy enhanced reception without static, hiss, fades that have challenged radio since its inception. And for those who do not immediately buy digital radios, they will continue to have access to analog AM and FM, because IBOC is designed and has been proven to work seamlessly in conjunction with the existing analog transmissions. IBOC not only offers this radically upgraded audio quality and reception, but also enables new wireless data capability, which will enhance the experience of all listeners.
Throughout its history, localized information has served as a key differentiator for radio broadcasters and will continue to do so. Nearly all stations depend on a mix of local news, traffic, weather, sports, and business coverage to serve their audiences. While the specific mix may vary from station to station, we believe IBOC will enhance all of these services. Through its ability to transmit information such as data and text, broadcasters can now share real-time information throughout the day, without interrupting their regular broadcasts. Something as simple as displaying the artist and song title, or the speaker featured in a call-in discussion can have a significant impact on attracting and retaining listenership. How about customized and on-demand traffic, weather, or headlines? All this and more will soon be available through wireless data transmitted in conjunction with the station’s audio. Advertisers are equally appreciative of a station’s local focus, as it has allowed radio to deliver targeted audiences with unmatched precision. Imagine now the benefits to advertising effectiveness and to a broadcaster’s bottom line, offered by the combination of radio’s strong demographics and the interactivity offered by wireless data. Information for contacting and acting on a specific ad will soon be displayed in conjunction with its broadcast in order to dramatically increase overall effectiveness. Over time, expect to see the development of new receivers that can capture this information for later recall as well as communicating buy orders directly to the advertiser, all at the touch of a button.
The scope of these benefits against their minimal cost might seem too good to be true, but this is the reality that we welcome and are celebrating today. One reflection of the strength of IBOC’s value proposition is the significant long-term support that it has received from the NAB and the CEA. We thank Eddie Fritts and Gary Shapiro (who should join us shortly), the presidents and CEO’s of these great organizations for that critical support, and for joining us today.
In addition, broadcasters themselves have demonstrated their commitment to iBiquity through equity investments by fourteen of the industry’s twenty largest broadcast groups. These groups have all supported the development of IBOC because they understand the importance of bringing digital technology to consumers, both to improve their service and to position themselves against new competitive threats.
John Dille, President of Federated Media and current Chairman of the NAB Radio Board, joins us today, representing radio broadcasters.
We also recognize that broadcasters alone cannot ensure the success of IBOC, and have tried to work closely with a number of other industry groups to ensure widespread consumer adoption. Consumer introduction of IBOC-equipped receivers is schedules to begin at next January’s Consumer Electronics Show, here in Las Vegas. You all may know that during the most recent CES, just three months ago, leading consumer electronics manufacturers, Harman/Kardon, JVC, Kenwood and Visteon, showcased prototype IBOC receivers using chip sets developed by Texas Instruments. Also at CES, we announced agreements with Ford and Visteon demonstrating critical support from the automotive industry for IBOC. In the past few weeks, we have announced that Alpine and Clarion have joined the growing list of companies licensing our technology for IBOC radios. And this morning we issued a press release announcing the support of IBOC by prominent retailers Crutchfield, Good Guys, Tweeter, Ultimate Electronics and the Progressive Retailers Organization.
Joining us today from the retail side, we have David Workman, President and Chief Operating Officer of Ultimate Electronics. To represent receiver manufacturers, we have Bob Law, Vice President of Sales and Marketing for Kenwood, USA, and Hiroakai Takama, Senior Manager of Alpine Electronics. I will introduce each one shortly and ask them to share their thoughts and plans for IBOC digital AM and FM.
One of the key issues uniting all of these groups is their understanding that IBOC receivers will service the digital gateway to the home and auto. Instead of asking consumers to change their current behavior, IBOC offers them the opportunity to enjoy the emerging benefits of the digital revolution, such as telematics and on-demand programming, through a familiar interface, the radio, that has always been an integral part of their lives. One need only look at the rapid adoption of other digital consumer technologies, be it CD’s, cameras, cell-phones, and most recently, and perhaps most successfully, DVD’s, to understand that digital technology is defining the media and entertainment industries in the 21st century. With the launch of IBOC, radio can now claim its seat at the digital table.
Over the coming year we will be working closely with leading manufacturers as well as retailers, to foster consumer demand for IBOC. As part of this effort, we have identified six target markets: New York, Miami, Chicago, Los Angeles, San Francisco, and Seattle, to focus the initial launch of IBOC. With each of these markets, we are working closely with all stakeholders: automakers, broadcasters, manufacturers and retailers to ensure that all is in place for a successful roll out. We will certainly hear more of this in the coming months, so stay tuned.
Let me now continue, by introducing someone who needs no introduction in these halls. Eddie Fritts began his 20th year as President and CEO of NAB this fall. During this time, NAB has become one of the most respected and effective lobbying organizations in the country. As a former owner of a group of radio stations in the mid-south, Eddie recognizes the value of local broadcaster's involvement of local broadcasters in the nation’s capital. Eddie has been a great and important friend to iBiquity, and it’s my pleasure to welcome him now to the podium.
Eddie Fritts:
Well we are very excited, needless to say, that we are rolling out IBOC at the NAB show. We think it’s appropriate and we are supportive, obviously, and have been for a long time. We talked earlier today about the relevancy of broadcasting in our opening remarks and obviously we have not been found wanting because indeed it is, in our view at least, certainly relevant to the consumers of America. If we can improve that, we can offer better quality radio through IBOC and iBiquity. We think that it will validate us to the broadcasters, who are on the cutting edge, that we are not an old technology, and that radio is for tomorrow’s listener, and we are very proud of that. We think that iBiquity has it right, they are not using additional spectrum, they are able to conform this miracle, if you will, within the same allocated spectrum that radio has, and that is very important when you deal with government regulators and legislators who understand the importance of spectrum. So I think that is really terrific. And the second item that is very good about this process, to me, is that it is going to use, and will not make obsolete, your existing radio. We can have an orderly transition, and we can move forward, and existing radios will continue to “hear” radio, not as good as the IBOC, but they will be able to so that they can make that transition at the natural pace of the consumer. We also think that it is important that broadcasters, as they adopt IBOC, would be able to look at new opportunities for business. And in today’s climate, anything that provides an opportunity for business is going to be welcomed by local radio stations. We also think that it provides us the ability to push back on competitive threats, if you will. We know that the world is going digital. We know that cable, satellite, telephone companies, and computers are all moving into the digital ring, or are already there, for all intensive purposes. Television is moving into the digital arena and for radio to sit back and not have an avenue to be able to step forward, I think would certainly be a tragedy. We are very encouraged and enthusiastic about IBOC and iBiquity and in moving forward, and we think that when the consumer hears about it, they are going to love it and they’ll want more of it. That is something that I think will be very important, at least from the perch I sit, for our industry. So we are very excited about what is going to take place.
Something a little unusual occurred earlier this week. Bob mention that we are participating in the NRSC, The National Radio Systems Committee who are basically charged with making sure that commercial broadcasting and radio today looks at tomorrow and adopts tomorrow’s opportunities. As such, we have some forty people or so, in NRSC. These are highly trained technical people, who are from a diverse group, a combination of CEA designees and NAB designees. As I understand, they came to a unanimous decision. And it is very difficult to get forty broadcasters to agree on anything. But when you get forty technology people, who are also broadcasters who look at this and say “this is terrific” and “let’s go forward”, which I understand is part of this process, it’s important for us to get the FCC to adopt by NRSC recommendations. And we will do anything in our power to help expedite this process at the FCC. I think we have the right climate at the FCC now, we have the right technology, and we have the right product to move forward. So from the NAB prospective, and I know for the radio broadcaster’s job later, or from a radio broadcaster point of view, this is welcome news. This is a great opportunity for broadcasters to step forward and for radio to be able to participate in this digital era. We are pleased that Bob has had the perseverance, if you will, to stick through some tough times to get to this point. You talk about a fellow with a lot of political skills and a lot of negotiating ability, and this is true because his job has not been easy. There have been mountain after mountain for him to climb, and he has done a good job of that. And I think he’s brought us all together at this point in time. I’m excited, and I can’t wait to get out on the exhibit floor and see the products that are available, and to see exactly, and hear, how great this IBOC is going to be.
So, congratulations Bob, and to all of your colleagues, who have worked so hard, for so long to bring this day to us, that we are delighted to be a part of.
Bob Struble:
I hope more of this press conference is good for my ego. And Eddie, there are a few other hurdles to climb, so hopefully we will be able to put those political skills to good use going forward. Thanks as well, your support, and the support of the NAB has been absolutely essential to our IBOC commercialization efforts.
Now I’d like to introduce John Dille, President of Federated Media, and current Chairman of the NAB Radio Board. Throughout his years in radio, John has been very active in industry affairs, in addition to his current role as Chairman of the NAB Radio Board; he previously chaired the Radio Advertising Bureau, the NAB Congressional Relations Committee, and is the former President to the Indiana Radio Broadcasters Association.
John Dille:
Note that I am from Elkhart, Indiana; we are not a test market, at least not currently. Thanks Bob.
When I first heard about digital broadcasting, I thought this was going to be a marketer’s nightmare. Because when we first started talking about it, it was Eureka 147. Without quarreling with the technical aspects of it, I am sure that is excellent, it is the European standard and so forth. But for broadcasters in this country with well-established brands, if you will, the idea of moving to a whole new portion of the band was, to me, a nightmare. Well, thanks to Bob and his folks, and many others, IBOC has turned into, at least as far as I am concerned, a marketer’s dream. We don’t have to do anything, that’s what it is, in-band, on-channel. It’s a simple thing. I’m concerned that all these boxes and things are finished; I’ve got to please my listeners and convert it to money, and stay competitive. And that’s what this does. To me, it’s sort of a digital thermos bottle. How does it know? I don’t care whether it’s hot or cold, I don’t care whether it’s digital or not, it works. And it’s a good quality signal, and that’s a good thing. It provides us a seamless transition to keep our listeners happy, and keeps us competitive.
So Bob, let me just conclude by saying, get out your order book, I’ll deal today.
Bob Struble:
Guys in the front row, he’s your man, we’ve got our business development folks in the back, so John Dille, I think that was just an order. I hope so anyway.
Thanks John.
I am now honored to introduce Bob Law, who is the Senior Vice President of Sales and Marketing for Kenwood USA. We started working with Bob and Kenwood in 1998, and in May of 1999, we announced Kenwood was the first receiver manufacturer to join us in bringing digital AM and FM radio to consumers. Over the years, Bob has been a great friend to iBiquity, we have called on him many times to run ideas by him and to gain insight into the consumer electronics industry. Kenwood is licensing our technology for a new line of digital after-market and home receivers that they plan to launch at the Consumer Electronics Show in January 2003.
Bob Law:
Thank you Bob.
You know, it wasn’t so many years ago that one of the most important specifications we published about our products was the tuner specs: sensitivity, selectivity, those types of things. In those days consumers always questioned the tuner performance. Well, for the past few years, I think they’ve come to take that for granted, and it really is a seldom-asked question anymore. And from a sales side, I think complacency for the product like that is not good for sales or good for our industry. We are very excited about the attention that we think digital radio is going to bring back to the category, and about the excitement it’s going to rekindle in the performance of the tuner section of our products and in radio in general. So, we are aggressively working with iBiquity with some of the digital content people, and so on, as we look for new ways to put this technology into our product. It’s been mentioned that we will be introducing hardware to the market in January 2003 at CES in both the home space, and the car space. I think that we look for this as a major opportunity and a major area of growth for us as we move forward. We’ve got significant engineering resources working on it within our company. And have made a really major effort as we move everything to digital. We have either stopped production, or dramatically reduced production probably on every other category of analog product within the consumer audio space. And radio remained one of the last that was going to convert to digital. I think that in 2003 probably 95% of our product line will be digital, and our digital tuners will now be part of it. So, we’re very excited and have enjoyed working very much with the iBiquity team.
Bob Struble:
Thanks Bob. The assistance you have given us has been absolutely critical.
Our next speaker is Hiroakai Takama, of Alpine Electronics. As I mentioned earlier, two weeks ago, Alpine announced it is licensing our technology for integration into receivers for the after market and for automotive manufacturers. Alpine is a tier one supplier of automotive electronics to BMW, Daimler-Chrysler, Ford Motor Company, Honda, Mercedes, and other leading automakers.
Hiroakai Takama:
Good morning ladies and gentlemen. I am happy to have the opportunity speaking in front of you today.
First of all, with Alpine’s ongoing development of multimedia platform concept, we are excited about digitalization of AM and FM radio band. And we think iBiquity’s IBOC technology is the final step in realizing a 100% digital media platform for mobile electronic products. We are looking forward to introducing leading edge radios that will receive IBOC broadcasts in 2003.
And finally, we are very pleased to be one of the first manufacturers to market with this significant technology.
That is all for me, thank you.
Bob Struble:
Thank you.
As I mentioned, to represent the consumer electronics retailers today, is David Workman, President and Chief Operating Officer of Ultimate Electronics.
Ultimate Electronics operates 46 consumer electronics stores in the Rocky Mountain region of the country under the brand names of Soundtrack, Ultimate Electronics and Audio King. David is also a board member of the Progressive Retailers Association, a 15-member retail industry trade association.
David Workman:
Well, speaking from the retail community, I couldn’t be more excited about a new technology to support the audio arena. We have had our share of new technology introductions and over the last few years, obviously, digital has been the driving force in those new technologies. I don’t know what Bob did, but now we have a new game to play where we don’t have competing standards, we don’t have a lot of confusion for the consumer. What we have is just a clear benefit and technology which we can take forward into the consumer marketplace.
We look forward, from the retail side, to work both with our manufacturing partners, as well as the local station groups, as we are a very large advertiser in the radio medium, to producing “consuminars” (consumer seminars) in those local markets to where we could get product in front of the consumer. With the track record that other digital products have had, we expect a very rapid adoption on the part of the consumer, assuming our manufacturing partners support us with product and the station groups support the local broadcast with digital signals. So, we’re very excited about it and look forward to a very prosperous couple of years ahead.
Bob Struble:
Thanks.
We were expecting, and still are expecting, Gary Shapiro, the head of the CEA, to stop by, he had another commitment.
Rather than wait for him now, what we would like to do is open it up for questions. Eddie’s got another engagement at 11:30, so, if you have questions for him, you might want to get them out of the way first. And I’m not sure if we have phone-in capability, but we’d like to take the questions from the floor here first. I guess we probably want you to step to the mike and read the questions there, because I think we are recording.
Why don’t you say who you are, too, as you ask?
Question One:
Hi, my name is [Marge Costello], CE Online News.
If I could address this question to the folks from CE hardware and retail community: Dave, you said that there wouldn’t be confusion among consumers and Bob, I know that Kenwood is supporting Sirius Satellite Radio, and Alpine is also involved in support for XM Radio right? Don’t you think that there will be some confusion in the mind of the consumer with all of these digital radio systems? I guess that’s a broad question, and secondly, as two manufacturers and retailers supporting satellite radio, how are you going to draw a distinction between what iBiquity wants to launch, and what you are supporting in the satellite radio field?
David Workman:
I’ll take the first shot.
I think that satellite radio companies really are marketing choice, channel count, but it really is a digital story. And obviously, iBiquity is marketing digitalization of the local stations that we are all very familiar with. The key, I think, in terms of the confusion statement that I mentioned, is that you have one standard in the market. Customers freeze up, basically, when they think that they can make a wrong choice relative to a digital product. And here, we are going to have one platform that will basically convert, seamlessly, the local market broadcasters over to a digital standard. So, I think that satellite radio, actually, I see these two products working very compatibly with each other, expanding the consumer awareness of digital broadcast. And one, obviously, is being marketed more on choice, but with a monthly fee, and the other, of course, is the free radio that we have known and loved for years. But, the fact is, is that it’s digital, and of course Bob and Hiro here will do the best they can to make sure that it’s seamless on the product side, so that the customer doesn’t have to go jump through hoops.
Bob Law:
I think that from our standpoint as a manufacturer, our job is to deliver the pipe, and then the consumer has to decide what they want to listen to. I think as a manufacturer, we absolutely believe, and I personally believe, that there is a tremendous value to local radio and what that is going to continue to deliver in terms of value to the consumer. And we think that there is definitely a market for both, but many consumers are going to want access to their local information and their local entertainment, and I think this just gives the local, terrestrial, broadcasters an equal footing with the satellite people in terms of the ability to deliver the content and digital quality.
Hiroakai Takama:
First of all, I think satellite radio and digital IBOC will coexist very well. And, I think we need effort, marketing effort, for making a clear understanding in the consumer: What is satellite radio and what is IBOC radio?
Question Two:
Yes, I have a question about what needs to be done to get radio stations signed in order to do broadcasts that would be received by the IBOC. Eddie, or anyone else in the panel who wants to talk about what the radio station has to do to get it running, and how much that costs.
Bob Struble:
I can take that one.
First of all, it’s a whole lot easier than television, which a lot of broadcasters are familiar with. I’ll give you cost figures, and I’ll give you what is involved. You see those three boxes over there on the table; those are the IBOC exciters, which will be marketed by our three manufacturing partners at this show. That is the bare minimum equipment that the station would need to go digital. And what else they might need depends on really, what their infrastructure is. We have used a range of cost for a typical station. At the low end, that would be around $30,000, at the high end, something like $200,000. We believe a fair average is about $75,000. So, again, to draw the comparison, tens of thousands of dollars for a radio station versus millions of dollars for a TV station. And the reason for that is because on TV you have to basically turn out the whole studio. You need new cameras, you need new studio equipment, you need new antennas, you need new towers, you need everything. With IBOC, you roll in, what we have done at our stations, twenty across the country that we have tested on, you roll in two refrigerator-sized racks that would fit in that corner over there, you plug them into the existing equipment. And three days later, or a week tops, you’ve got a digital radio station. That’s because we reuse the existing equipment.
The range is, of course, dependant on what you have. If you have a have a 1950 Gates tube transmitter, and there are still a lot of those out there, that will not pass a digital waveform, you are going to have to buy a new transmitter. If you bought something in the last ten years, odds are it is linear, odds are it is solid state, you’ve got a little bit of headroom, you probably would be just buying an exciter and some ancillary equipment, and be it the lower end of that range. So we think it, from an economic, and sort of, ease-of-transition standpoint, presents the broadcasters a much more effective and easy transition than that which we have seen with television.
Question Three:
And can you talk about; have stations already started doing this? Or when you would expect people to start?
Bob Struble:
Well, we have tested, with our prototype equipment around the country, as I mentioned, probably twenty different stations, commercial stations, have broadcast IBOC as part of the NRSC test program. These guys are just getting ready to sell exciters today, so, commercially no, no one has bought them yet. What we anticipate is that in the second half of this year, you will see broadcasters in those six target markets begin to light up stations. So, we would expect by the end of this year to have a fair penetration in at least those six key markets, and we expect some others as well.
Question Four:
Good Morning. [Gary Merson], HDTV Insider Newsletter. I have two questions…
How much initially will the cost of the IBOC technology add to the price of car as well as home receivers?
And my second question is; is the digital signal more robust in terms of reach and also in intercity, than the analog counterpart of the given station?
Bob Struble:
A couple questions there, and I’ll let the others also comment.
On the cost side, what we’ve tried to do, this was based on some experience with Eureka, as John mentioned which was really, continues to be, a disastrous roll out, because of the price of the receivers that were launched. What you see initially is a $100 dollar increment, in terms of cost, on radios going out. So if a radio were to cost $500 with the analog component, expect to pay $600 for the digital one. That will obviously work in some segments, these guys represent them. It will work in a high-end home stereo, it will work in an after market auto stereo, it will work in an OEM auto. It’s not going to work in a Walkman, or a boom box, or a clock radio. Now the good news is that Moore’s law works and ship prices come down. So, you can expect to see, roughly, a halving of those increments over time, so, 100 becomes 50, becomes 25, becomes 10. And then, what you would see is those lower end segments coming in afterward. So the classic launch will be, classically, those early adopter segments who can tolerate that $100 increment.
The second question you asked was, and guys, you can comment as well, the second question, before we get that, is the reach and the robustness of the signal. Two ways to answer that: in terms of robustness, what we define as performance against interference, the IBOC is much more durable than existing analog. We ran a test called the clicker test, which every time a listener heard interference, they pressed a button that was counted up. What turned out is that IBOC is seven times more immune to interference than the existing analog. So you do eliminate the hiss, the statics, the pops, multi-path goes away. It’s much more durable sound.
In terms of coverage, the answer is it replicates the existing analog coverage, and that is all it can do. Not technically, but because of a regulatory reason. We could easily boost the IBOC power, but guess what, then that steps on the station next door. And so, it’s a regulatory question because the band is so crowded, all you can really hope to do is replicate the existing analog coverage.
I don’t know if you guys had more thoughts on cost.
I’ve noticed my good friend, Gary, has shown up, so I’d like to give him a chance to say a few words. First I’m going to give a glowing introduction though.
A key factor in the success we have achieved to date has been the support of the CEA, under the leadership of Gary. Along with Eddie, Gary has been at the forefront of the profound changes that have swept through the media and entertainment industry over the past several years. Their joint work on behalf of IBOC has demonstrated an effective partnership between the broadcast, and the consumer electronics associations.
As President and CEO of the CEA, Gary has been a powerful advocate for the development of new technologies, and a staunch defender of consumer rights, and he is a key reason for the ongoing success of the annual CES show here in Vegas. Within all of these capacities, Gary’s success is due to his ability to build consensus positions that bring together various groups under a single umbrella that result in formative change.
Gary, you have been a great friend to iBiquity for a number of years, and as such it is my pleasure to welcome you to our program this morning.
Gary Shapiro:
Thank you, and Bob, I really appreciate it. I had a pre-existing commitment, a speaking commitment, here, at a keynote speech, so I, the fact that I showed up late only indicates that I had to keep another commitment. But it doesn’t reflect at all the strong commitment that we feel to iBiquity and in-band, on-channel, digital radio.
It’s been a very long haul, and the stirrings in the room, and when the book is written, we’ll talk about how Eddie and I didn’t used to sit at the same table on this issue. But, now that we do, on behalf of the 1,000 members of the Consumer Electronics Association, including dozens in virtually every radio receiver manufacturer, I’m really thrilled to be here to mark this very, very historic occasion.
Manufacturers, there is no question, are extraordinarily excited to see the rollout of AM and FM digital radio broadcasting come together. I’m happy to report, even as many of the nations largest broadcasters and retailers are announcing their support for this launch, major receiver manufactures are building IBOC capable radios for introduction at our 2003 International CES, which will be held here in Las Vegas, in January.
As digital products continue to drive consumer interest in consumer electronics, we believe that retailers involved in this launch have a tremendous opportunity to add a great new category of products to their shelves, and pull customers into their stores. We have been very active in this, as I indicated earlier, in making this dream of IBOC radio become a reality. We have participated in the National Radio Systems Committee with our partners at NAB, and we have brought together the receiver manufacturers working with the broadcasters and the equipment makers to set the standard for IBOC broadcasting. And, as you, I’m sure have heard, just this Saturday, the NRSC voted favorably to indorse iBiquity’s system.
At this year’s CES, Texas Instruments and iBiquity along with five receiver manufacturers demonstrated the first IBOC digital radio receiver chip set. Manufacturers including Alpine, Delphi, Harman/Kardon, Kenwood, Visteon, and several others demonstrated the new chip set at the CES. We expect these manufacturers will be joined by many others in showcasing new IBOC receivers at the 2003 show. Today’s announcement comes as a result of tremendous cooperation and a huge number of partnerships struck by the parties involved. We see an opportunity to expand upon this cooperation and coordination as we maximize the retail market for this technology. It is the consumers who really are going to benefit from this as they experience iBiquity radio. We look forward to the next step in the commercialization process and that’s clearly the launch of the actual receivers, both mobile and home receivers here next January.
Thank you.
Bob Struble:
Thanks Gary, let us continue with questions, thanks for rushing over, too.
Question Five:
[Jim Boyle, Wakovia], formerly First Union.
Mr. Struble, anyone in the top ten radio groups who haven’t committed formally or informally to this?
Bob Struble:
None that I am aware of, Jim. We are working hard and we would expect that you would see, now that equipment is available, that’s clearly step one. What we would expect you to see over the coarse of the summer, would be a series of announcements with broadcaster X and group Y about station A and station B and market Q and market R, getting ready to roll out for IBOC. So, we are working hard on those deals. I can say for sure that all major radio groups have been working hard to evaluate individual stations, what conversion requirements are going to be, what we need to do to move things along, what those costs are going to be, working them into their capital budgets, so we’ve got every confidence.
Scott [Stull], you might want to help me out. Is there anybody in the second ten who said, “No way, forget it”?
Scott Stull:
No, I think everyone at that level is evaluating it at the station level.
Bob Struble:
And our focus Jim, has been, clearly, on those top six markets, and if you do the analysis on who the station owners are in those markets, it’s pretty much, not exclusively, but pretty much our investors, so we have had long and productive relationships with those guys. And working with them on the transition has been a pretty natural evolution.
Jim Boyle:
Well, the top twenty would give you 50% of the industry, so, that gives you a good ramp up.
Mr. Shapiro, do you have any major holdouts in the manufacturers on this?
Gary Shapiro:
I think manufacturers are generally very excited about this. You know, some manufacturers will with any new technology take a wait and see attitude. Some are very good at getting new products to market, and others, you know, want to sell at Wal-Mart, and they may wait a little longer. But, no one comes to my mind who is not excited about the whole concept of this new category.
Jim Boyle:
John and Eddie, do you think this will be launched by the radio groups for offensive reasons, defensive reasons, or both?
Eddie Fritts:
I’d say both, that’s certainly our plan…
(Tape Change)
…it’s here, and it’s a good thing. We’re anxious to get going. We’ve been waiting for a while.
Question Six:
[Leslie Stimson] with Radio World.
Yesterday, the NRSC endorsed the AM IBOC system for daytime use only. Are AM stations going to want a system that is only good for the day?
Bob Struble:
We don’t think it is going to be just for the day. There is what the NRSC said, and we agreed, and concurred, and thought the action they took was appropriate and welcome, was that with the complexities of the AM band at night, more testing was required. So, we’ve got a program right now going on with the NRSC, with some major broadcasters, to do additional testing at night. That’s going on, we hope that the test program will be complete, and we can submit those results and get the issue behind us through the course of the summer. What the NRSC did say though, and we think this was a great vote of confidence, is, rather than bog down the process and wait for those nighttime results, we know we love it in the daytime, we know it represents, I think their words, a revitalization of the AM band. Let us come forward with the daytime endorsement, so we can keep the whole process moving forward both with broadcasters, with manufacturers, and with the FCC, as opposed to waiting for additional data that we are going to need to make a good determination at night. We believe we will have a nighttime system; we just need to do a little bit more testing. I would like to add though, even as we speak, this is the most thoroughly tested system in US broadcasting history. If you would compare it to some of the testing that was done on high definition television, or on low power FM for example, this has been orders of magnitude more testing. That being said, AM is a pretty complicated animal at night, and if we need to do some more testing, we will certainly do so.
Leslie Stimson:
And you think you can get those tests done by the summer?
Bob Struble:
I think it will be late summer, yes.
Leslie Stimson:
And I had a question for Bob Law and Mr. Takama; are you guys also talking with Sirius and XM about producing combined chip sets for combined receivers? So, AM and FM analog satellite IBOC?
Bob Law:
I think from manufacturing standpoint, ideally, to get to the point where we can combine the different technologies and then allow the consumer to make their decision in the case of the satellite folks, as to which one they want to subscribe to, or if they want to subscribe to either of them, and reduce the overall cost of the hardware to the consumer, that would certainly be the desirable direction to go. I don’t think that is going to happen in the near term certainly, there are a lot of things that need to be done to be able to pull this together. But I think that is definitely the objective of most of the hardware manufacturers and in discussions with the chip set providers.
Leslie Stimson:
How far down the line do you think that will be?
Bob Law:
I think it’s really difficult to speculate exactly. My guess would be at least two or three years.
Leslie Stimson:
Mr. Takama?
Hiroakai Takama:
I don’t have pre-ideas when those technologies will be combined in radio. But all of the media is based on digital technology. That is why we can expect good, efficient, combinations of those combining medias in one kind of platform.
Eddie Fritts:
Free over-the-air radio and television broadcasters will not be charging consumers a price for the end product in IBOC to get digital unlike other technologies, which we think is important.
Question Seven:
I’m [Jimmy Sheffler] with the Carmel Group. Bob, I have a couple questions aimed primarily at you, but I’d welcome comments from the other gentlemen.
On a micro and a macro level, who do you see as your main competitors? Micro being other companies, and Macro being other industry sub-sectors?
Bob Struble:
Micro, I never like to say we don’t have competitors, and we never say never, but, one of the key, defining features of our company is it’s clear that there will be a single standard in radio and all of the industry groups and the regulators of the NAB, the CEA, broadcasters, and consumer electronics manufacturers encouraged us, back in the day when there were multiple companies developing IBOC systems to get those companies together. We have been able to do that, so, iBiquity is now here, where before you had a USA digital radio and a [Lucent] digital radio, and further back, a Digital Radio Express. So, in the field of IBOC, we know of no other IBOC proponents. The competitors, on a more macro sense, I think you can ask yourself who are the competitors to radio broadcasters? Clearly if AM and FM radio would cease to be as vital and vibrant and as widespread as it is today, that would be a problem for our company. We don’t view that that is going to be the case, even in the wildest fantasies or predictions, I should say, of the satellite radio guys, a five or ten percent penetration into the radio market would be a huge success. So, if that were the case, and certainly radio broadcasters are working hard to make sure that it’s not even five or ten percent, let’s just hypothesize that that were the case, we still have that other 90 percent which are still listening to AM and FM radio. So, we think that that is a pretty good space. Broader, and farther a field, if you define radio as we do, as mobile information and entertainment, it’s any number of new services that can provide mobile information and entertainment to folks driving around. So, that’s web-enabled phones, that’s wireless palms, that’s pagers, telematics and cars. What we’ve consistently said to broadcasters is that the world is going digital, it’s probably important that you upgrade your technology to not only compete against those new competitive threats, but also to get your foot in the door of some important new revenue streams.
I hope that that was responsive.
Jimmy Sheffler:
I think it was.
As you took on your new position, August of two years ago, since that time, what would you say has been your single foremost challenge?
Bob Struble:
It has been, for awhile, I mean, after the merger got done, which was a challenge in itself, and of course, we had to integrate the companies, which is always challenging, but happily, in this case, went rather successfully. It’s all about commercialization. We have technology that we know works. It’s been tested on twenty stations over the last three years, we’ve got all kinds of data and mounds of public record that high, that says it works. But, it all works on a $30,000 prototype receiver, and I don’t think Bob Law is going to sell a lot of $30,000 receivers. So, we have needed to take that $30,000 receiver down to a $30 chip. We crossed that first milestone at the CES show when we showed our credit card sized development module working on a bunch of different radios, and we are well on track to make that happen in the near term, as we mentioned, CES next year with our manufacturing partners. For us, it’s really been not particularly sexy, but keeping our nose to the grindstone and executing on a commercialization challenge.
Jimmy Sheffler:
Okay, and my final question is, when you transition from analog to digital, typically, the bandwidth is enhanced considerably. How do all of the players in this field deal with the enhanced bandwidth?
Bob Struble:
In this case, remember again, we are using the same spectrum, so, the fact that digital performs better in a given bandwidth is important to us, but in the initial stage of the technology hybrid, where you have the analog simulcast, you don’t get any more bandwidth. What you are doing is recapturing unused portions of the spectrum, currently occupied by the analog broadcast. So, the fact that digital is such a good performer, has enabled us to pull off that somewhat challenging feat of introducing an entirely new service in the same existing spectrum as the analog, so you really don’t get that benefit initially.
Question Eight:
[Paul McLane], from Radio World. I have a question for John Dille. Perhaps we saw the historic first purchase order for IBOC placed today, but for your group, and others in the industry, if we use iBiquity’s numbers of a rough average of $75,000 for hardware and additional licensing fees, which we haven’t discussed…
Bob Struble:
That’s in that number Paul.
Paul McLane:
That’s in the number, okay. So, $75,000 for an average station, some more, some less. Our industry doesn’t have a great record for adopting expensive technology without a mandate from the FCC. The AM stereo debate comes up all of the time in that regard. So, is this money in your group’s budget, and the budgets of radio stations around the country for the next two years? And, in a time where the economy has been down, and radio revenue has been down, are groups really prepared to spend that money now, to adopt it in time for these receivers to actually use this IBOC signal?
John Dille:
I think so. I mean, for the reasons you cite, and others, it will likely be staged in. But, we’re ready to go. And we will do a portion this year, a small portion, this year, and then put it in the budget for this fall for 2003, and so forth. And I think there will be a significant number of others, and I think that the top twenty groups are into it.
Bob Struble:
Just for comparison purposes, Paul, I’ll probably mess these numbers up, but we can get you the right numbers. What our business plan calls for and what is necessary this year is to get, roughly, 100 stations on the air in 2002. There are 13,000 radio stations out there. 100 stations out of 13,000, I think, is less than one half of one percent. In terms of cost, if you look at it in a revenue basis, if I use the 18 billion dollars of radio revenue, and you do 100 stations times $75,000, I think you come to a figure that is something like point zero one percent of industry sales. So, we would argue that as an initial rollout, and as insurance against some of this new competition, we think that makes quite a reasonable bet. Actually, if you compare them to some of these large numbers, absolutely trivial, in terms of cost.
Question Nine:
Good morning. My name is [Ronald Bakbrosen], I am from Brazil, and I represent the Brazilian Association of Broadcasting and the Brazilian Society of Engineering. I’d like to ask you one question. In the ITU, the International Telecommunications Union, there was an agreement for the development of a common digital system for HF. I’d like to know what iBiquity thinks about development of a common receiver for the IBOC and HF? There are two receivers for separating IBOC digital AM and FM and one receiver for HF digital transmission.
Bob Struble:
When you say HF, you are speaking of the Eureka system?
Okay, let me first update the group on some of the international activity.
The International Telecommunications Union, which in many ways serves as the FCC of the world, has endorsed both our AM and FM systems, as worldwide standards. Note carefully, not the worldwide standard, but as a worldwide standard. This basically means that any country in the world can adopt IBOC as their broadcasting technology, and they will have the full support of the ITU in doing that. There are also other standards out there. Eureka 147 is the European system, which has been up and operating, I think now, for five or six years. There is also a system for shortwave created by the Digital Radio Mondiale. And, all of those are basically digital radio standards.
Will there be integrated radios out there? Our answer would be to let the marketplace decide. If consumers or manufacturers or automakers demand that integration, then we would do it.
A couple stats on Eureka, at least the last I checked, Eureka has been around for six years in Europe. They have sold a grand total of 50,000 radios, 50,000. So the question that we get most on Eureka, and we’ve got good friends there, is, with Eureka such an abject failure, how is it that digital radio is going to be successful in the States? And we think that the advantages of using the same spectrum, the advantages of reusing the existing infrastructure, the advantages of reusing content, will quickly answer that question. But, if Eureka were to take a major turn, and somehow go through the roof, and become wildly successful, yes, I think you would see manufacturers demanding that we build combined radios, and we certainly would endeavor to do that. At this point, we see no reason to consider that. We have enough to worry about getting our own stuff out there, without trying to be integrated with a system that sold about 50,000 radios.
The DRM, by the way, has not come out with their technology yet, so there is nothing yet to integrate. But without losing focus, we believe the international market is extremely important. Brazil is a fantastic example. And our basic premise is that anywhere that there is AM and FM radio, which is everywhere, IBOC is a very viable product. And the same arguments that we have used in the States, a cheap conversion, an easy conversion, a seamless conversion, market-driven conversion, we think those apply in other markets as well.
Question Ten:
I realized I forgot to identify myself on my earlier question. [Katherine Lewis] with Bloomberg News.
I just wanted to clarify, when we were talking about the costs to radio stations, is there any licensing component to use the IBOC technology?
Bob Struble:
Yes, there is a software license, which is paid to us for the use of the system. It’s a small number, based essentially on the station’s FCC fee, so the stations which will benefit more and which are most able to pay, will pay a little bit more. The stations which are non-commercial, or smaller stations will pay a little bit less. If you would, I will give you some average numbers.
There is a choice that the broadcasters can make. If they want to pay us once, full up license, that’s about $15,000, on average. Again, it goes up and down, depending on your station classification. So, it’s like buying your accounting software. If broadcasters, being a somewhat cash-flow-sensitive lot, would like to pay us over time, they can do that as well. And I think those numbers are about $2,500 a year, for a period of ten years. So, we’re not talking about a huge amount of dollars. The major expenditure for a broadcaster on this goes to our friends seated up here, and that’s on the capital side.
Katherine Lewis:
And can you talk about the FCC process? How important is action by the FCC to the successful launch of this technology, and when do you expect some kind of move?
Bob Struble:
There are arguments that can be made, that say because we are using the same spectrum, and because there are no new allocations, and no new licenses required, there does not need to be FCC action. We don’t support that view, but we believe that because radio has such an important position in the national heritage and in the infrastructure of the nation, that the FCC needs to act and set a standard for IBOC technology. It is inconceivable that you could start driving in Washington and have your radio not work when you got to New York because there were different standards out there. So, we believe that the FCC has a responsibility to do that, and we believe that they will.
What we think is going to happen at the FCC is a two-step process. The FCC has already received the FM report from the NRSC. They put that out for public comments, there have been reply comments. The story was universally positive. Everybody basically says, “Yes, we like it” and “Move forward”. That same process will go forward now with AM. The FCC will get the AM report, we believe, next week. They will put that out for comments, everybody in the whole world can say what they think, and then there will be reply comments. And what we expect to happen at the end of this summer is that the commission will come out with a ruling that says: it’s digital, it’s IBOC, and it’s iBiquity, and it’s okay to start moving forward. The last the commission spoke publicly on this, at least on the record, they were considering other options: new band solutions, other things. We expect them to put that all to rest this summer and say, “Yes, it is in band, and it is iBiquity”. We also then, expect them to take a little bit more time and consider the detailed technical rules, which need to be in place to set an actual standard that will go through the same comments and reply comments period, and we would expect by late this year, more realistically, early next year, you will see the final adoption of a standard. So, that’s the plan.
Question Eleven:
Hi Bob. [Mark Roberts, Wachovia Securities]
You’ve been very cautious this morning about setting expectations for the rollout. It occurs to me in looking…
Bob Struble:
My guys would say I’ve been wildly optimistic, but thank you.
Mark Roberts:
This may sound a little bit out of left field, but if you look at other communications networks that involve an infrastructure deployment and subscriber equipment like digital satellite, or digital TV, or cellular, the capital cost of the infrastructure per radio station is quite marginal, relative to those networks. In addition, you are not charging the subscriber fee on the subscription side. So, looking at the mass-market adoption rate of those technologies, it seems to me that this could move much faster.
What is the production capacity per year of your partners per radio station? If the adoption rate accelerates faster than you expect, how many stations per year could deploy the new technology, and how big could the waiting list get?
Bob Struble:
You might want to ask our manufacturing partners, but the good news is that this gang has been through this with high definition television, and there was a substantial ramp up of production in the early stages of HDTV, I think that production is still around, and if our estimates were low, let’s say, and instead of converting 100 stations this year, we converted 1,000, my take would be that this year would be tough because we are still in the first generation of equipment. But, certainly into 2003, we would expect that there could very rapidly be a ramp up of production and a meeting of that need. So, I think this is possible, Mark, if there is a tremendous upside in the plan, let’s say, we have every confidence that on the transmitter side, which is where the bottleneck will really be, those guys will do what they need to do to ramp up production. You know, you’ve got 13,000 stations out there if my numbers are correct, I think we sell, guys in the industry, about 1,000 transmitters a year, 800 to 1,000, something like that. So, we have always assumed something like an eight to ten year transition period. If that were to get done in four to five years, instead of eight to ten, I would hazard a guess that these guys would be able to meet that need.
Anything else?
(Seeing none.)
Thanks for coming, thanks for participating in what we hope is a historic event, and for any broadcasters in the audience, go out and buy!
I will mention again, you’ve got exciters over there, this is the actual commercial IBOC equipment, take a look, take pictures, ask questions.
Thanks everybody!
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