This week, the format scored its first coup in the automotive market with a partnership with BMW to offer factory-installed HD radios as an option for all its 2007 models, coupled with an 85-market radio advertising campaign highlighting the deal. It's a big step in raising consumer awareness of the format to consumers, as well as for the 14-month old HD Radio Alliance.
The organization, comprised of executives from Clear Channel, CBS Radio, Cumulus, Emmis and many others, has launched similar campaigns with Radio Shack and Circuit City in the past to promote its home models, and has high hopes for the first of many automotive partnerships.
Over the next two years, the Alliance will announce deals with nine other auto manufacturers and 51 different models. Peter Ferrara, CEO of the Alliance, took some time during the week of the BMW launch to speak with MediaWorks about his organization's strides in a changing industry and why the recent departure of dMarc's founders from Google won't hurt local radio inventory as much as initial predictions.
MediaWorks: This is the first carriage deal for HD Radio, impressive given the relative youth of the format and your organization. How does this fit into your overall goals for the Alliance?
Peter Ferrara: The primary mission of the HD Radio Alliance is to increase consumer awareness and, parenthetically, consumer demand and everything that goes into that equation. [The BMW deal] helps build it up further and further.
MediaWorks: Do you have any sense of what the current consumer awareness is of HD Radio compared to analog?
Mr. Ferrara: We've gotten a lot of anecdotal evidence to suggest awareness is doing well and more formal research studies that have suggested bridge ratings are as high as 75%. But there is a significant difference between awareness and interest. Part of the challenge on the marketing and promotion side is taking that awareness, changing it to interest and turning it into demand. We've been at this for a little over 12 months. I'm not going to pretend we don't still have a lot of work to do, but the curve is pretty impressive and still going up.
MediaWorks: How crucial are automotive contracts to adoption of HD radio?
Mr. Ferrara: When you look at where radio listening occurs, a third is in-home, a third is in-car and a third occurs in other places. So there's no question that the automobile is a fundamental component to the success of radio and to HD Radio, but it's not the only place we need to be. There's some 700 million analog radios that exist today and some 70 million radios sold every year. We have a long way to go to make that conversion. Now that we've gotten [BMW] launched very successfully, the momentum is going in our favor.
MediaWorks: One area of the industry where we've seen some shake-up recently is at Google Audio, which saw the departure of dMarc's founders last week after less than a year with the company. Is this a sign that Google might not be as equipped to help reinvent the sale of local inventory as they had hoped?
Mr. Ferrara: The thing is, Google never clarified what their business plan was with dMarc and where they were really headed. So it would be tough to be critical or to second-guess what they're doing. Having said that, the radio industry has always been a cyclical business and pretty much follows a pattern behind the general economy, and more specifically, retail sales. When you look at the general economy, it's all beginning to have an upward momentum to it. Local radio will follow behind it. There will be less of a need on the part of broadcasters to sell what the press refers to as "remnant inventory." [DMarc technology lets advertisers buy and insert radio advertising directly through a 500-station media network. Much of the ad inventory stations make available for purchase through dMarc, which Google purchased last year for $102 million, is remnant space, which is not guaranteed to be available.]
The reality is that's not efficiently priced inventory. If a radio station is doing its job of dynamically pricing its inventory, [the station can sell 85 to 90% of its own inventory by itself]. It's like an airline -- you don't want to book it all so far in advance that you can't accommodate that first-class passenger. Radio companies are getting a lot smarter and a lot more efficient. There's going to be less of a need for a third-party company to help out.