BY KURT HANSON
In the previous two issues of RAIN (here and here), drawing from a speech, "The Future of Radio," that I've been delivering at radio conferences around the world lately (and which will have its US debut at our "RAIN Reader Cocktail Party" next week in Las Vegas), I've been making the following argument:

There are technological and cultural changes going on right now that will have a major impact on how consumers will access and use radio in the future...and the U.S.'s radio broadcast group owners are understandably but perhaps dangerously ignoring those trends.

Today, we'll look at several new technologies that are in the process of giving consumers new choices. Tomorrow, we'll look at a theory espoused by a best-selling author and Harvard professor that explains why broadcasters may be betting on the wrong horse — and, in doing so, putting their entire companies at risk.


Three new delivery mechanisms are getting
radio into the hands of consumers
Just a few short years ago (about the time that Britney Spears and the Backstreet Boys were breaking as successful pop acts — in other words, barely yesterday), consumers could get radio via AM or FM. That was it. But clearly that is no longer the case, as three new delivery mechanisms are rolling out right how that offer consumers "new" bands of radio.

First, satellite radio (XM and Sirius; Sirius ad pictured at right, Sony XM radio pictured below) now offers consumers who are willing to pay for it over 200 channels of music and talk using a total of five dedicated satellites.

About 16 months after the commercial launch of the industry, the two services are up to a combined total of over 500,000 subscribers. (This suggests they have a Mon-Sun 6AM-12M AQH audience of about 100,000 listeners, assuming the radios are in use an average of 3 hours per day with 1.5 listeners per radio).

I believe the jury is still out as to whether mainstream (as opposed to audiophile) consumers will pay $200+ for the radios and $9.99 to $12.95 per month for the service. Certainly, however, it will become a lot easier to sell as new car salespeople begin to sell the product as a factory-installed option, perhaps with the monthly fee buried as part of the financing package of the vehicle itself.


Broadcast group owners
are betting on digital
Second, meanwhile, most radio group owners here in the US and around the world are placing their bets on digital radio (a/k/a DAB or "HD Radio") — transmitted on a completely new set of frequencies in most parts of the world, "riding along" with existing AM and FM signals in the U.S. (Although from a consumer's point of view, even in the US, digital radio will look like new frequencies — different buttons on the radio, just like the "AM" and "FM" buttons.)

These new signals are already available to tens of millions of consumers in Europe and millions of consumers in Canada, and they'll be appearing in US markets this year.

However, as you may have learned when your cell phone switched from analog to digital a few years ago, "digital" doesn't necessarily mean "better;" it all depends on the quality level that the provider chooses to use. (Example: 300 megabits per second of bandwidth can be used to broadcast one gorgeous-quality radio channel or five relatively-crappy channels. Right now, for example, the Canadian plan is to use that amount of bandwidth to offer one gorgeous-quality channel, but to the extent that a percentage of Brits are embracing DAB, the driving factor seems to be the new channels that the BBC is offering.)

So will consumers embrace digital radio in the US? I am personally skeptical. Admittedly I am not an audiophile, but I personally do not notice the difference between FM quality and CD quality when I switch back and forth between the two on either my home or car stereo. Nor do I notice a major quality difference between listening to news and talk programming on AM versus news and talk programming on FM (e.g., NPR). (Here's a clue to the AM side of the question: There has never been a commercial station in America that became a success by offering news or talk programming on a high-quality FM signal. Ever.)

So I suppose if radio station group owners and electronics manufacturers and car manufacturers all get together and force digital onto all car radios, I'll take it.

But how many years will it take me to upgrade my clock radio, my home stereo receiver, my FM Walkman, my cassette/FM Walkman, my office microsystem (pictured), and my family room stereo system? Quite a few years, I imagine. Meanwhile...


Wireless broadband Internet access
is racing its way towards consumers
The third new delivery mechanism for radio is, of course, Internet-based delivery. It has a several-year head start over satellite and DAB — and several advantages that I believe may allow it to be the delivery mechanism of choice for tens of millions of radio listeners in the not-too-distant future.

Several new technologies are being simultaneously developed that will get Internet-delivered radio into the hands (and ears) of consumers..

First, of course, is the increasing popularity of broadband access to the web (via DSL phone lines, cable, and satellite). Households with broadband access have grown from 6.2 million in 2000 to a projected 30.5 million next year and should surpass the number of dial-up households the year after that. In addition, of course, tens of millions of office workers have broadband access on their computers at work.

The second key technology is the rollout of "Wi-Fi," which for a very small investment takes a broadband connection and extends it wirelessly within a 300-foot range from its source. As Forbes magazine pointed out a couple of weeks ago, the technology went "supernova" last year, "selling 18 million connections — one of the fastest adoption rates of any consumer technology in history." (See article here. Wi-Fi router pictured at right.)

As you know if you've been following RAIN, that means you can now connect to the Internet wirelessly (and, for example, listen to Internet radio) in thousands of coffee shops, hotel lobbies and rooms, airport concourses, libraries, cafes, airplanes, and other public places... as well as throughout one's house (in the kitchen, bedroom, etc.). And that number will grow exponentially in the near future. Intel just launched a $300 million ad campaign in support of their new Wi-Fi-enabled "Centrino" chip.

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(FROM ABOVE)
Multiple approaches may
extend Wi-Fi's range
The third key technology for extending the range of broadband Internet will extend Wi-Fi beyond its 300-foot range, and there are actually several different approaches being developed to do that.

One approach, "mesh networking," takes advantage of the fact that each Wi-Fi receiver is also a transmitter. So if a Starbucks has a Wi-Fi system installed, Adam can access it from 250 feet away and transmit it 300 feet further to Bob, who can transmit it 300 feet further to Chris...There are logistical issues to be solved, of course, but they are already in the process of being solved, and once they are, once Wi-Fi users in an urban area reach a certain density, Wi-Fi is essentially everywhere.

Another approach, "phased-array antennas," takes advantage of the fact that the actual limit on Wi-Fi distance is an FCC regulation of the power of the transmission. It's a 300-foot limit if the transmission is omnidirectional, but the same Wi-Fi signal can reach numerous different users blocks or even miles away if it's directed in a pin-pointed manner. Again, this technology is already being rolled out.

And yet another approach is the development of new Wi-Fi standards that will permit several miles of range and easy access into fast-moving cars and trains. (The previous two approaches use the existing "802.11" standard. The new standards are called 802.16 and 802.20; see the previously-mentioned Forbes article for details.)


Consumers need more than a signal;
they also need a device
In the discussion about satellite and DAB above, a critical success factor was not signal coverage (which is probably a given) but rather consumers' willingness to buy the devices needed to access the signal.

The intriguing thing about Internet-delivered radio is that consumers ARE going to own the necessary devices... because the necessary functionality is going to be built into devices they're going to buy anyway!

Think about it: Virtually every consumer with a PC already owns the hardware they need to listen to Internet radio at their desk. (There are only 500,000 satellite radios out there, but there are tens of millions of PCs that are effectively Internet radios out there.) Every laptop owner with a Wi-Fi card is already carrying around with them, effectively, a 10,000-channel transistor radio. And within just a couple of years, virtually all cell phones and PDAs are going to have (A) the Wi-Fi access and (B) the media player software required to turn them into Internet radios too.

What does this mean? It means that there's going to be a "tipping point" coming up in the next couple of years in which many tens of millions of Americans (those who are carrying a Wi-Fi-enabled PDA or cell phone or laptop with them, or who are working on a broadband-equipped PC) will find it easier to listen to radio on their Internet-enabled device than on a stand-alone AM/FM radio!

(And then don't forget the other advantages we discussed yesterday that Internet-delivered radio can offer, but satellite radio and HD Radio can't — an unlimited number of format choices, the ability to add interactivity and personalization, etc. So the Internet-delivered approach may not only be more convenient, but also preferable.)


Tomorrow: The Innovator's Dilemma
Tomorrow in RAIN, we'll look at a thesis by a best-selling author and Harvard professor which holds that there is a certain type of technological change that typically leads to a situation in which virtually all of the leading firms in a given industry are wiped out (because, ironically, they follow traditionally smart business practices).

And we'll explore the possibility that Internet-delivered radio may be a perfect example of that exact type of technological change.

The U.S. debut of Kurt's "The Future of Radio" speech (in a slightly-condensed preview version) will take place next week in Las Vegas, immediately preceding the RAIN Reader Cocktail Party at Gordon Biersch Brewery Restaurant (Tuesday, April 7th, at 5:15PM). To reserve a seat for the presentation, call 1-312-527-3879 or write kurt@kurthanson.com.

If you're planning to attend NAB 2003 in Las Vegas (April 5-10; details here), we hope you'll join us for our RAIN reader get-togther. We've reserved the patio of the Gordon Biersch Brewery Restaurant (about a $4 cab ride from the Convention Center) on Tuesday, April 8th. This year, we've also reserved a private room for the U.S. debut of Kurt's "The Future of Radio" speech for those who'd like an advance look at it. (Presentation at 5:15pm, cocktails at 5:45pm.) See you there!