Friday, September 22, 2006

Internet Audio Poses Biggest Challenge to Radio

September 22nd, 2006

Bridge Ratings, a research firm specializing in radio, has updated its growth projections for radio an various alternatives as part of on-going study of audience attrition of traditional radio and subscriber and user growth of alternative digital media.

The company positions podcasting as less of an immediate threat to radio than previously projected:

“Podcasting is showing slower overall growth than previously projected based on two factors: a) the “innovator”/”early adopter” crowd which jumped on this new technology is splintering. A portion of these consumer groups have slowed their podcast consumption, and b) the percentage of podcast consumers who reported significant on-going weekly use of the medium are now listening to fewer podcasts over the course of a typical month. While it is true that podcasting has pierced the mass appeal membrane and small percentages of “late adopters” are beginning to utilize the medium, this group is much more selective in the podcasts they’ll spend time with and thus are downloading fewer per week than their “early-adopter” counterparts.

The awkward process of podcast consumption somewhat retarding the growth of this new medium, i.e., its counter-intuitive user process is preventing more late-adopters from trying this exciting new technology of information consumption. We anticipate that soon technology will be introduced which will further ease the usage process, but until that time occurs, podcast growth will be slower than previously reported.”

Based on its findings, Bridge Ratings concludes that “the entire spectrum of digital audio alternatives, and especially Internet radio and its wireless distribution continue to represent the biggest challenge to traditional radio.”

While initial estimates showed solid growth for satellite radio during 2005, data updated through July 2006 indicates that satellite radio growth is slowing. Bridge’s updated projections indicate XM will reach 8.2 million in subscribers by year end - up 37% over the company’s 2005 year-end number.

Meanwhile, Sirius satellite radio has made significant strides since fall of 2005 now garnering between 58% and 62% of the share of new satellite subscriptions. Bridge projects Sirius to climb to over 6.5 million subscribers by the close of 2006, for a total sector subscriber count of 14.7 million. However, subscriber projections for Q3 guidance and consumer interviews will show marked slowing compared to initial estimates before the satcasters’ holiday season 2006 push.

Bridge Rating’s updated projections:

2005 2006 2007 2008 2009 2010 2015 2020
XM 2.00 4.30 6.00 8.20 10.66 12.26 14.10 18.47 22.53
Sirius 1.00 2.00 3.10 6.55 9.17 12.53 15.03 21.34 37.75
Internet Radio 31.00 45.00 56.70 72.01 91.45 116.14 147.50 187.33 196.69
Wireless Internet 0.00 5.67 10.10 19.19 34.54 62.18 11.92 125.35 144.15
Mobile phone Streaming 0.00 0.00 1.475 3.66 6.97 11.81 20.61 23.70 27.26
HD Radio (Terrestrial) -
0.56 1.05 2.00 4.21 8.84 15.99 25.91
2.40 2.87 3.09 3.68 3.95 6.75 8.17
*Weekly Persons Using Medium in millions

Estimates represent numbers on 1/01 of year indicated.
Estimates for Internet radio represent monthly users.

According to Bridge, the data indicates that projected subscribers to satellite radio should reach 34 million by 2010 and 60 million by 2020. Projections for HD Radio’s growth have HD improving to 26 million by 2020.

The advent of HD radio and increasing growth of Internet radio will slow original growth projections for satellite radio. Internet radio will greatly benefit from pervasive Wi-Max or Wide Area Wireless Access which will bring Internet Radio to portable devices, including car radios by 2008.

Internet radio streaming is already the source of preference among young Americans for supplemental audio entertainment and is continuing its growth as broadband technology penetration rapidly improves through the U.S.

While the wireless solution for in-car Internet radio still needs to be determined, its potential for use by the public at large is far greater than the current impressive growth projections or satellite radio.

Bridge questions the long-term viability of satellite radio.

Internet radio is quickly becoming the preferred medium over satellite radio and, traditional radio among 15-30 year old early adopters. The lackluster projected growth of High Definition terrestrial radio (HD) suggests by current research that unless additional interactive technology is added and programming and technical problems improve, HD’s free channels will do little to fend off other digital audio alternatives to terrestrial radio.

“We still believe that terrestrial radio will have significant market penetration well into the future with at least 80% of the U.S. population tuning in at least once a week by 2020. Difficult to project with confidence at this time is terrestrial radio’s time-spent-listening fifteen years hence,” according to the report.