Cumulus Acknowledges HD Malaise

An interesting disclosure in Cumulus Media‘s yearly filing with the Securities and Exchange Commission:
On December 21, 2004, we entered into an agreement with iBiquity pursuant to which we committed to implement HD Radio systems on 240 of our stations by June 2012. In exchange for reduced license fees and other consideration, we, along with other broadcasters, purchased perpetual licenses to utilize iBiquity’s HD Radio technology.
That was then…this is now:
On March 5, 2009, we entered into an amendment to our agreement to reduce the number of planned conversions, extend the build-out schedule, and increase the license fees to be paid for each converted station. At this juncture, we cannot predict how successful our implementation of HD Radio technology within our platform will be, or how that implementation will affect our competitive position.
To my knowledge, this is the first time that a backer of HD Radio has been so forthright in a financial document about the tenuous nature of radio’s digital transition.
Considering that Cumulus is the second-largest broadcast conglomerate in the United States (having purchased Citadel Broadcasting last year), this disclosure reads like a vote of little-to-no-confidence in the technology. One can only assume that Cumulus’ slowdown in HD conversions applies to the Citadel stations it has acquired.
Cumulus is not alone in viewing HD technology with a jaundiced eye. Radio World reported in 2009 that an informal survey of executives in charge of capital expenditures at broadcast conglomerates found many planned to delay their digital conversion campaigns.
Beasley Broadcast Group chief technology officer Mike Cooney confirmed that his company was backing down on “HD conversions in the small markets and…putting money more in things that have a quicker return on investment for the capital money.”
Transmitter-manufacturers have also been holding their cards close for years now. In 2009, Crown Broadcast reported that inquiries about HD-compatible equipment were virtually nonexistent. According to Tim Bealor, vice president of sales for Broadcast Electronics, “Unless we can figure out a way for broadcasters to make back their investment, [HD adoption] may be a futile effort.”
These sentiments were echoed by Mike Troje, sales manager for Continental Electronics: “It’s a task to come up with what the right responses are for the industry when we don’t know what the end game is.”
The end game remains fuzzy today. Although Cumulus’ deal with iBiquity has been revised to reduce the number of stations it plans to convert to HD, it sounds like iBiquity saw little to no reduced revenue from the change. However, if other broadcasters have similarly downsized their transition-commitments, it does not bode well for HD Radio’s long-term prospects.
Coupled with declining listener interest in the technology and anemic uptake by auto and electronics manufacturers, the overall state of radio’s digital transition ain’t pretty. The FCC’s already put this ball firmly in the court of industry: the big question now is just how long broadcasters will nominally support HD Radio before something happens to force full-scale uptake or abandonment.