Nearly a decade after HD Radio went live on its first station, iBiquity Digital Corp., the company that developed and sold the technology to terrestrial broadcasters and electronics manufacturers, has yet to convince consumers that they must have HD Radio in their cars and homes.

Only about 2 percent of radio listeners are tuned to HD Radio channels in their cars at any given time, according to the Pew Project for Excellence in Journalism’s State of the News Media 2012 report issued earlier this year. Separate research by Mark Kassof & Co. reported in January that 54 percent of respondents had heard of HD Radio but knew little about it.

Adoption rates are slightly higher among public radio listeners. The 2012 Public Radio Technology survey, released by Jacobs Media and the Public Radio Program Directors Association in September, found that 6 percent of listeners have access to an HD Radio, a figure that hasn’t changed since 2010. By comparison, the survey found that almost 10 percent of public radio listeners drive cars equipped with entertainment systems that combine traditional radio and compact disc players with smartphone and iPod connectivity, satellite radio or HD Radio.

Consumer adoption of HD Radio has also been slowed by the high cost of receivers and the absence of wow-factor programming helping to spur demand. Retail costs of receivers dropped below $100 starting in 2008; they’re now available for $50 or less.

Public radio enthusiastically embraced HD Radio technology from the outset but has taken note of the slow uptake by listeners — NPR quietly ended distribution of its three dedicated HD Radio streams Oct. 1. Stations can still buy individual NPR programs for broadcast on HD channels, however.

“We made a strategic guess more than five years ago of what we thought stations’ interests would be,” said Eric Nuzum, NPR programming v.p. “We guessed that they would want a ‘Set it and forget it’ option that would basically be a placeholder for them. They just didn’t catch on very well.”

WXPN-FM in Philadelphia, which syndicated its XPoNential Triple A music stream through NPR, opted to continue offering the packaged feed to stations through independent distribution. About 20 stations pay $3,000 annually to carry the programming; General Manager Roger LaMay said WXPN is mainly looking to recoup the costs of packaging the channel. But he also sees a strategic advantage in staying the course with HD Radio.

“I would say that the jury is still out in terms of where certain technologies will end up,” LaMay said. Continuing to distribute XPoNential allows WXPN to stay in the game in case HD Radio does gain more traction, he said.

“We don’t know if HD is the future. We also don’t know totally that it’s not,” LaMay said. “Either way, multiple channels are the way to go. We want to be in the multi-channel business.”

New competitive threats

HD Radio uses a digital hybrid technology, piggybacking on analog radio signals to pack more into each channel — improved sound quality, transmission of text and pictures and the capacity to deliver multiple program streams.

The technology, controlled by privately held iBiquity, was conceived by commercial broadcasters as the answer to the competitive threats posed by satellite radio, and, later, on-demand listening experiences offered on iPods, smartphones, and Internet-based radio and music platforms.

NPR and its engineering division NPR Labs worked extensively with iBiquity to advance HD Radio technology and played a key role in developing features such as the multicasting capability that allows stations to offer multiple listening options to their audiences. But listenership for these secondary channels is tiny.

Many analysts now regard HD Radio as having been overtaken by rapid consumer adoption of audio programming offered through web-based platforms, all of which provide on-demand service to listeners without stations as intermediaries. Usage of web-based digital services is projected to accelerate as carmakers begin building Internet access into car dashboards. A report released Oct. 25 by IMS Research predicted eightfold growth in the number of automobiles wired for Internet access by 2019.

“HD Radio was the answer to satellite radio,” and an awkward one at that, said radio researcher and strategist Mark Ramsey, one of iBiquity’s most vocal critics. “It was fundamentally ill-conceived from day one, and now they’re trying to reverse-engineer it to find something that fits the technology.”

With the benefit of hindsight, researcher Fred Jacobs said HD Radio suffered because it lacked the simplicity and coolness of Apple’s iPod, which hit the market in January 2001, three years before HD Radio receivers were sold at retail to consumers. “[A]round the same time, here comes HD Radio and it was confusing, hard to understand and had no real outside marketing to explain it well,” Jacobs said.

“HD Radio just hasn’t worked,” said Amy Mitchell, deputy director of the Pew Project for Excellence in Journalism and a co-author of Pew’s annual report on the news media. “People aren’t really aware of it and stations aren’t finding it worthwhile to change over, and that’s because technology has really moved beyond it.”

These criticisms aren’t lost on iBiquity, which is in the race to get HD Radios into more cars and looking to have its chips built into smartphones as well.

“We’re 10 years into it now, and we’ve built out the infrastructure to where it’s available to 90 percent of the population,” said Bob Struble, iBiquity founder and c.e.o., referring to the availability of HD Radio signals in top markets. “And we’re at critical mass in getting it into cars right now.” He’s convinced that the increased availability of HD Radios in automobiles will get listeners tuning into the new channels.

HD Radios are now offered by 28 different automotive brands, including Volkswagen, Ford and Rolls-Royce. Last month, iBiquity unveiled “Artist Experience,” a new technical feature that allows transmission and display of album art and other information; VW, Chevrolet, Buick and GMC are among the automakers offering it.

Increased availability of HD Radios in cars has given stations new incentives to convert, said Rick Greenhut, iBiquity director of broadcast sales.

“With all of these cars coming online, the station managers are seeing it more and more and deciding they need to get off the fence,” Greenhut said. “It’s changed the whole tone of my job just in the last few years.”

Slow rollout, small audiences

According to iBiquity, as of last month 2,093 radio stations were broadcasting in HD. Nearly a third were pubradio outlets.

Compared to the total universe of 13,000 FM and AM radio stations broadcasting in the United States, iBiquity’s count of the number of converted stations translates into an adoption rate of 16 percent among radio broadcasters.

After peaking at 521 stations in 2006, the number of annual station conversions declined to 17 in 2011, but it’s now back on the upswing, according to Greenhut. IBiquity reported 49 HD Radio conversions this year.

But there are other signs that commercial broadcasters are cooling on HD Radio. Cumulus Broadcasting, the second-largest broadcaster in the U.S., warned investors earlier this year that it was delaying plans to convert 240 stations by June 2012.

Cumulus had already scaled down its rollout plans for HD at least once. In March 2009, the company amended an earlier contract with iBiquity on its conversion schedule. The revised agreement allowed the broadcaster to reduce the number of planned station conversions and extend the build-out schedule; in exchange, it agreed to pay iBiquity higher licensing fees for each conversion, according to a recent filing with the Securities and Exchange Commission.

In the March SEC filing, Cumulus notified investors: “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.”

For pubradio, the multicasting capabilities of HD Radio technology offered a rare opportunity to expand audience service by broadcasting differentiated channels. In addition, stations received federal assistance for HD Radio upgrades. Starting in 2002, CPB’s Digital Conversion Fund awarded grants to local pubcasters for transmitter upgrades; proceeds from stations’ local fundraising also helped pay for conversions and programming to fill the new channels.

The CPB grant program, which ended last year, awarded $60 million in grants to convert 680 public radio transmitters, according to Bruce Theriault, senior v.p. of radio. CPB also paid a group license fee to iBiquity for public radio stations to adopt its technology. In its later years, the conversion fund provided assistance for equipment upgrades that allowed some stations to increase the power of their HD Radio transmitters.

Wisconsin Public Radio is among the beneficiaries of CPB’s grant program. It operates 33 stations to provide statewide public radio coverage and completed conversion of half of its transmitters last year, according to Mike Crane, director. At the time the massive technical project was initiated, it was regarded as a strategic move to prepare the state network for a digital future. But so far the return on investment has been hard to measure.

“I would say that I’m feeling very mixed about it at this point,” Crane said. “It has been a really wonderful experience — for the people who have been able to find an HD receiver. But that so far is not a huge audience.”

Listeners in Milwaukee seem to have caught on to HD Radio more than anywhere else in the state, he said. In that market, WPR airs an all-classical service on an HD2 channel of WHAD, its Ideas Network station broadcasting news and talk programs. The HD service on 90.7-2 is the only radio channel in the city offering classical music, including commercial and analog stations. In 2010, Arbitron measured a cumulative weekly audience of 600, according to Crane. It’s now pulling a cume that approaches 1,000 listeners.

“Obviously, it’s not a huge audience,” Crane said. “But, it is 1,000 people listening, and that number is growing.”

Because HD Radio helps stations expand programming to underserved audiences, a mission of public broadcasting, most pubcasters aren’t ready to pass judgment.

“It’s a little early to make a final call about this, if the technology has worked or hasn’t worked,” Theriault said.

For Ramsey, the verdict is already in. “Everyone can read the tea leaves at this point about HD Radio,” he said. “You can pretty much pick your cliché about it — the goose is cooked, the horse has left the barn or the ship has left the harbor.” The time and money spent to adopt and promote HD Radio was wasted, he said, primarily because it diverted resources from creating the one thing that would generate interest among listeners — better programming.

“The shame of it is, just imagine what we’d have to show with all of those millions if they’d been spent on funding content instead,” Ramsey said. “Think of the dollar value of all that time spent promoting HD Radio. What if they sold a spot instead, or had been able to devote the time to content? It’s been an astonishing waste of precious industry resources and audience attention.”

Plethora of listening options

As the number of stations offering HD Radio channels grew over the past decade, and as the cost of radio units decreased enough that price was less of a barrier for consumers, research reveals that interest among listeners has not grown.

Radio listeners have stayed loyal to traditional AM and FM, signed up as Sirius XM subscribers or, increasingly, turned to mobile and on-demand platforms for entertainment.

In the 2012 Public Radio Technology Survey, 41 percent of the 30,768 public radio listeners who participated said they most often listen to the radio while in the car. Just over half of them — 52 percent — already have the ability to plug in and listen to smartphones and digital devices in their cars.

“The strategy to work with the carmakers is probably HD Radio’s best hope for gaining some ubiquitousness,” Jacobs said. “If it gets baked into the cars, it could catch on.”

Fifty-six percent of public radio listeners use music players such as iPods, according to the technology survey. Around 18 percent of those surveyed reported that they listen to Pandora; another 46 percent said they listen to Internet radio.

“People are always looking for a silver bullet for why things are going up or going down,” said NPR’s Eric Nuzum, “But the best way to look at it is there are multiple reasons why audiences behave the way they do, and while you can’t look at HD Radio or Pandora or mobile individually as a dominant platform, the collective effect of all those things is the game changer.”

Pew’s researchers pointed to increased competition from other digital options, most notably Internet-based radio like Pandora, as a threat to all terrestrial broadcasters, including those who program HD Radio channels.

“Traditional radio is by no means a thing of the past. The vast majority of Americans still report listening to AM/FM weekly, and the bulk of audio revenue remains tied to that traditional platform,” Pew reported. “But as many as 38 percent of Americans now listen to audio on digital devices each week, and that is projected to double by 2015, while interest in traditional radio — even the HD option — is on the decline.”

According to the Pew study, the number of listeners who stream web-based radio in their cars almost doubled from 2010 to 2011, to 11 percent. Based on listening habits of drivers ages 18–24, Pew projected that this rate will increase to almost 20 percent by 2015. Young adults told researchers they regularly stream Pandora through their phones while in their cars.

Radio listeners are aware that HD Radio exists, according to Pew, but “very few adults express interest in it.” Pew cited a 2010 poll by Arbitron in which 7 percent of respondents expressed interest in HD Radio. From 2006 through 2010, the percentage of people interested in HD Radio never topped 8 percent.

This is not the first time that broadcasters have struggled to market a new technology to the listening public. “I think the parallels are very close with the rollout of FM radio, where the industry pushed the technology — the sound quality, for example — and that’s not what people buy,” said Christopher Sterling, associate dean of media and public affairs at George Washington University in Washington, D.C. A common criticism of HD Radio’s introduction — that instead of attracting listeners by offering them better content, HD Radio’s proponents focused on the bells and whistles of the new technology — was leveled at FM broadcasters as well, he said.

“My impression of HD Radio is that whatever wind was in the sail has long since gone,” Sterling said.

Not so, according to iBiquity’s Struble. Sales of HD Radio units in cars and home receivers hit 2 million in 2011, he said, and iBiquity is projecting sales of 3.3 million units in both 2012 and 2013.

“We’re at the steep part of the adoption curve, and it’s been a long time coming,” he said.

According to business news service Hoovers Inc., iBiquity, which is headquartered in Columbia, Md., had annual sales of $21.3 million at the end of December 2011.

Since its founding in 1998, the company has secured more than $300 million in venture capital. It derives income from licensing fees: a $3 royalty for each HD chipset installed in home, clock and car radios, and $10,000 for each station that converts its transmitter. Fees paid by broadcasters have been cut dramatically from the $25,000 charged during early years of the rollout.

According to a 2009 SEC filing, Ibiquity raised $42.4 million in a cash and stock offering. Other rounds of financing in 2001 and 2004 garnered $75 million for the company from investors.

The recent boost in sales put iBiquity in a strong financial position, Struble said. “We have plenty of money and we’re capital positive.”

Struble isn’t daunted by the popularity of mobile players and streaming audio, because the disruptions caused by spectrum limitations will frustrate listeners, especially those in large cities, he said. In addition, carriers are dropping unlimited data plans; as smartphone users incur more data charges, they will use mobile audio streams less, he predicted.

Pubcasters programming HD Radio channels are less worried about the long-term viability of the technology. They see stations’ HD Radio channels as additional platforms for providing content and a complement to their digital offerings. Radio audiences have more listening choices, regardless of which device they prefer to use.

“There is a lot of wisdom to the thinking that you want to be everywhere, whether it’s mobile, HD or web streaming,” Nuzum said.