DTS to Acquire iBiquity for Some $172 Million

DavidEduardo said:

I have noticed that people who have to say they are millionaires generally aren't.

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Depending on the revenue from selling the startup company I am a partner in - I may surprise you and everybody else who doubts oldies is a viable format. If I fail, no doubt you will be posting "I told you so"! If I succeed - I will refrain from saying the same. Either way, it will be a fun ride!

I wonder if when Bruce is hinting about 'Oldies' I'm guessing Do-Wop era? One of the stations I have a personal financial stake in was programmed 60's oldies when we bought it. One of the first things we did was change programming and marketing to Classic Rock for two distinct reasons:

1. Sales: Even is a small market, we were completely off the list for regional agency buys. Nobody, and I mean NOBODY, was interested in advertising to that particular demographic. What was left were restaurants that went out of business faster than they were starting, the one area casino and an RV dealer. Not enough revenue to even keep the lights on. The must-have advertisers from automotive, furniture, pharmaceuticals, grocery, utilities, and professional services, wouldn't touch Oldies.

2. Oldies as a format: David could elaborate in much more detail, but the definition of Oldies means too many things to encapsulate too many demos. Some listeners said they only considered oldies as being from the 50's and early 60's (the Do Wop Group), whereas others hated Do Wop and thought the 60's through the 70's were the only relevant style of oldies. We got sick of being in the middle of that debate and determined the numbers were too small on either side to lean one way or the other.

When it comes to radio or streaming radio, Oldies has become a losing proposition.

I have heard that HD had a provision for surround sound, maybe now that they're owned by a company known for digital theater sound, something may come off that? *tongue firmly in cheek*

DavidEduardo said:

The biggest issues for HD have to do with the fact that car manufacturers have to pay additionally to have HD capable radios. There is no subsidy; that is what satellite does, although they don't call it a "subsidy" but, rather, a revenue sharing incentive.

Cars are almost universally equipped with satellite. When an owner of a new car subscribes, a portion of the revenue goes to the car manufacturer. That is possible because satellite is a paid-for service.

HD is an enhancement to free OTA radio. There is no downstream revenue. iBiquity gets a small amount of revenue from the annual station licenses, but most of it comes from the chipset royalty or fee and that is mostly on car radios. There is some revenue from HD-2 and beyond usage, and much of that comes from the profitable use of HD subchannels for data, such as realtime traffic information.

Kelly addressed HD on AM from a technical perspective. There is one additional aspect of AM HD which is a killer and that is the need to restrict audio bandwidth to 5 kHz, making the analog version of the station sound less than optimum. And with far less than 200 AM HD stations, this is probably a dead issue.

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David, I don't disagree at all, but my point is that wider acceptance for HD Radio will only come with wider usage, and I see no path to wider usage except to get compatible sets into where people listen to radio the most, their cars.

FM is very crowded. AM stations can be had for a fraction of what they sold for ten years ago. If a lot of users had access to HD Radios, it might then be viable to start launching music on AM. As long as there is a disincentive for auto manufacturers to include HD Radios, the potential of the technology will be under-realized.

DavidEduardo said:

I sort of read between the lines that you would take the money and buy a station and play oldies.

If you don't know that the profit on the sale of a company is not "revenue" but expressed as either "profit" or "capital gain" I am not encouraged as to your ability to run the business side of a radio station. We already know that your programming ideas will not work.

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You read correctly. Of course, the first thing I would do is hire a business manager and other experts experienced in launching a station. I would be an investor only. Prices for stations in the area look attractive - when they become available. But - I want to thank you for something you posted over on the Houston board. It really rings true that the oldies that rate well in other markets are heritage stations. Houston really doesn't have a heritage station - KILT went country 35 years ago and few people remember its days as a great top-40 station. KRBE has always been top-40 with minor (unsuccessful) excursions. Neither set of call letters are synonymous with an oldies / classic hits format. As nice as it would be to get into the business and prove that oldies done right can be profitable, I am an investor and there are other areas of investment with much less risk.

There is also the issue of what constitutes "oldies" and what constitutes "classic hits" - that was brought up somewhere. I think it is a valid point. The great Bruce Morrow plays some 50's, a few 70's, and the majority 60's on his weekly show. It seems to be a good mix, but with a genre that was evolving rapidly, it is difficult to get it right. A love for Elvis doesn't necessarily equate to a love for the Beatles. Or Jimi Hendrix. Stylistically, the format is all over the place even if you concentrate completely on 60's.

One thing is for sure - if I ever do buy a station, I would drop HD immediately, and go for the best analog signal. I have made too many observations about the effects of HD on station range to trust that it is only an antenna bay problem. I know how to do good science and RF measurements - maybe I am not believed, but based on the careful and repeatable measurements I have made - the only conclusion is that - all other things being equal - HD has a problem that affects analog range. Flame away, but had you made the same observations I did, you would come to the same conclusions. Something is wrong - I don't have the authority to go to a station and do some more detailed investigation. But fortunately for me - local stations occasionally drop HD and give me a chance to do some really good measurements. The results aren't good news for HD.

Which brings me full circle - to HD being a good investment, or not. I wish DTS well. Thanks to you, I've learned a bit about them. Personally, I don't think innovation and innovation in movie sound equates very well to innovation in radio - unless they are going for over the air surround sound using HD. I am seeing a heck of a lot of DVD screens in cars as I drive down the road - kids watching movies in the back seat for the most part. What I don't see is a lot of over the air viewing. Is DTS thinking of doing something like MTS stereo did with MTV and KLOL in the early 80's - only now simulcasting 5.1 sound with over the air TV? I sure don't see that as a major growth market. In spite of the growing move to cut the cord on cable - where is the bandwidth coming from for streaming movies in a car, and wouldn't surround sound already be a part of that stream? It would sure be frustrating to in car viewers to have HD-2 dropouts on their movie sound. I hope for their sake they thought this through.

So, let me ask you something, Bruce. If you are so serious about the oldies format returning here to Houston that you would invest your finances into an outright purchase of a facility, why don't you pony up the cash and sign a LMA with one of the operations down here?

I'm sorry I'm off topic to everyone else, but that's a serious question, not me being my typical contrary self when dealing with you. You say you don't wish to be a real part of daily operations, just an investor willing to put his money where his mouth is. I say, prove it.

We have, amongst our midst, an operations manager for Salem, that has a 1,000+ oldies playlist cued up and ready to spin those golden oldies for you, of course, as long as you buy the time. His company does provide lease time on one of the signals, I mean, just check 1110 out on a Saturday afternoon sometime Bruce. You just have to sit back in your comfy chair, enjoy sipping on a glass of sweet iced tea, and tap your toe 'til your heart's content. You'd also have one of the legendary talents in this market as your own personal jock and music director. How could you ever want more than that?

Did you know that the Villarreal brothers also lease out their facilities, too? For the right price, and you provide the programming (which I'll personally loan you my 1,500+ oldies I have, if you don't have a complete library of your own), you could be covering a nice portion of Houston with couple of their AM signals.

So, the ball's in your court Bruce. You want a facility, and there's facilities to be had in this market. Oh...and if it's heritage that makes an oldies type station viable here, then look no further than the graveyard of Houston's dial. KCOH has been a landmark here in Houston for 62 years now, and wouldn't you know that Liberman would absolutely sell it if you approached them with cash in hand? Ask Radio Aleluya. They've bought two from Liberman, and your money is as good as theirs is. You'd be able to take the legendary KCOH, once the lease concluded, and shape it into whatever image you want. The KCOH brand drips with heritage and brand recognition in this town. Put an oldies format there, which would actually take the dial setting BACK to what it originally was as KNUZ...and you could run 24/7 365 from downtown Houston. I'm almost certain David would put in a good word on your behalf to allow your newly acquired KCOH to remain on the Univision stick once the sale is complete. I mean, who wouldn't want to help you get this thing up and running, knowing how kind hearted, mindful, and tolerant of others you are?

Ok...ok. I couldn't resist that last part, but I'm serious about the rest. If you've truly got the finances to make something like this happen, do it and quit complaining about it already.

rbrucecarter5 said:

I know how to do good science and RF measurements -

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Based on your past postings, I argue you don't Bruce. For the record, I have asked you on several occasions to justify your inaccurate claims with what methodology you used to arrive at conclusions and have received nothing more than rambling bluster about your radio listening habits and irrelevant technical doublespeak. If you ever decide to ask for information about proper industry standards for field strength measurement on FM stations, I'd be happy to help you with how to collect relevant data. Otherwise your claims about HD have been technically unfounded. Hopefully anyone willing to invest in a radio operation with you, will be smart enough to consult a registered consulting engineer and not listen to your inaccurate claims.

rbrucecarter5 said:

I don't have the authority to go to a station and do some more detailed investigation.

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Sure you do! I'm sure a station engineer would be pleased to educate you on how their HD operation works and may even be willing to set up some testing times during an already scheduled maintenance period. A little education on HD might go a long way for you Bruce, but I doubt you would even bother trying.

rbrucecarter5 said:

But fortunately for me - local stations occasionally drop HD and give me a chance to do some really good measurements. The results aren't good news for HD.

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And those results are? What was your testing methodology? What configuration was the station being measured in? Auxiliary facility? Backup antenna? Reduced power? Without coordinating tests with industry standard methods, coordinated with the station, you're not going to arrive at any substantive conclusions.

In the past week, the XM radio in my car died. I had to go back to listening to music on FM. My car has HD radio. I live in the Philadelphia suburbs, not all that far from the Roxborough tower farm where most Philly FMs broadcast from. I really didn't like the FM-1s going back and forth from HD to analog. I know the HD signals don't carry as far as the analog, but I was surprised at how close you can be to a tower site and still have this back-and-forth phenomenon, which was annoying to me.

At least with the Hd-2, 3 or 4, the signal is either there or it isn't - same as satellite radio.

And this made me wonder: Is there a way for an FM station to broadcast its main signal in analog only so as to prevent these back-and-forth switches from HD to analog but at the same time broadcast HD-2, 3 and 4 signals? Or is it all HD or nothing?

Glad I have my XM back. HD wasn't impressive.

And by the way: I read today that the new-car presence of Sirius/XM is 72%, while the new car presence of HD is only 35% ... just under half S/XM.

radiophiler said:

And by the way: I read today that the new-car presence of Sirius/XM is 72%, while the new car presence of HD is only 35% ... just under half S/XM.

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Keep in mind there's a cash incentive for adding Sirius, and none for HD. So the comparison is not exactly fair.

purpledevil said:

So, let me ask you something, Bruce. If you are so serious about the oldies format returning here to Houston that you would invest your finances into an outright purchase of a facility, why don't you pony up the cash and sign a LMA with one of the operations down here?

I'm sorry I'm off topic to everyone else, but that's a serious question, not me being my typical contrary self when dealing with you. You say you don't wish to be a real part of daily operations, just an investor willing to put his money where his mouth is. I say, prove it.

We have, amongst our midst, an operations manager for Salem, that has a 1,000+ oldies playlist cued up and ready to spin those golden oldies for you, of course, as long as you buy the time. His company does provide lease time on one of the signals, I mean, just check 1110 out on a Saturday afternoon sometime Bruce. You just have to sit back in your comfy chair, enjoy sipping on a glass of sweet iced tea, and tap your toe 'til your heart's content. You'd also have one of the legendary talents in this market as your own personal jock and music director. How could you ever want more than that?

Did you know that the Villarreal brothers also lease out their facilities, too? For the right price, and you provide the programming (which I'll personally loan you my 1,500+ oldies I have, if you don't have a complete library of your own), you could be covering a nice portion of Houston with couple of their AM signals.

So, the ball's in your court Bruce. You want a facility, and there's facilities to be had in this market. Oh...and if it's heritage that makes an oldies type station viable here, then look no further than the graveyard of Houston's dial. KCOH has been a landmark here in Houston for 62 years now, and wouldn't you know that Liberman would absolutely sell it if you approached them with cash in hand? Ask Radio Aleluya. They've bought two from Liberman, and your money is as good as theirs is. You'd be able to take the legendary KCOH, once the lease concluded, and shape it into whatever image you want. The KCOH brand drips with heritage and brand recognition in this town. Put an oldies format there, which would actually take the dial setting BACK to what it originally was as KNUZ...and you could run 24/7 365 from downtown Houston. I'm almost certain David would put in a good word on your behalf to allow your newly acquired KCOH to remain on the Univision stick once the sale is complete. I mean, who wouldn't want to help you get this thing up and running, knowing how kind hearted, mindful, and tolerant of others you are?

Ok...ok. I couldn't resist that last part, but I'm serious about the rest. If you've truly got the finances to make something like this happen, do it and quit complaining about it already.

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I think there is a lot of merit in your idea. I am not thrilled with doing anything on AM, because as David points out, the band is dead. Well - the realm of mindless talk, mindless sports, and foreign language stuff. Plus there is the issue of stereo - and C-Quam encoders being largely removed from the transmission chain. HD AM is a bad joke and I wouldn't have any interest in trying it to get stereo music. Maybe - if it were a powerhouse regional like KMKI in Dallas it would be workable - I got 32 miles range on it, but only daytime. Compared to 290 miles for C-Quam daytime. What a downgrade!

I have nothing but admiration for KCOH - what they are trying to do on AM, and on a graveyard frequency at that. I wouldn't even think about displacing that format. It is one of the bright spots on the AM dial!

I will PM you, depending on what I decide. A lot depends on the price of oil - it is really screwing up the value of this startup company. Maybe we can wait out the downturn. Don't expect a PM next week is all I can say! The money isn't real until it shows up in the bank.

Yes - I do sometimes have all the tact of Donald Trump. From reading a couple of posts about me on here, tact is not a strong suit of some other people either. Perhaps a little kindness and respect on everybody's part would be a welcome change on the board. Starting with and including me.

If you want to play in the big kids sandbox, you'd better be wearing your big boy pants Bruce.

I only have one question.

rbrucecarter5 said:

Of course, the first thing I would do is hire a business manager and other experts experienced in launching a station.

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If the experts you hire tell you your dream format won't be profitable, will you fire them and do it anyway, or will you toss your dream aside and do something that has a chance of making you those millions you "are on track" to retire with?

The answer to that will tell a lot about whether or not you are to be taken seriously.

A lot of very smart and wealthy people have tried and failed. Seems to me John Rook tried to do this a few years ago. Spent a ton of money, hired legendary DJs, and ran out of money pretty quickly.

What I've learned is that there are lots of very knowledgeable and experienced programming people. But it takes money to create great programming. Lots of money. Deep pockets. Not many programming people have the ability to raise money and fund their ideas. I saw recently where one owner is funding his station with a restaurant. Great idea. Restaurants are better investments than radio.

And as a wise man once told me back in the 70's: "Son, if you want to make a million dollars in radio, be prepared to spend two million. If you want to make a million dollars doing TV, you'll have to spend about ten million."

That may have been true in the 70s. I often say you're better off buying a boat. At least you can use the boat to catch dinner.

OSU studied restaurant failure rates and found 25% fail their first year, and that number rises to 60% after three years.

That really puts into perspective how difficult radio can be, I suppose.

Lenders believe restaurants are about the riskiest of investments (a myth) and charge really high interest rates, if they lend to restauranteurs at all.

I don't think radio is quite this failure prone, unless you equate format changes with restaurant closures.

tomservo said:

I don't think radio is quite this failure prone, unless you equate format changes with restaurant closures.

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I don't know...have you tried getting a loan for a radio station? SBA won't even talk to you.

And the FCC can't understand why minorities have trouble buying radio stations. The US gov 't won't even loan them money!

jhardis said:

There are different numbers floating around as to how much venture capital was put into iBiquity. At the high end, according to http://current.org/2012/11/slow-growth-for-hd-radio/ "Since its founding in 1998, the company has secured more than $300 million in venture capital." Likewise, the iBiquity website says that Bob Struble "secured the support of the investment community, raising over $300 million to date."

To break this down further, according to the current.org article, "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." http://venturebeat.com/2008/03/28/i...yet-another-round-to-fuel-hd-radio-ambitions/ says that they raised $15 million in a fourth round of funding in 2008, with an estimated $115 million prior to that (making $130 million in total). The third round in 2005 was for $30 million. http://dmwmedia.com/news/2005/02/17/digital-radio-broadcast-developer-ibiquity-lands-30-million The Washington Post puts the number at $135 million, as of 2005. http://www.washingtonpost.com/wp-dyn/articles/A58846-2005Feb27.html This would imply about $150 million in total.

DTS paid $172 million.

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I think a key thing to remember is that iBiquity's been living on private equity investments for the last decade or so...investments made in hopes of a big IPO payday. That's become increasingly unrealistic over time, so the acquisition of DTS lets those investors get out (with profit? who knows) and iBiquity gets a corporate parent who is more likely to actually care about the system's viability over the long term.

What I find interesting is that there was so much stink in IBOC's early days about Lucent not understanding the needs of broadcasters. Now HD's corporate parent is a non-broadcaster. And what will this do to all of the third-party research and development efforts for HD? Will CBS, Emmis, NAB Labs and NPR labs continue to subsidize R&D for an entity that is now part of a publicly-traded company?