Blogging Nick Piggott

It’s really great to meet radio people from around the world, and talk with them about their own plans for digital radio. But I’m often surprised about how much confusion surrounds DAB, particularly the (mis)information about DMB.

It’s important that radio people inform themselves properly and independently about the technology choices they are making. This isn’t as easy as it seems.

Follow the money

What isn’t widely understood is how money flows around the business of consumer electronics these days. You might think that a manufacturer makes money through retail margins – selling radios at a price higher than it cost to produce them. That’s certainly true, but the economics of the last decade or so have eroded retail margins to be incredibly slim. You don’t make much money simply by selling radios.

One of the issues that is new to radio people is IPR – Intellectual Property Rights. IPR represents some “cleverness” that a company (or group of companies) has thought up to make technology work better/cheaper or both. Legally, they “own” that idea or process, and they can choose to licence it to third parties. A modern consumer electronics device (like an MP3 player) may have IPR from twenty or thirty companies in it, and everyone of those companies is entitled to a licence fee. There has recently been a case where consignments of MP3 player have been seized because the manufacturers have not been paying the IPR for using the MP3 technology.

Here’s a specific example: To enable DAB+ or DMB requires an audio encoding technology called HE AAC, combined with a technology called SBR (Spectral Band Replication). These two technologies cost €1.60 and €0.15-€0.20 to licence per receiver respectively. So every DAB+ or DMB enabled receiver generates €1.80 to those companies who own the IPR rights. Multiply that across every radio sold in the world, and that’s a substantial amount of revenue. Put it another way, if you sell a DAB+ radio for €20, as a manufacturer you might get €0.50 from the retail margin, but as an IPR licensee you might make €1. Making radios is not as profitable as making the technology to go into radios.

But here’s an interesting thing. A DMB device also needs another technology called MPEG II Transport Stream. That adds another $0.50 per device. So a DMB device automatically has a higher cost, even if it only ever decodes audio. And there’s another $0.50 per device flowing to an IPR holder (or group) somewhere.

So who owns this IPR?

It’s not always clear who benefits from these extra licensing fees. But it does stand to reason that the companies who have IPR rights in a particular technology will be those companies most enthusiastic about promoting it and getting it widely adopted. And boy, there’s no wider adoption than radios. (100m radios in the UK alone – only 70m mobile phones). It’s a vast vast opportunity. If you’re an IPR holder, even if it’s only a total of €0.10 per device, you could be looking at millions and millions of Euro in licence revenues for decades to come – just by persuading someone to use your technology.

So now it makes sense why a technology company might fly people around the world, and make expensive “prototype” devices to encourage uptake of that technology in which they might have IPR rights -both declared and potentially hidden too. A few hundred thousand Euro in airfares, flights and prototypes might net millions of Euro return.

(It would be like the petro-rich countries encouraging the development and universal adoption of the internal combustion engine. Whatever the development and marketing costs were, they would quickly be dwarfed by the petro-dollars rolling in for decades and decades).

Take your technology advice carefully

Here’s a harsh statement – don’t trust technology suppliers to give you impartial advice. They might benefit substantially from your decision. They are selling you a solution, and your consumers will be paying for it with every device they buy, for ever.

So now you have an insight to the motivation of technology suppliers, who can give you impartial advice?

Well, the answer is that few people can give you genuinely impartial advice. But I would suggest that other broadcasters probably have objectives more similarly aligned to your own, and rarely have an IPR interest, so their advice might be far less prone to distortion. But of course, they don’t make any money from their advice, so sometimes it’s hard to justify spending a few hundred Euro one a flight and a hotel to discuss these things.

I’m disappointed that our colleagues in France have an expectation of Digital Radio that’s virtually identical to ours, but have been sold a completely different set of technologies to delivery it – technologies that will add about €0.75 in IPR to every single digital radio sold around the world. We can’t afford to make that mistake again.

DAB, DAB+ and DMB

Sometimes it appears that technology suppliers would prefer the simplicity of DAB to be obscured from broadcasters. It obviously helps them sell a solution if the solution looks hard.

DAB isn’t complicated, but you do have to know your options.

Everything in DAB starts with the multiplex, and the multiplex can support a mix of technologies all co-existing in the same set of spectrum and on the same infrastructure. The most prominent DAB applications are:

• DAB – confusingly, the same name as the multiplex. DAB refers to the original method of broadcasting radio using the MPEG Layer II audio encoder, and this is now largely superseded by DAB+. You can add visuals to DAB using Slideshow at frame rates of up to 1fps.
• DAB+ – the way to transmit Digital Radio. DAB+ is a direct upgrade of DAB. The great thing about DAB+ is it supports exactly the same data services as DAB, so there is a clear migration path for countries using DAB now (like the UK) into DAB+ without starting from scratch again.
• DMB – the way to transmit mobile TV. DMB is substantially more complicated and expensive to transmit, and on the receiver, than DAB or DAB+. Unless you absolutely need to transmit TV (moving pictures with synchronous audio), you should not be considering DMB at all. The extra IPR load on the receiver of DMB is nasty, and makes the idea of a €50 radio with a colour screen virtually impossible.

I don’t think I can make it clearer than that. Don’t use DMB for radio, as it’s unnecessarily complex and expensive for radio, even radio with visuals. Use DAB+, as it was beautifully developed (largely by broadcasters with no IPR interests) to work brilliantly for radio. DMB was knocked up in a hurry to support mobile TV – it works, but it’s not elegant. But you can mix them all together in the same DAB multiplex just fine.

Radio companies of the world need to stick together

Together there is enough knowledge and understanding of the technology within broadcasters not to have to rely solely on technology suppliers for advice. The problem is that we appear to be really lousy at talking to each other about it. The WorldDMB Technical Committee helps a bit, but often decisions are being taken at higher levels than that, and there simply aren’t enough commercial radio broadcasters participating in WorldDMB.

That needs fixing before we fall into another IPR trap that will cost us all money.

I was at the Media Guardian Radio Reborn conference last week, and Claire Enders showed us one of those scary “share of display advertising” graphs. True to form, every sector was either in decline or clearly looking a bit feeble (radio in the latter group). The share of spend was on the vertical axis, and the sectors (TV, National Press, Regional Press, Radio…) along the horizontal access, although “Outdoor” was inexplicably absent.

The only set of bars in growth was the set labelled “Internet”.

But this strikes me as being wrong; it’s an invalid comparison. “The Internet” is just a set of interconnecting networks, using an agreed communication protocol. There’s no business called “The Internet Ltd/plc” (although doubtless Google are working on that right now).

A more accurate set of labels would have been: “ITV & other commercial TV operators”, “Guardian & other national newspaper publishers”, “GCap Media plc & other commercial radio operators”, and… “Google & other search engines”. That would be a far more accurate indication of where the money is going. Money doesn’t go “to the Internet” – it goes to companies who have used “The Internet” as a platform to access consumers that they were previously unable to.

What a more accurately labelled graph would show us is that advertisers are moving their money to where they feel it is more effective, a feeling that’s re-enforced by apparently magical accountability for every display and click. (Can you tell that I’m sceptical?). The problem isn’t “The Internet”; the problem is that traditional media owners have failed to keep up with their clients’ demands, or (and probably more realistically), educated their clients to have more reasonable demands.

Google & Co. have a substantial audience. OFCOM tells us that 65% of the UK have “The Internet” (of which 86% apparently have “Broadband”, whatever that means). Here’s what’s interesting – whilst the content consumption on the Internet is fragmented beyond belief (and this blog contributes yet another consumption pin-prick on the map), the commercialisation and aggregration of that audience is in the hands of a much smaller number of media sellers. So actually, what Claire was really trying to tell us is that advertisers trust Google to deliver better results on a “per click” model or multimedia display model, than they do with incumbent TV, Radio or Newspaper companies.

The challenge for incumbent media owners is to change the perception of advertisers about “The Internet”. Some of that needs to be through real, demonstrable, product development, and clawing back some of people’s media consumption time that is now spent with Google, Facebook, et al. Incumbents allowed competitors to steal audience from right under their noses because they didn’t think “The Internet” would ever be a platform of significant reach. Now it’s up at 65% coverage, compared with ~90% for TV and Radio, and 50%-60% for Newspapers (national readership survey).

But the second challenge is to offer a commercial proposition that is attractive to those starry-eyed about “Internet” advertising. That’s a mix of really good, effective, communication with consumers, and believable and trustworthy measurement.

I think it’s amazing how much trouble Kelvin Mackenzie caused the radio industry by selfishly trying to derail RAJAR by claiming it was inaccurate. One person created an environment of anxiety about the reliability of RAJAR’s measurements, but everyone apparently finds Google utterly trustworthy and really truly believes that they measure every click and every ad delivery. Maybe they should look at some of the Javascript that delivers the ads, or work how many splogs there are out there? Or survey how many people have ad-blockers? I’m not trying to undermine the on-line advertising ecosystem, but there needs to be some reality about the fallibility of any system.

The radio platform is used by 90% of the population, and commercial radio used by 62% of adults. Commercial radio is about at parity with “The Internet” in terms of reach, but ahead on time spent consuming. With Digital Radio we have a platform that’s capable of delivering a similar digital advertising environment as “The Internet” platform, but is still far more ubiquitous in every part of life. I believe we’re still a long way off, in behaviour terms, people using “The Internet” in the kitchen, bathroom, bedroom; and thankfully economics will continue to make using “The Internet” in mobile environments a great deal more expensive than receiving digital radio. So if we can use Digital Radio to deliver advertising propositions that are the same as the ones delivered on “The Internet”, that can be measured as reliably, and are demonstrably as effective, we stand a chance of revitalising interest in what radio companies can offer advertisers.

This week I was lucky enough to meet up with my colleagues and peers in the German commercial radio industry, and spend a day at a seminar organised by VPRT in Berlin. It gave me an insight into their world, and their situation, which I’ve been lacking for a long time. It also made me realise that they’re being let down by some technologists.

DAB Digital Radio has been dominated by public service broadcasters, and the membership of WorldDMB is testament to that fact. Of the hundreds of members of WorldDMB, only 3 commercial radio companies are represented; GCap Media (UK), Channel 4 Radio (UK) and Commercial Radio Australia. The UK’s approach of co-operation between the public and commercial sectors has been an exceptional undertaking. Only recently have commercial broadcasters begun to engage with DAB, visibly in Switzerland, France, Australia, Germany, and the mood is changing elsewhere.

What I’ve learnt in my two days with my German colleagues is that they’re asking very good questions, and indeed probably more informed and relevant questions than we did when we kicked off DAB in the mid-90’s. There are lots of questions that need answers, and when those answers have been gathered and assessed, then there will be a decision on a commitment to Digital Radio.

Not unsurprisingly, quite a lot of their questions are about making the right technology choices, and this is where I believe they’re being let down by some technologists.

Technologists love to create technology. There is always a better solution to a problem, a better framework to work within, a new concept, a new library. COMET, XMPP, Ruby on Rails, Java – technologists thrive and survive on new ideas and new, cleverer, solutions to problems. German technologists are no exception, and their innovations have been exceptional – DAB, MP3, RDS – all have significant input from German technologists, and my personal experience is that they have some incredibly agile and intelligent technologists. I would trust my life with some of the guys at Fraunhofer.

But sometimes technologists’ ability to create endless solutions means uncertainty and instability. And sometimes technologists create problems in order to create solutions to justify their existence.

One of the difficulties I see my German colleagues grappling with is whether they are using the right technology for Digital Radio. Should it be DAB? Or DAB+? Or “DMB Audio”? Or DAB-IPDC? Or DXB? Or IBOC? Or…..? Nobody wants to make the wrong decision, and buy into an out of date technology. And whenever it looks like the number of choices is narrowing, a technologist pops up and throws another suggestion in the ring. And, of course, they all claim to offer the ultimate, most future proof, elegant, scalable and cheapest solution.

Of course, I can help a bit. Don’t use DAB. It’s out of date. But if the UK had hung on in 1998 waiting for a “better” technology, we’d never have got on-air, never sold 7m+ receivers, and never made a success of DAB. And at least we have a relatively obvious migration path to DAB+.

Indeed, it analogous with buying a computer. Just accept that whatever you buy will be superceded in 6 months (or indeed, may already be superceded). If you keep waiting, you’ll never buy a computer and you’ll still be scratching on stone tablets when everyone else is sending e-mail and chatting on Facebook.

It’s a shame that some technologists can’t be a bit more market aware, and look beyond their ability to cook up new ideas and bring a bit more balanced assessment. It’s not providing a solution to keep creating new solutions. Answer more questions, provide more data. Which solution is most elegant? Most spectrum efficient? Most backwards compatible? Most closely matches the requirements list? (Is the requirements list reasonable?). How much will devices cost? Who will be building them? When will they be available? And of course, who else is using this technology set?

I hope the technology issue in Germany can be closed down fairly soon. They’re definitely suffering from too much technology, and it’s not helping. If they can slim down the candidates against a list of reasonable requirements, say “no” to people trying to bounce new/unproven solutions onto them, and make a technology choice, it will tick another box on the check-list marked “Things To Do To Launch Digital Radio”.

I also caught up with Sebastian Kett and Michael Reichert from SWR, home of the rather marvellous DasDing. A blog on what they’re up to will follow….

The digitisation of media comes with costs and justifications.

One often touted justification for the cost of digitisation is that digital media will be more interactive, and that interactivity will lead to new revenues, increased profitability and so on.

Great theory. But the practice is proving rather difficult, because the interactivity isn’t happening as much as people had hoped. And less interactivity means that the potential revenues aren’t being realised. Falling at the first hurdle, and all that.

Let me make a postulation as to why. Maybe your moment of interest doesn’t coincide with the time to do anything meaningful about it. Maybe you don’t have time to interact right there and then. Maybe the device you’re using is particularly bad at doing interactivity.

Here’s two examples to explain better what I mean:

• You’re watching The Simpsons / Family Guy / American Dad (insert wittily written, Korean drawn animation of your choice). The adverts start, and one of them is an advert for a car you’re kinda interested in. Pop quiz: What do you want to do now? a) Spend 10 minutes waiting for the interactive app to download, fill in the form “SMS-style” with the numeric keypad on the remote control, and confirm your ideal time to take a test drive whilst missing the programme you sat down to watch or b) ignore or that and watch the programme you sat down to watch in the first place.

• You’re driving in your car (maybe the one you bought off the TV?), listening to the radio. You think the presenter’s quite funny, worth hearing more of. Do you a) stop to write down the URL of the show podcast and webpages or b) keep driving and keep repeating the URL in your head until something far more important (like traffic lights, or a speed camera) causes it to pop, irrevocably, out of your head.

It seems strange to me that we demand that people go immediately from “oh yes, that’s interesting” to full scale engagement. Why on earth do we expect people to try and do complex interaction on devices with tiny little screens and a single rotary-push dial?

If we can timeshift and pause media, why can’t we timeshift and pause interaction?

Why not let people do the “complicated” business of providing their personal information using a proper browser on a proper computer, and at a time that suits them? With better user interfaces, you can design experiences that will draw people in, maybe show them other things around that time, or around that event, that they might also be interested in. It’s simply a richer environment, in terms of time, attention and presentation.

I think it’s smarter to let people simply tag / pop / bookmark what they’re interested quickly and simply across their day, and then allow them to review what they’ve thought was interesting in their own time, in their own space. Let people take control of their interactions, and do it more on their own terms. Who knows, maybe they’ll do more of it?

There some interesting work going on around this subject; updates to follow.

As the clock passed 17:00 without any official statement, it became clearer that the deal was almost done. At 18:30 it was confirmed by e-mail that Global Radio had made a formal offer to acquire GCap Media plc for £2.25 per share, valuing the company at £375m.

The purchase process won’t be particularly swift, as it requires a vote by shareholders to ratify, and then a period of scrutiny by the Competition Commission. The expectation is that operational transfer will take place in mid-Summer, and until then GCap will retain its own management and plans. (Mirroring the process that Arqiva is close to completing over its acquisition of National Grid Wireless).

There will doubtless be speculation about what this means for the strategy that was outlined on 11th February, and most particularly the very clear stance taken over DAB Digital Radio.

The purchase does not guarantee a clean bill of health for DAB Digital Radio. The structural problems that disturbed the management of GCap continue to exist, and cannot – indeed, should not – be ignored. That merely increases the risk of a unstructured collapse of the eco-system and economics around DAB in the UK.

As GCap starts a new financial year tomorrow, nothing has changed in terms of how much DAB is costing to transmit, and how little its potential is being used to evolve radio and the revenue that underpins it. The bills will keep rolling in, and there’s no reason why decisions to close Planet Rock or theJazz should suddenly be reversed or reviewed.

What a new ownership – an ownership in private hands, and away from the demands of institutional shareholders – should bring is an ability to look beyond the bills of this month and next month, and commit to approaching development of DAB (and other new platforms) on a new basis. We have learnt so much in the last 9 years about what’s good and not good about the current strategy; now is the opportunity, with most of the commercial radio industry in private hands, to take that experience and use it to regroup and reshape the DAB plan for the UK.

To generalise, private equity investors are ruthless on reviewing costs and benefits to customers. There will be pain, and no doubt many people will speculate on “what ifs”. If the potential for DAB can be underpinned with a viable medium-term business plan, then that may justify a renewed commitment to investment. But it’s hard to see how that business plan won’t involve radical change to the existing DAB plan.

It also requires more than just Global and Bauer to commit to change. If Arqiva can’t/won’t contribute meaningfully to cost-reductions re-engineering of DAB infrastructure; if OFCOM can’t tear up the old plan and write a new one; if the BBC are unhappy with changes to DAB for local BBC radio; if receiver manufacturers and consumer electronics manufacturers can’t produce 21st century radio devices – then it’s not going to make the difference that’s required.

I continue to be positive about the potential of DAB. The market is demanding more evolved digital media experiences. Listeners want more “stuff” and more control of it. Advertisers want more compelling, effective and measurable opportunities. Consumer Electronics manufacturers want to add more and more function to devices. The industry can create “new radio”, and of all the technologies that can be used to distribute it, the only one that maintains the ubiquitous, free nature of radio is DAB.