It’s not quite the IPO payday that iBiquity Digital Corporation’s investors had been hoping for, but it does absolve the company of trying to jumpstart radio’s digital malaise on its own. Last week, iBiquity annonunced it was being acquired by DTS in a $172 million deal.
Who is DTS? Perhaps best known for developing multichannel surround sound technology for the film industry, the publicly-traded company now offers a range of digital audio encoding and processing algorithms that can be found in a variety of media formats and electronic devices.
The HD Radio system itself comprises more than 100 patents, which DTS calls a “defensible IP patent portfolio.” While iBiquity itself only makes an average of $8,000 on licensing when a radio station adopts the technology (an amount iBiquity CEO Bob Struble calls “wholly immaterial” to the comapny’s business model), it makes up to $12 on each receiver-chipset used by electronics manufacturers.
If HD technology is integrated into just a few million automobiles every year, it’s pretty easy to identify the primary revenue stream here. DTS calls this a “scalable, attractive licensing model” that on its face is not that much different than what it already does: sell proprietary technology for integration into other systems.
In many respects this is a marriage of convenience. For the last decade or so, the crux of investment in iBiquity has not come from the broadcast industry, but from finance capital: banks and private equity firms. They assumed the burden of keeping the HD System afloat financially in hopes of greater returns when HD Radio became ubiquitous and iBiquity itself would become a publicly-traded company. But wholesale indifference to the HD System, especially within the broadcast industry itself, has quashed those hopes and one could imagine pressure’s been building to put up or suffer a trend of disinvestment.
At that point, iBiquity’s options would have been a bailout (presumably from broadcasters) or trusteeship — anything else would have signaled the end of HD Radio as a viable technology. An acquisition by DTS preserves the integrity of the HD system; the fact that DTS will most likely take on some debt to finance the deal (expected to close by end-of-year) does signal confidence on its part that it can find synergies between HD Radio and its existing audio technology portfolio.
Radio Survivor’s Paul Riismandel notes that DTS seems most interested in HD Radio’s ability to stream data to vehicles, used for program, traffic/weather, and advertising information. “Access to this technology could give DTS an edge in creating in-dash information systems that are independent of cellular data and internet serivces,” he writes.
“Of course, this has nothing to do with actual radio as an audio medium,” Paul concludes. “But as it has evolved HD Radio is less and less about actual radio. . .My guess is that DTS clearly understands this, and so we can expect to see much more rapid development of the non-radio side of HD Radio.” If true, then it opens up a lot of questions about whether HD’s new corporate parent will collaborate or even accommodate the desires of broadcasters for whom the technology was originally designed.
In the early days of U.S. digital radio development, two companies vied for system dominance. One was owned by broadcast-investors (USA Digital Radio) while the other was a project of the phone company (Lucent Technologies). Lucent’s system was villified because it was developed by people who “didn’t understand broadcasting,” which ultimately led to the two systems being merged into iBiquity in 2000. Since then, while iBiquity has been primarily responsible for the standard, much of the subsequent research and development has been provided by broadcast-partners, such as the NAB, NPR, CBS, and Emmis.
NAB’s skunkworks seems to be reorienting itself toward other technologies that are seen to complement broadcasting, such as the integration of FM radio reception into mobile devices, while NPR Labs has just been downsized. Will these and other development-partners continue to throw resources into a system now held by a non-broadcast company with its own Wall Street presence?
At best, DTS will bring a fresh perspective to the HD Radio system and perhaps excise some of its most notable detriments. It might not be wedded to the entirety of iBiquity’s licensing fee structure; getting rid of the station-side licensing fees could improve its chances of adoption. It might also use its prowess in squeezing ever-higher fidelity out of digital audio systems to rework HD’s sound; the “better-than-analog” benchmark of HD has been a non-starter and has been an area of intellectual property development in which broadcasters have little expertise.
At worst, DTS could treat HD Radio as nothing more than an IP portfolio, jettisoning support for the system holistically in favor of scavenging its most lucrative parts for other uses. This is unlikely, though, as iBiquity will continue to operate with the same organizational structure as it had pre-sale.
The most significant development in HD Radio’s corporate evolution since the founding of iBiquity 15 years ago has been meet with silence from broadcasters, outside of the initial acquisition announcement and follow-up spin from iBiquity and DTS executives. I can’t tell if that’s because folks don’t quite yet know what to make of the deal, or if they just don’t give a damn.