HD Radio: Sold…Again

It came as a surprise to attendees of last week’s NAB Radio Show in Nashville: just a day before the CEO of DTS, the company who bought HD Radio proprietor iBiquity just last year, was to be a featured guest at a convention luncheon, his company was acquired by Tessera Technologies in an $850 million deal.
Who is Tessera? Founded in New York back in 1990, the company initially began as a designer and manufacturer of semiconductor chipsets, including memory modules. It went public on the NASDAQ stock exchange in 2003; five years later it acquired FotoNation, a company devoted to image analysis.
Adding DTS’ intellectual properties to its stable of tech gives Tessera a substantial foothold in the audio and video semiconductor space. According to Tessera CEO Tom Lacey, “Our complimentary techology portfolios are ideally suited to deliver the next generation of audio and imaging solutions to mobile, consumer electronics, and automotive markets while expanding our ability to address new opportunities in the [Internet of Things] and [augemented/virtual reality].” Nearly half of the money Tessera presently makes comes from licensing fees, from companies that use its chipsets.
“You don’t want radio to be the thing your dad did,” DTS CEO Jon Kirchner told NAB Radio Show attendees in Nashville; as a part of the deal, he’s expected to become president of a new, yet-to-be-named corporate entity that will encompass both DTS and Tessera. “[Radio is] a dashboard-centric industry. . .in the coming decade the car is going to be a very different experience, and we need to be in it.” He also expects Tessera to be able to bring HD Radio chipsets into mobile phones.
Interestingly, HD Radio was not present in the exhibition-space at the Radio Show.
It was just last October that DTS bought iBiquity for $172 million. At the time, many industry-watchers thought the move to be relatively sound, since DTS’ vast experience with audio algorithms and circuitry seemed to dovetail with the HD Radio platform, which involves a proprietary chipset and software. In fact, that is how iBiquity/DTS makes all its money — by charging electronics manufacturers up to $12 per HD chipset installed into radio receivers, and by licensing HD broadcast software to stations for thousands of dollars a pop (with recurring fees for those who use certain functionalities, like multicasting).
But none of this means that we can actually expect to see more attention and investment from HD Radio’s new parent any time soon. In fact, one might look at DTS’ acquisition of iBiquity last year as a strategic move purely designed to make its own technology-portfolio that much more attractive to another buyer, which is exactly what transpired. Tessera took out $600 million in loans to finance the DTS acquisition, and after the deal is closed it’ll have about $100 million in “cash and investments” on hand — a pretty lean sum, considering the constellation of technologies that Tessera seeks to develop.
Furthermore, there’s been little news from iBiquity/DTS about progress on an HD chipset for mobile devices. This has been a long time in theoretical development but hasn’t reached tangibility yet because the chips draw too much power — and in a smartphone, for example, battery-hoggage is a huge no-go. Save for one demonstration of a prototype HD-capable smartphone back in 2012, there’s been no public movement on this issue.
Perhaps Tessera’s foothold in this market may crack it open for HD, but first the company will have to develop a viable chipset and firmware, and convince device-makers to pay what amounts to an exorbitant licensing fee for what boils down to a minor feature in the smartphone universe. From the sounds of both Tessera’s and DTS’ executives, HD Radio is an opportune feature to bring along for the ride, but not something that inspires or crystallizes development in some new product or service beyond what the companies already offer. And who’s to say that Tessera hasn’t acquired DTS simply to make itself a more attractive takeover-target a year or two from now?
This development also takes HD Radio one step further outside the influence of the U.S. broadcast community — highly ironic since HD’s adoptive history and policy campaigns were all rhetorically grounded in the notion that the radio industry wanted to control its own future, and the best way to do that was by adopting a digital broadcast technology that it controlled. 15+ years on and that rationale is completely dashed, while the technology itself remains in malaise.
In sum, HD Radio’s corporate parentage has transitioned from a standalone entity entirely focused on HD, to a company working in the digital audio space, and now to a company that makes chips for electronics of all sorts, but whose vision extends far beyond (and has not been historically very invested in) radio or audio. Exactly how does Tessera’s hype of IoT and AR/VR intersect in any fashion with radio as we’ve known it? Radio as we’ve known it is still struggling to wrap its collective head around the plain old Internet and its more traditional platforms and services.
Some may call this a positive development regarding the institutional stability of the HD Radio system; in reality, it’s a play to consolidate intellectual property, pure and simple, with little expected material effect on HD or the broadcasters it purports to serve.