Sprint's Radio Deal: Some Context

More details have emerged about Sprint’s deal with broadcasters to include FM receiver functionality in some of its mobile devices. In simple terms, broadcasters have cobbled together a package of subsidies to the nation’s #3 wireless carrier in order to buy access to that market.
Sprint will enable FM radio reception capability in at least 30 million phones over the next three years, using Emmis Communication’s NextRadio app as the interface.
In exchange, broadcasters will pay Sprint 30% of any "interactive" advertising revenue generated via the app on those phones. Emmis sweetened the deal by pledging Sprint $45 million in advertising inventory over three years ($15 million per year, allocated quarterly).
What, exactly, are broadcasters paying for? There are about 50 million customers on Sprint’s network. Taking into consideration that many customers have multiple devices, and an average smartphone "upgrade" cycle of two years, radio’s actual penetration into Sprint’s customer base will be marginal.
From a broader perspective, Sprint claims less than a quarter of the U.S. wireless market. When you factor in the projected growth of smartphones over the life of the deal, Sprint’s commitment to 30 million devices is relative peanuts.
Emmis negotiated the deal directly with Sprint over the course of 2012, though Radio World reports that Emmis "is busy rounding up commitments" from other broadcasters to help shoulder its costs. CEO Jeff Smulyan casually suggested that "[i]f every broadcaster gives up $10,000 worth of inventory per year per station, [the Sprint deal] will easily take care of itself." He also says Emmis is attempting to strike similar deals with the larger carriers (like AT&T and Verizon), which may carry larger commitments.
Note that the Sprint deal requires no upfront cash outlay and promises the sharing of unquantifiable future revenue. It’s the same template the broadcast industry used to promote HD Radio over the last decade. In that case, a coalition of broadcast conglomerates pledged more than a billion dollars’ worth of advertising inventory to promote the technology; the fruits of that effort are a broadcaster adoption rate of ~15% and listener uptake in the single digits.
Emmis will also administer the NextRadio app and collect Sprint’s revenue share. As its developer, Emmis plans to license the app to other broadcasters, who will also pay the company "a small management fee" for its back-end systems management.
The quality of NextRadio will determine its success– and there’s not a lot of firm info on just what the app brings to the table beyond interactive advertising opportunities. Content and actual utility drive the use of apps, and sketchy details on that front leave one to wonder. Yet Emmis’ Chief Technology Officer Paul Brenner sees dollar signs: "Mobile ad spending is the growth business for technology right now," he told Radio World.
iBiquity Digital Corporation President/CEO Bob Struble is similarly "thrilled" with the Sprint deal, because analog FM smartphone penetration lays the groundwork for an eventual "upgrade" to HD Radio, advancing one aspect of the four-pronged strategy the technology’s proponents have to resuscitate interest in it.
Emmis and NAB Labs have already developed a prototype smartphone with FM-HD reception capability, but it’s likely to be a while before they actually exist. It’s another function of money: iBiquity estimates that adding HD to a phone will cost between $2-4 per device. As a rule, device-makers don’t like to spend more than 40 cents to add a feature; in comparison, the analog FM chipset and firmware costs just pennies per unit.
Radio’s migration into other devices is part of the medium’s future, but the Sprint deal has more value as a symbolic commitment than in its potential for transformative return. All paths of transition must start somewhere…but is this deal meaningful or sustainable enough?