DTS Purchase of iBiquity To Drive Expansion in Auto, Home, Mobile Markets, Companies Say

The combined company will extend DTS’s reach into the growing digital radio broadcast and automotive infotainment markets and will lead to “interesting opportunities for expansion” in home and mobile markets, Kirchner said. The range of technologies supporting various content sources in the connected device world include AM/FM radio and Internet-based over-the-top music and video services that consumers enjoy daily, Kirchner said: “Therefore, HD Radio technology is highly relevant to the future of cars, electronics and mobile devices, particularly as consumers face increasing costs for bandwidth to support their data and entertainment consumption.” Free over-the-air broadcast radio “has an important place” in consumer entertainment options, he said.

The deal is a “natural fit” that will provide long-term benefits for both companies, which share similar licensing models, Kirchner said. Bob Struble, iBiquity president-CEO, will continue to head that business under the title president-HD Radio technology and automotive business. Struble said head counts haven’t been determined but it’s expected the “vast majority” of iBiquity employees will remain with the company, which will continue to operate out of its Columbia, Maryland, facility.

For iBiquity, the purchase brings “a strategic, long-term and committed parent who is excited and very focused on growing our business,” Struble told us. The privately held iBiquity has been owned by financial investors without the "deep knowledge" of the markets, technology and business model that DTS has, Struble said. The purchase will allow HD Radio technology, including radio and data functionality, to get to market “quicker,” he said.

Struble wouldn’t break out HD Radio penetration in the home audio market, choosing instead to cite the technology’s 35 percent penetration in U.S. vehicles sold last year. But there’s a “great potential of moving forward quickly,” in home audio, Struble said, citing DTS’s strong presence in the home space. “We hope that the resources and the experience base and the customer relationships there will help our efforts,” he said.

Several AV receiver companies -- Denon, Marantz and Onkyo -- have adopted HD Radio, Struble noted, and he’s eyeing clock and kitchen radios, boom boxes and tabletop models as growth opportunities with DTS. iBiquity has its own line of HD Radio products under the Sparc private label but the line isn’t as strong as it is in OEM automotive, Struble said.

Asked how HD Radio will fit into DTS’s Play-Fi ecosystem, Struble said it’s too early to tell. “The technologies and businesses are much more complementary than they are overlapping,” he said. He said HD Radio technology “is about improved audio quality. To the extent that DTS has technology that can help us do that for radio listening, there’s absolutely opportunities but really too early to say what those would be specifically.”

There’s currently no HD Radio penetration in the U.S. smartphone market, and that’s another area DTS hopes to advance with the purchase, Kirchner said. Struble said that will be a two-step process, with analog listening coming to smartphones first. “That’s just beginning in the U.S.,” Struble said. The company said in summer 2014 (see 1407310057) that it had abandoned its strategy to sell smartphone makers on building HD Radio chips into handsets, instead supporting the radio industry’s NextRadio app. Kirchner cited on Wednesday’s webcast the many smartphones now shipping with an FM chip that are being “increasingly activated.” That will open the door to “future opportunities in mobile,” he said.

HD Radio’s biggest advantage for DTS is the automotive market, where it has 35 percent penetration in new cars. All 36 automakers serving the U.S. market sell at least some vehicles with HD Radio, for a total of 200 models, he said. Kirchner called that share “reaching critical mass” and DTS expects the percentage to grow. It’s typical in the CE industry for initial resistance to building ecosystems, Kirchner said, “but over time as the value prop gets well established,” more companies deploy the technology, bringing more consumer benefit, and an ecosystem advances more quickly, he said. HD Radio “may have taken a longer time to get here, but as we sit here today we believe the prospects are very positive looking out five to ten years,” he said.

Struble took exception to an analyst's comment on “resistance” to HD Radio among automakers, saying automotive trends “are in our favor.” The increased focus on infotainment systems “totally benefits us,” he said, saying in addition to radio, the company’s technology includes data delivery of real-time traffic and album art, which can take advantage of the growing number of dash-mounted displays in vehicles. Struble pegged HD Radio’s ultimate market penetration as 80-90 percent, with the remaining 10 percent as fleet and delivery vehicles.

Both companies cited opportunities in international markets. “Anywhere there’s AM and FM in the world is an opportunity for us, and that’s everywhere,” Struble said on the webcast. While iBiquity focused exclusively on the U.S. to master its model, “the theory was if we got it right here then that would be business we could take out of the country for additional growth,” Struble said. HD Radio has made inroads in Mexico, Panama and the Philippines, he said.

Of the roughly 15,000 radio full-power stations broadcasting in the U.S., some 2,300 have made the HD Radio upgrade, Struble said. IBiquity’s take of each broadcaster transition is about $8,000 for transmitter equipment, but the capital investment costs for a station can top $100,000, he said. The ones that have taken the plunge “tend to be the biggest and the most important stations,” he said, saying 74 percent of radio listening in the U.S. is of stations that have upgraded to HD Radio.

Responding to a question on the potential for combining technologies from the two companies, Kirchner said: “The collection of technologies and the ability to offer an enhanced set of solutions across the board is something we’re excited about.” He alluded to “a lot of good stuff to come there.” The deal “further augments our already extensive IP portfolio adding more than 100 U.S. patents as well as know-how and trademarks,” Kirchner said. HD Radio also brings a strong brand among broadcasters and consumers, he said.

In addition to the “attractive growth profile” in automotive, iBiquity brings DTS international growth opportunities with broadcasters and automakers, along with potential expansion in mobile device markets, Kirchner said. Outside of theaters, consumers over time will experience entertainment in three key areas, Kirchner said: home, mobile and car. It's strategically important for DTS to broaden its reach in the broadcast and auto markets “where we can further build our footprint and play a role in the coming age of deeper mobile and auto infotainment integration,” he said. DTS also expects to drive the expansion of HD Radio in “our other solutions into a greater number of devices in all of our markets,” he said.