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Interviews at The Entrepreneur Center @NVTC

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An Interview with Robert Struble, President, CEO, and Chairman, iBiquity Digital
June 26, 2006

Robert Struble calls what his company does the biggest trend in consumer entertainment since the arrival of FM radio in the early 1940s. iBiquity Digital Corp., based in Columbia, Md., has exclusive rights to provide digital radio service, or HD radio, a technology that could radically transform the way we listen to AM and FM radio. Numerous radio stations around the country have already made the transfer to digital and new ones are added daily. Nearly 20 radio stations in Washington have made the transfer, including WAMU, WTOP and WWDC. Now the challenge is getting consumers to shell out $300 to buy a digital radio. Struble’s company, which was launched in 1998, has patents on the technology, making iBiquity the FCC’s choice in who should provide the service to radio broadcasters. And investors know there’s something there. The company has raised more than $200 million from radio broadcasters, automotive, media and technology companies, and VC and private equity firms. Struble, 45, was asked to lead iBiquity when it was spun out of CBS Radio where he worked at the time. Since then the company, which has 100 employees, has posted 2005 revenue of $9 million and expects to see $13 million this year. Struble, originally from Buffalo, N.Y., has a bachelor’s degree in chemical engineering from the MIT and an MBA from Harvard.

Tania Anderson, for Bisnow on Business: How is digital radio different from what we currently have?
We’ve seen digital transitions before. Albums went to CDs, VCRs went to DVDs. People can do a lot with their digital cell phones and their digital cameras. We have digital television now. Digital is better and it boils down to three things: better quality, more choice and more interactivity. All three of those things will be the case for HD radio if you look at it compared to AM and FM radio. Quality FM sounds like CDs. AM is going to sound like today’s FM. You get rid of interference. It’s sort of a CD in the car experience. There will be more choices for listeners in two ways: AM is going to sound so good that you’ll hear music whereas now you hear mostly talk. But secondly is the ability to multicast in FM. An individual FM station can play multiple audio streams on the same frequency. It’s not 97.1 anymore. It’s 97.1-1, 97.1-2, 97.1-3, etc. So we think a lot more cool and “nichey” formats that you just don’t hear on radio are going to be coming.

How about the interactivity?
It’s the on-demand experience: I like the song. I hadn’t heard it before. Press the rewind button. Or, I’m not going to be in my car at noon but I want to hear what Rush had to say so I’ve got an electronic program guide that I punch, and it’s waiting for me when I get back in the car. Or I’ve got to have the traffic now. I can’t wait until the 8s. I push a traffic button on my screen and the traffic comes up instantly and is customized to my route. Interactivity will include things like the ‘buy’ button. I hear an ad, I want to buy it and I press the ‘buy’ button. All that’s coming with digital radio and it’s a really great value for listeners and offers new revenue opportunities for broadcasting.

How is it different from satellite radio?
It’s AM and FM just upgraded. It’s local, it’s what you’ve been listening to for years. It’s just better.

How will digital radio compete with satellite radio?
It’s different strokes for different folks. They’re different business models. We like the satellite guys a lot. In full disclosure, [XM Satellite Radio and Sirius Satellite Radio] are both our customers. And they’re good customers. But that’s a nichey service. They predict to be at 15 million listeners of satellite radio by the end of this year. And 15 could go to 20, 30, 40, 50 million. But 250 million people listen to radio every day. So you’re talking about the mass market service versus the niche service. Think of it like HBO and basic cable. Some people like HBO and pay extra for it, but not everybody does. But everybody gets basic cable. That’s the difference here.

How many people are currently listening to digital radio?
It’s tough to say. More than 800 radio stations across the country are now broadcasting digitally. There’s a station or two per day every day transitioning to digital. The receiver sales are just beginning to take off. A good number is probably tens of thousands of radios have been sold at this point.

Is the transformation to digital radio similar to that of digital television?
It’s similar in the sense that you’re taking a well-known and well-loved, ubiquitous service and making it better by converting it to digital. It’s different in that the television broadcasters got new and valuable spectrum from the government. The plan is that when the digital transformation is done, everybody buys new TVs and the broadcasters give back the old spectrum to the government. You’ve had all this legislative activity about when that should be. With radio we actually use exactly the same spectrum that they’re currently using, just with good technology. From a public policy standpoint, that’s much better. Essentially you’re getting something for nothing. We don’t need any new spectrum and you don’t have any of these legislative or regulatory battles about when things have to be given back and re-auctioned.

What do the radio stations have to do to transfer over to digital?
They roll in a couple of refrigerator-size racks and plug them in and in a couple of days you’ve got a digital radio station. The cost is around $100,000 per station. If you compare that to digital television, that was millions per station. This is actually quite affordable for radio broadcasters.

What are some of the hurdles you’re facing in getting the technology adopted?
You’ve got to get stations on the air, which is going quite well. Then you have to sell some radios. We’re spending a lot of time working with manufacturers to get costs down, working on getting more product out in the marketplace. We’re beneficiaries in that we can look at a lot of other digital transitions that have gone before us and learn from them.

Where does iBiquity fit in the market?
In terms of developing the technology, we’re the only provider. We’ve got about 100 patents around the technology and they’re issuing more every day. The technology was selected as the standard by the FCC in 2002, so we’re a sole source provider in that regard. Because it’s an FCC standard, what we are required to do is license to everybody on a fair and reasonable basis. If you start a radio receiver company tomorrow and say you want to build HD radios, I have to give you a license and I’m going to give you the same terms that all the big guys received.

Is digital radio more advanced in the United States than other countries?
The most advanced country is the U.K. There’s a system over there called digital audio broadcasting which is slightly different but they’ve sold several million radios over there. In some sense that’s interesting for us because we can benchmark what they’ve done and try to apply that to our situation. They started in the early 90s.

How soon will digital radio be the norm for us?
When you go to buy a radio in five years, you’re not going to be asking for a digital radio, you’ll just ask for a radio. You don’t ask for a color TV now.

How was iBiquity launched?
It started out essentially as a science project formed by some radio groups back in the early 90s. The belief was that we had to figure out a way to go digital that made sense. It became a lot more important when the Internet started up, when satellite radio came around. A couple of folks and I were working within CBS at the time. We were asked to take it on and make a business out of it. We ran it inside CBS for a little bit but spun it out in 1998 with investment from 15 different broadcasters. Our initial capitalization was by the radio groups themselves. The core staffing of the business came out of Westinghouse’s defense business which was based in Linthicum, Md. We took some world class engineers from the defense business and formed the company.

So much money has been invested in the company. Any plans for an IPO?
Someday. We’re focused on building a good company now. There’s a lot of money invested and our investors would like to see a return at some point. But they get that this is a big idea. There’s a billion radios in this country, there’s 100 million sold everywhere, and our belief is they’ll all be digital. So it’s a very big idea. Because of that, they’ve been quite patient.

How did you get interested in this business?
I was asked to take it over by Mel Karmazin, who interestingly enough was running CBS at the time and is now running Sirius.

Were you interested in radio when you were younger?
I was a chemical engineer by training. That didn’t apply. I got an MBA and was working and found myself in a media company doing some technology work and this became very strategically important.

What are biggest challenges of running iBiquity?
We’re in a much better position now than we were eight or nine years ago. Back then to call it a science project would have been an insult to scientists. We had to take what was a promising technology and develop a business plan and do what we needed to do to finish the technology development and more to commercialize it. This is what’s exciting about entrepreneurial businesses. We’re making this stuff up as we go along, which is exciting.

What’s your favorite thing on the radio these days?
I listen to classic rock or alternative.

[This interview conducted by Tania Anderson for Bisnow on Business.]