From the February 2008 issue of Entrepreneur

The HD Digital Radio Alliance, a group of big broadcasters promoting digital radio, compares the push to the rollout of FM decades ago. But skeptics point to slow growth in the number of listeners and say digital isn't likely to reach its potential soon.

For more than two years, the Alliance has plastered airwaves with spots plugging HD's improved sound quality and expanded programming options. It has convinced radio-makers and retailers to sell HD-capable sets and recruited more than 1,500 stations to add digital second channels. Digital is on the air in every major market now, and heavyweights like Ford, Sony and Wal-Mart are even offering the technology.

But is anybody listening? Not many are, according to Bridge Ratings, which last year reduced its forecast of the number of digital listeners to 500,000 by the end of 2007 and less than 1 million by the start of 2009. Alliance president and CEO Peter Ferrara notes that it took FM more than a decade to go mainstream and says it's too early to tell what digital will do. Meanwhile, the Alliance is kicking off a new round of promotions and lifting its early ban on ads on digital channels.

The problem could, however, be the way digital is being introduced. Radio market researcher Mark Ramsey notes that HD sets remain much more expensive than comparable AM-FM models, and digital tuners aren't standard in any car--a critical location for radio listening. Rather than advertising digital stations that few have the gear to listen to, he suggests reducing technology licensing fees for digital set-makers and giving automakers incentives to make HD sets standard.

Meanwhile, digital radio is here, and savvy entrepreneurs are anticipating the chance to pitch their wares on niche channels such as the comedy, country music and oldies formats that have been among digital's first successes. "There will be advertising opportunities," says Ramsey. "The question will be, Is the audience big enough to make it worthwhile?"