Broadcast Signal Sources to Lead In-Vehicle Market Next Five Years, Study Says

Strategy Analytics forecasts “widespread” in-vehicle Internet radio availability in its “Internet Radio in the Car: Audio Choices Expanding” report released Wednesday, but said consumer interest remains weak. The market for in-vehicle Internet radio solutions will grow at a compounded annual growth rate of 36 percent from 3.9 million vehicles in 2011 to 45.7 million by 2018, analyst John Canali told Consumer Electronics Daily. “While there is a strong push by industry players to promote in-vehicle Internet radio, the consumer demand for Internet radio remains quite low,” he said.

OEMs are hoping that familiarity transfers to the road, Canali told us. “Internet radio is still not a must-have feature in cars,” he said. That’s due to the traditional nature of the automotive market where consumers still see AM/FM and CD players as essential features, “despite the fact that consumers are quickly moving away from CDs,” with their portable and home electronics. He noted that interest has grown recently in USB ports and 3.5mm auxiliary jacks for vehicles, which can enable music consumption via smartphone.

Despite the relative lack of consumer enthusiasm for Internet radio in the car, Canali pointed to Pandora’s recent initial public offering and the current hype around Spotify’s expected U.S. launch as potential positives for the automotive market. But one of the reasons Pandora isn’t seen as a “must-have” feature is a “still pretty limited” music catalog, Canali said. “Consumers’ initial impressions of the service are quite high, but then they grow to realize that using the service for many hours in a row becomes repetitive,” he said. Consumption then becomes more “sporadic,” he said.

Pandora’s glimmer has already dimmed on Wall Street where the stock price dropped more than 11 percent Thursday, its second day of trading, following Wednesday’s IPO. At close of day Thursday, Pandora was selling at $13.26, down from its $16 IPO price and almost 24 percent off its opening day closing price.

Canali said there’s “broad industry support” for Internet radio from players such as Clear Channel, which is supporting Internet radio with its iHeartRadio application for smartphones that’s also found in Toyota’s Entune audio solution. Clear Channel recognizes that “it must supplement its broadcast efforts with Internet applications,” Canali said.

Internet radio faces stiff competition from existing infotainment sources already in vehicles, and that competition is “greatly heating up,” Canali said. He cited AM/FM radio, HD radio, satellite radio, CD players and MP3 players/smartphones as platforms and services that are battling for in-car real estate. “Apple cannot be ignored,” he said, due to the massive ecosystem of the iTunes library, “and its recent announcement of cloud storage is only likely to make the solution more appealing to users,” he said.

But things don’t change fast in the automotive world due to long design cycles. Over the next five years, despite all of the technological advances, traditional broadcast will remain the most important medium, Canali said. During the transition to HD broadcast, consumers “will still focus mostly on the stations and content they consumed before the transition to HD,” he said. If audio consumption is seen as a zero-sum game, he said, “traditional broadcast will lose some of its dominance to newer forms of media."

Whatever services and features car makers offer, they have to ensure usability and quality of service because a poor experience will reflect ultimately on the car OEM, say Ford or Toyota, rather than service provider such as Pandora or Spotify, he said. “OEMs must vet services for quality and make sure that streams are not interrupted or dropped often,” he said. There’s history to draw on here, he said. “When consumers have trouble syncing their phones in their cars, they typically blame the OEM rather than the device maker,” he said.

Choosing the technology or service with staying power is as important as making sure it works well, Canali said. Car makers have to focus on software that can be easily updated, he said. “As consumers’ preferences change, an OEM that does not have a solution that is updatable risks betting on a technology that is hot, such as MySpace was, to find that 10 years later the technology has been completely abandoned.” Then the vehicle “looks like a relic,” he said.