• by Erik Sass  @eriksass1, December 29, 2009

Auto manufacturers are now installing HD radio sets that leverage one of digital radio's "sexy" features: iTunes tagging that allows users to mark songs they like during digital broadcasts for later purchase via Apple's iTunes store. Ford is the first carmaker to offer tagging-enabled HD radio sets pre-installed in some models beginning in 2010.

In addition to the iTunes tagging capability, Ford is touting the other advantages of HD radio over traditional radio, including CD-quality sound and extra "multicast" channels (HD2 and HD3) which broadcasters are using to broadcast niche programming -- for example, all-country or all-classic rock channels.

Ford also noted (somewhat more delicately, in deference to a separate deal with Sirius-XM to offer pre-installed satellite radios) that HD radio is free, unlike Sirius-XM's subscription service.

While Ford positioned the inclusion of HD technology as a boon to car buyers, partnerships with car companies are also key to HD radio manufacturers and broadcasters' strategy for boosting HD radio's consumer awareness and installed base.

After four years of marketing, the installed base of HD radio sets in the United States remains fairly small: 1.3 million in the fourth quarter of 2009, up from about 600,000 at the end of 2008. Much of this increase is due to deals with carmakers to include pre-installed HD radio sets as a factory option on new cars.

Similar partnerships with carmakers are also crucial to future growth for satellite radio, which currently has about 18.5 million subscribers -- down from 19 million at the end of 2008. Analysts have warned that satellite radio may be approaching market saturation for stand-alone receivers and subscriptions -- part of the reason Sirius and XM merged in 2008. However, there is still considerable potential demand among new car buyers.

The deals with carmakers are important enough that when the Sirius-XM merger was still being debated, the HD Radio Alliance, an industry consortium created to promote HD digital radio, demanded that satellite radio broadcasters be required to cancel their existing partnerships with carmakers as a condition for the merger going forward. (This condition was never instituted by the FCC.)

Still working to increase HD Radio penetration, the HD Radio Alliance is preparing a fresh wave of publicity in the New Year, with radio spots touting the availability of free HD2 and HD3 channels.