Satellite Radio: Tune In or Turn Off?

Steve MacLaughlin writes: "After nearly a decade of buildup and anticipation satellite radio has finally hit the airwaves. By now you've probably seen a commercial or read an article about the digital satellite radio service. But what is behind all the hype? And does satellite radio have a viable future? To answer those questions Saltire decided to take an in-depth look at the new service's inner-workings, its potential, and its possible future." Read on for more of Steve's look at the current options and future possibilities for satellite radio service.

Satellite radio has been a technology in the making for many years now. In 1992, the Federal Communications Commission (FCC) assigned part of the S-band (2.3 GHz) spectrum for nationwide broadcasting of a satellite-based Digital Audio Radio Service (DARS). In 1997, the FCC granted American Mobile Radio (now XM Satellite Radio) and CD Radio (now Sirius Satellite Radio) broadcast rights over that band. After several years of tinkering, courting investors and partners, and lining up their content these two companies are poised to finally make satellite radio a reality.

The Players
XM Satellite Radio (NASDQ: XMSR) and Sirius Satellite Radio (NASDQ: SIRI) paid an estimated $80 million each for their exclusive distribution rights to satellite radio. With numerous industry partners and investors these two companies are hoping to become the next giants of the media world.

Washington, D.C. based XM Radio launched nationwide service on November 12, 2001, after two months of regional service. XM Radio currently offers 100 channels (71 music and 29 news, sports, talk, and children's programming). XM Radio has exclusive content relationships with C/NET, NASCAR, and others. XM Radio's most notable auto industry partner is General Motors. Cadillac now offers XM Radio standard on all new 2002 Sevilles and Devilles. XM Radio's service is available for a monthly subscription fee of $9.99.

New York City based Sirius Radio plans to launch their service in Denver, Houston, and Phoenix on February 14, 2002. A Sirius Radio spokesperson told Saltire that their service will be available nationwide by the third-quarter of 2002. Sirius Radio also offers 100 channels (60 commercial-free music and 40 news, sports, talk, and entertainment programming). Sirius Radio has exclusive content relationships with NPR, Hispanic Radio Network, and National Lampoon. Sirius Radio also has exclusive partnerships with DaimlerChrysler, Ford, and BMW. Sirius Radio's service is available for a monthly subscription fee of $12.95.

Although XM Radio and Sirius Radio have their distinct differences there are however some things that that they both share in common. Both services offer similar music channel genres. The big difference being that all of Sirius Radio's music channels are commercial-free as opposed to only about 30 such channels on XM Radio. Both services also share several news and entertainment providers like Bloomberg, CNBC, CNN, ESPN, and the Weather Channel.

XM Radio and Sirius Radio have also partnered with many of the same manufacturing partners including Alpine, Clarion, Delphi Delco, Panasonic, Pioneer, Sony, and Visteon. One very exciting product is Sony's "Plug and Play" DRN-XM01 model that works in both your car and home stereo system through the use of a $150 adapter kit. The two companies have also teamed up with similar retailers to help distribute satellite radio receivers, antennas, and other devices. These retailers include Best Buy, Circuit City, Crutchfield, Good Guys, and Tweeter.

Just The Facts
According to the Radio Advertising Bureau, 75% of all Americans age 12 and up listen to radio daily, and 95% listen every week. But their choices are almost always very limited. Consider the fact that more than 22 million listeners receive fewer than five FM stations, and the communications industry firm Veronis, Suhler & Associates noted that 50% of all existing radio stations only use one of three programming formats (Adult Contemporary, Country, and News/Talk/Sports).

In many cases, huge segments of the music industry get little or no coverage by mainstream radio. One study indicated that up to 21% of annual music sales come from these totally ignored formats. This is especially true of ethnic music formats like African, Asian, Caribbean, or Hispanic. Combine this with the fact that more than 105 million listeners live outside the 50 largest radio markets and you quickly realize satellite radio's potential appeal.

Too Much Information
XM Radio uses two Boeing HS-702 satellites that are positioned over the East and West Coasts of the United States. The satellites, aptly named "Rock" and "Roll", maintain a geostationary orbit at 22,000 miles above the earth. XM Radio has a third back-up satellite on the ground should something go wrong in orbit.

Sirius Radio uses three Space Systems/Loral 1300 satellites in a high altitude elliptical orbit. Sirius Radio contends that this ensures that each satellite will spend about 16 hours a day over the U.S., and that at least one satellite is over the country at all times. Sirius Radio also has a back-up satellite standing by just in case of problems.

Both companies transmit their signal on the S-band, at 12.5 MHz to radio receivers on the ground. Sirius Radio will use the in the 2320.0 to 2332.5 MHz frequency band. XM Radio already uses the 2332.5 to 2345.0 MHz frequency band. They will also use repeaters in urban areas where buildings and other obstructions may interfere with signal reception.

One On One
Saltire interviewed Chance Patterson, XM Radio's Vice President of Corporate Affairs, to get his take on satellite radio.

• Saltire - What are some of the key differences between XM Radio and Sirius Radio?
  CP - The biggest difference is that we have a fully developed and deployed system. We have a proven product that's great, and we developed the system with a retail focus, not just limited to the car. But we're not just an audio service. We've recruited the best people in the industry. These people really make our content come alive.

  Saltire - What will it take for XM Radio to succeed financially?
  CP - We figure that we need 4.5 million subscribers to be profitable. There are more than 200 million registered vehicles in the United States. So we need less than 2.5% of all cars to reach that figure. And this doesn't take into account people who only use it in the home. We think the demand is definitely there.

  Saltire - How important is the auto industry to XM Radio's success?
  CP - They are a part of it for sure. We have a full OEM (Original Equipment Manufacturer) system. We have partnered with GM, and they are also an investor. Right now Cadillac models already have the system. Over the next year more than 20 GM models will have factory-installed units.

  Saltire - What does satellite radio mean for listeners?
  CP - People are spending more time in their cars and they want to be informed, and they want to enjoy that time a little more. XM can do that. If you're listening to the reggae channel you should feel like you're in Jamaica. It's really point-of-view radio.

  Saltire - What does satellite radio mean for traditional radio?
  CP - XM doesn't disenfranchise AM/FM. Terrestrial radio will be forced to get better. Talk to the audience like they're older than 12 year olds. Talk to me about the music. Talk to me about the world when [the song] was written. That's what listeners really want.

  Saltire - But will people really pay for satellite radio?
  CP - People said they'd never pay for cable television because TV was something they already got for free. Look at how that turned out. We're going to do the same thing for radio. The difference is that we already have all of the infrastructure. The one-millionth subscriber doesn't cost more than the first one. We'll offer better quality, less commercials, and more choice. We believe people will pay for their passions.

Word On The Street
Saltire solicited the unfettered opinions of individuals in the technology, radio, and automotive industry.

• What do you think satellite radio means for advertisers?
  "I think it can potentially be very good for advertisers. Specifically, by dividing the content available into so many categories, advertisers can probably make better assumptions about demographics. For example, XM Radio offers a dedicated NASCAR channel, dedicated BlueGrass channel, etc. The targeting is more granular than conventional radio where most stations do a little of everything, music, news, weather, traffic, etc. This should translate to more effective advertising potential for advertisers. That said, some of us are and will be willing to pay for commercial free options - I sure am." - Jason Foodman, technologist and Vice President of Business Development, Aladdin Systems

  Why do you think satellite radio has the potential to be a big success?
  "Abetted by the Telecommunications Act of 1996 that relaxed ownership restrictions and made possible the creation of media behemoths, conventional radio programmers unwittingly sabotaged their own stations through pernicious cost-saving programming trends such as corporate-level programming, format duplication and computer automation. The result: bland, boring, sound-alike radio stations from town to town, up and down the dial all across America, which drive away listeners in droves. That's good for satellite radio services like XM and, soon, Sirius, since listeners may eventually find their way to satellite radio." - Michael Saffran, radio industry veteran and Senior News Specialist, Rochester Institute of Technology

  What does the auto industry really think about satellite radio?
  "Everybody in the automotive/telematics value chain is excited about it. Well, maybe not everybody, but I've just been doing some interviews on a satellite based telematics project, and everybody I've talked to at OEMs, Tier 1 suppliers, cellular carriers, really likes the idea of satellite radio. I get the feeling they want this to work, if only because it lets them get a foot in the car door with subscription-based services." - Thomas R. Elliott, Vice President of North American Consulting, Strategy Analytics, Inc.

The Bottom Line
Both XM Radio and Sirius Radio agree that the market is big enough for two players. But as both services ramp up they need to find a way to stay in business. XM Radio recently reported a third-quarter '01 net loss of $70.8 million. Sirius Radio reported a net loss of $57 million for the same time period. XM Radio just announced financing to operate its business into the fourth-quarter of 2002. Sirius Radio has also publicly announced that they have enough cash to last until the fourth-quarter of 2002.

To succeed both companies will need the support of the auto industry, and quickly. Getting satellite radios installed as standard equipment will help to build their subscriber base. The current $300 to $400 conversion cost might be a bit too steep for most consumers. Also, current receivers only support a single format (XM or Sirius). Future AM/FM/XM/SR models should also help boost more widespread usage.

Finally, there is enough content overlap to keep subscribers to either service happy. Perhaps the biggest decision is whether or not you want ads with your music. Sirius Radio's commercial-free music service can be yours for just $3 more each month than what XM Radio charges. The immense variety of music and other content should be a big hit if consumers can just find an easy way to get their hands on the technology. And reports of its CD-quality audio can only help to increase satellite radio's popularity. I'm still waiting to hear it for myself. Stay tuned.

XM radio

[wiredog]

There's been lots of coverage of their system in the Washington Post [washingtonpost.com]. Look for stories by (former) radio reporter Frank Ahrens. He likes XM

If you liked WHFS back in the day, one of their former dj's now works for XM.

XM handles signal fade in cities by putting repeaters up all over the place.

It's digital

[wiredog]

I don't recall the format though. But it does have the option of listing the titles. Haven't heard about searching, but the stations will be divided by genre.

XM radio poor bitrate

[Anonymous Coward]

I had XM radio, I took it back. Simply put the quality was about the same as 96Kbit Mp3. It had great selection the music was awesome. The no commercials ruled. But everytime a song I liked came on and I cranked it up, the lack of quality and compression artifacts drove me away.

Re:Who cares?

[zulux]

headed for the same landfill that Iridium and Ricochet

Iridium is not dead. The DOD has a $70 million contract with the small Canadian firm that purchased the scraps after their bankrupcy. Buy a $1000 Motorola 9505 phone and each minute is now $1.50 form anywhere in the world to anywhere in the world. It use to cost ~$10 a minute. The DOD contract let them make a profit - so they sould be around for a while.

I use mine in Europe and Japan - it's cheaper than GSM roaming, and the incomming caller pays the $1.50, not me. It's also great for backbacking - I can pretend that I'm still at the server farm on Fridays.

XM and Sirius: Just don't suck, or you die.

[dheeraj]

The biggest problem with radio in America today is that it unabashedly and shamelessly SUCKS. Once the FCC bent over to NAB (National Assocation of Broadcasters) lobbying in the late 90s, and lifted ownership restrictions (which only allowed a company to own one FM and one AM in a market), the way was clear for Clear Channel, Infinity/CBS, and the one or two other conglomerates to move in and utterly destroy radio in this country.

This is why you can turn on the radio in LA on a Sunday night and hear the same idiot DJ on three stations at once, even though his show only loosely fits the format of two of those three -- because Clear Channel would rather pay only one DJ than three. Or why you have stupid radio contests where you now compete against callers across the entire country instead of in your own market. Or why 20-30 stations in a region have not only the same format, but the EXACT SAME playlist every week.

Throw in the thinly veiled payola that is the current record promotion business, and you end up with a very smoothly running machine that operates only for itself and the interests of its owners -- listeners and music enthusiasts be damned. If you're an artist that doesn't have a big label behind you that believes you'd be profitable to them (because there are artists on big labels who get no support from their label -- who might as well just be on a no-name independent label in Des Moines), you're screwed. You may get college radio play, but that's not going to take you very far.

I read recently that Clear Channel is one of the partners of one of these companies -- not sure whether it's XM or Sirius. If this is really the case, this shit is doomed. I have a hard time believing the public is going to PAY for the same bland, homogenized garbage that they already get for free in the 90-something percent of America that is covered by a Clear Channel station already.

Having been a college and community radio DJ in the past, and remembering the days when a fair amount of commercial stations were even pretty good at times, this is really depressing to me. The idea that a wonderful new technology will probably end up being manipulated by the same uncultured, money-obsessed marketroids and milked for every last penny it can spit out, until it ultimately dies, is just plain sad.

So, you want to survive, Sirius and XM? Don't suck.

Forgot One -- Clear Channel

[andyf]

Broadcast stations are getting bought up left and right, largely by beheamoths like Clear Channel and Capital Cities/ABC (Disney). In the markets I live in, Minneapolis (school year), and Grand Forks (summer), the airwaves are dominated by CRAP, a large portion of which is broadcast by a Clear Channel station (5 in Grand Forks, 7 in Minneapolis). The music choice on these stations seems to be limited to oldies, Britney Spears, and Limp Bizkit. The only alternatives in either market are college radio -- REV 105 used to be a real choice in Minneapolis, but that has been long swallowed up by Disney.

So I'm happy just to see satellite radio for the opportunity for something that's just a little different (granted, there will be Clear Channel and Disney stations on there too).

So maybe we need to start a "pirate radio" station for satellite, or at least get a good net-only station onto satellite.

I've got one.

[toastyman]

I've got one now, and have noticed a few things.

1) The sound quality isn't quite what I thought it would be. While I don't know the actual bitrates used, the music channels sound about like a 64k MP3, and the talk/news channels sound about like a 24k MP3. I think I'd rather slightly fewer channels if it meant better quality.

2) Since they transmit every bit multiple times, (either 3 or 4 copies of the stream is sent at once on a time delay, I can't remember which), dropouts are EXTREMELY rare. They have both spatial (two satellites you can receive at once), frequency (broadcasting on multiple frequencies), and time (broadcasting the same content multiple times) diversity. Nice.

3) Yes, you're paying $9.95/month for *SOME* channels that have commercials. Most channels don't have commercials. Even then, the stations that DO have commercials air far far less than the FM stations I've listened to.

4) You get some neat features like being able to display artist/song for each channel.

5) Wow, some of the channels air things you'd never hear on the radio. The main comedy channel has more swear words per minute than you could imagine. None of the songs have the "bad words" beeped out. If you have kids, and are concerned, you can have them block any channels you don't want them to listen to. (Each channel is pretty clearly marked on the guide if it has strong language or not)

6) Some of the channels do sound kinda amateur-hour. Kinda like college radio. I'm sure as time progresses they'll get more refined, but... Wow, some of the DJ's and commercials for themselves are cheesy. Really bad.

7) They do have some really cool channels. CNN Headline News (the audio from the TV channel - usually works well except for "Nothing can describe the images you're seeing now..." bits), The Discovery Channel Radio, etc... Keeps me entertained.

8) If you're a channel flipper, the delay between changing channels is kinda long... 1/2 to 1 second.

9) Overall worth it for me. The total of 1 to 1.5 hours a day I spend in the car is at least enjoyable now. I've only had it for 3-4 weeks, but it's kept my attention that long.

Before you decide....

[Muad'Dave]

that there's nothing for you on XM radio, try their samples [xmradio.com]. I had the opportunity to see it demo'ed just before their official rollout - it was really nifty. I was able to find technical specs on the fcc [fcc.gov] website, hidden among various license actions. Here's an excerpt:

XM Radio Inc. has filed an application for modification of its authorization to construct, launch and operate two Digital Audio Radio Service (DARS) satellites. XM Radio seeks (1) to increase the maximum EIRP of each of its DARS satellites to 68.5 dBW, (2) to revise its downlink channelization plan by increasing the number of channels from five to six, including four carrier frequencies (two per satellite) of 1.84 MHz each and two frequencies for terrestrial repeaters of 2.53 MHz each, and (3) to increase the transmission rate of each of its satellite carriers to 3.28 Mbit/s.

Our satellites will transmit audio programming within a 12.5 MHz range of S-Band radio frequencies that have been allocated by the FCC for our exclusive use. Megahertz is a unit of measurement of frequency. This 12.5 MHz bandwidth will be subdivided to carry the transmission of six signals, two signals to be transmitted from each of our two satellites and two signals to be transmitted by the terrestrial repeater network. The audio programming for XM Radio will be carried on two satellite signals, and the remaining two satellite signals and the terrestrial repeater signals will repeat the audio programming to enhance overall signal reception. The transmission of higher quality sound requires the use of more kilobits per second than the transmission of lesser quality sound. In order to provide high-quality digital sound, we expect that music channels will require approximately 56 to 64 kilobits per second, depending on the type of compression technology used, whereas talk channels will require significantly less bandwidth. We expect to use our allocated bandwidth in such a way as to provide up to 100 channels of programming, with our music channels having a high bandwidth allocation so as to provide high-quality digital sound.

We have signed a contract with ST Microelectronics to design and produce chips that will decode the XM Radio signal. We have completed the production chipset design and ST Microelectronics has commenced fabrication to make the components available to radio manufacturers starting the end of March 2001.

Technology will include the use of COFDM (Code Orthogonal Frequency Division Multiplex), which is a superior modulation technique for the delivery of high quality audio, video and data. This modulation technique allows a moving vehicle to receive quality service at highway speeds.