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.
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.