Will Satellite Radio Catch On?
Companies Still Waiting for Consumers to Embrace New Technology
By Gary Nurenberg, Tech Live
Sept. 27 — A year ago, XM Satellite Radio launched the country's first satellite radio service.
Rival Sirius launched its satellite radio service this year. Promising 100 channels of crystal-clear reception and few or no commercials, the two services hoped to create a new way for Americans to listen to radio.
The plan behind satellite radio: stage a revolution in which listeners pay for the right to listen to music or talk — uninterrupted or disturbed by fewer commercials.
XM founder Hugh Panero put it simply last year. "XM Satellite Radio is going to do to the radio industry what cable TV did to the broadcast TV industry," he predicted.
A year later the revolution is still a work in progress, with neither service near the number of subscribers it needs to break even. XM says it needs 4 million subscribers to break even, and adds that it's on target with 200,000 now. Sirius has fewer than 7,000.
"They don't have the subscription numbers that they need to have a successful business," wireless analyst Rudy Baca said.
Converting Customers Is Challenge
Both XM and Sirius spent at least $1 billion to launch. Both say they can get the additional financing they need to stay in business beyond next spring.
"I think this was a classic case in which there was such a long lead time from conception to reality that the world changed," said Bob Scherman, editor of the trade publication Satellite Business News. "Just like any high tech business… it eventually costs far more money than you thought when you started drawing it on paper.
"I think the best hedge bet right now, if you had to handicap this market, would be that the companies merge, and that Sirius' management ends up running the combined entities. I think Sirius changed its management within the last year and it has a very strong group of people. They all have a long history in the satellite business," Scherman said.
It costs consumers several hundred dollars to buy and install the radio, and a monthly subscription fee between $10 and $13.
"I don't really need it, " said Johnny Holliday, a legendary disc jockey who is in the Rock and Roll Hall of Fame and whose new book, From Rock to Jock, chronicles the early days of rock 'n' roll radio.
Although his current ABC sports program is on a satellite service, Holliday said, "I would probably say the majority of people are like me. I'd rather put a CD in my car or a cassette in my car or lock on my all-news station or the oldies station or the classical station and enjoy the ride that way. I know that [with satellite radio] if you are going coast to coast you can lock it on one station and you can be with them all the way across the country. But for me, I enjoy listening to local people, local disc jockeys, local sportscasters, local newscasters. Maybe a lot of people figure they don't need it right yet. They're happy with the status quo."
Baca, the wireless analyst, says he doesn't think satellite radio providers have done adequate market studies. "Just because it's terrific whiz-bang stuff doesn't necessarily mean that people are willing to pay for it," he said. "We've got spoiled consumers in this country. We've got a consumer now that expects to get absolutely cutting-edge technology, but they don't want to pay for it."
The Next Car Radio?
Both companies have deals with automakers to include their radios as an option in new cars. In some cases the monthly subscription fee would be rolled into the monthly car payment. "If… you're not actually writing that check separately every month, then you may in fact see growth numbers take off," Baca said.
Having the radios more easily available as options in manufacturers' models means customers don't have to make special trips to retail shops where they would spend hundreds of dollars to buy the receivers and have them installed.
"Clearly [XM and Sirius] are both two to three to four years away from getting serious revenues from car radios that are built into new models," Schermann said. So they are both having to rely on the aftermarket right now. Can both of them generate enough revenue from the aftermarket business now to get them to the point where they start raking in the revenue from built-in satellite radios coming off productions lines? That's the challenge facing both companies.
"We don't sense what is called 'churn,' people who drop their service. We don't sense that that number is very high, but you know the consumer base of both these services is so low right now, they are really both in the early-adopter phase," Scherman said.
"And I don't think that is a good indication of where they will end up in a broader consumer marketplace. Once the service gets into several hundred thousand homes, consumer trends will start to emerge."
Another key factor is customer awareness of the service itself. XM's Chance Patterson told Tech Live that there is currently a 50 percent awareness of the service among the public. He's optimistic, saying the company is now where it predicted it would be when it launched. "We've hit our numbers in the worst economy in a decade," he said
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