XM Satellite Radio set to fly
Rival Sirius to take off later this year
Rival Sirius to take off later this year
Ten years after the idea was first conceived, consumers will finally be able to determine if satellite radio will really fly.
XM Satellite Radio, which debuts next Monday, is the first of two satellite services that will be launched this year. It already has two satellites in the air. XM's birds—appropriately named "Rock" and "Roll"—were launched earlier this year and are now hovering above the equator. On its Web site, you can sample some of its new channels.
Next comes Sirius Satellite Radio, which launches in December with three satellites orbiting the earth.
The birds from both services are poised to beam some 200 new channels of sound back to earth, mostly to Americans driving cars because, of course, that's where Americans do most of their radio listening. It's a huge market, as anyone caught in rush hour can attest: There are approximately 208 million cars on the road; and consumers buy 17 million new cars each year. Every year, they buy almost 30 million new car stereos.
XM and Sirius each need to snag 4 million of those new car buyers by 2004 just to earn back their initial investment of $3.2 billion between them. They think they can do it: The idea is that, while consumers might balk at spending $200 to $1,000 to retrofit their car for satellite radio, they may not mind if the cost of the service is rolled into the price of a new car or included as part of a lease.
Still, satellite radio's hurdles aren't unlike cable television's tough sell at its start. Will consumers pay for something they have never paid for in the past? XM wants $9.95 a month (and Sirius wants $12.95) to give consumers 100-plus channels of CD-quality, largely commercial-free, nationally distributed radio.
And, while it's important for the companies to sign up subscribers, it's just as important for them to keep them, analysts say. The model, again, is cable television, and Americans have certainly shown they want that.
"I don't think it's going to be an in-between, hanging-on scenario," says Haig Hovaness, an independent media consultant who follows satellite radio. "Word of mouth will determine if it's going to catch on."
He is generally bearish on satellite radio's prospects. "I'd say odds are against them, but I can't rule out a success," Hovaness concedes—but other financial types expect big things. The Boston-based Yankee Group estimates that satellite radio will have 20 million subscribers by 2005.
"Once their services are completely operational, we are expecting growth rates similar to direct-broadcast satellite, which showed the highest growth rates of any consumer product ever," says Ryan Jones, media and entertainment analyst for The Yankee Group.
Another important indicator of confidence, according to Jones, is the fact that XM last month launched a $100 million advertising campaign, including TV, radio, magazines, newspapers, direct mail, outdoor and online ads.
But Jones says the bar now is higher because it has taken longer to launch than first expected.
When Sirius planned to debut in 1998, it thought it would need only 1.8 million subscribers to hit the break-even mark. But Sirius has struggled to get the chipsets in its receivers to work correctly.
XM always planned to launch in 2001, says XM President Hugh Panero, but XM also was slowed while it put its repeater network in place, Jones says.
So now, XM goes live in Dallas/Fort Worth and San Diego on Sept. 12, rolls out to the entire Southwest U.S. in October and goes national in November. Sirius will launch nationally in December without any test-market experiments.
There are a lot of unknowns. One of the biggest right now is the economy.
But, as XM and Sirius executives see it, $10-$13 a month is a small price to pay to be entertained, particularly when spending hours a day commuting in traffic. On the other hand, luxury cars are one of satellite radio's prime targets, and purchases of those tend to decline in economic hard times.
Both satellite providers have horsepower behind them. Sirius' two strategic investors are DaimlerChrysler Corp. and Ford Motor Corp, and, two weeks ago, it announced that luxury-car maker BMW will offer Sirius as an option in second quarter 2002. Besides Chrysler and Ford, other car nameplates that will offer Sirius include Mercedes-Benz, Jeep, Lincoln, Jaguar and Volvo. Long-haul trucking companies Freightliner and Sterling Trucks also have Sirius distribution agreements.
XM's automotive partners include strategic investors General Motors and Honda, with GM planning to include XM as part of the factory-installed options in 2002 Cadillacs. XM plans to unveil other car deals at the beginning of next year, likely with Honda and other GM models. XM also is funded by No. 1 satellite-TV company DirecTV and the country's biggest radio operator, Clear Channel Communications.
That funding is substantial. Sirius has raised $1.8 billion and XM $1.4 billion, some of it sunk into XM's Washington headquarters with its 20 production suites, 310 audio workstations and 82 studios, as well as a 2,600-square-foot performance studio. XM also has supplemental studios in New York and Nashville.
Both services will offer 100-plus channels of music, news, talk and sports, and both will have some commercials on some channels, although Sirius likes to boast that all 50 of its music channels will be commercial-free.
XM says 30 of its 71 all-music channels will be commercial-free. The channels that do run ads, says Chance Patterson, XM's vice president of corporate relations, will start with two to four minutes per hour and ultimately will increase to five or six minutes.
That's not much compared with commercial drive-time radio, Patterson says. "In some of these markets, drive-time spot loads can go upwards of 24 minutes of commercials per hour."
The absence of commercials is another reason XM and Sirius believe that consumers will be willing to pay for satellite radio. Drivers will still have access to their local radio stations for news, traffic and weather, and, once they get all that, they can tune into a system that the companies hope will be as well received as cable and satellite TV before it.
"If you love reggae music, you are not going to find a reggae channel anywhere, except maybe for an hour on some college radio station," says XM President Panero.
"Out of our 71 [music] channels," he adds, "I think there are individual channels that are so compelling to certain people that they would just pay $10 a month to get the one channel. People will pay for their passions. We're going to provide an amazing opportunity for them to do so."
Some well-known radio hands will be working to make the medium's latest incarnation a success. At Sirius, its programming consultant is veteran Joe Capobianco. XM's consultant, Lee Abrams, is a legend in the radio world. He has been in the business since he was 13 and now seems as excited about programming radio stations as if he'd just started.
"We run an XM boot camp where we get everyone together for these long eight-hour sessions to liberate them from everything they've learned about radio and teach them the XM way," he explains. "For every 100 people we've recruited, 99 tended to have too much radio baggage, but there's that one person who's got it."
And like a cheerleader at a pep rally, Abrams asks his new recruits: "Are you ready to revolutionize radio?"
|Tale of the tape|
|After a decade and hundreds of millions of dollars, satellite radio takes off next week with the debut of XM; Sirius is expected to launch in December.|
|*New deals will be non-exclusive.
**Though required by the FCC, receivers that accept both Sirius' and XM's signals will not be available until 2004, the companies say.
Source: Companies and their Securities & Exchange Commission filings
|Headquarters||1221 Avenue of the Americas New York, NY 10020 (212) 584-5100 siriusradio.com||1500 Eckington Pl. NE Washington, DC 20002 (202) 380-4000 xmradio.com|
|Top executive||CEO David Margolese||President Hugh Panero|
|Facilities||76 studios, four live-performance studios||About 82 studios in NY, DC and Nashville; one live- performance studio in DC|
|Targeted customers||Commuters, truck drivers, RV owners, Hispanics||Everyone|
|First available in cars||1Q 2002 (BMW)||3Q 2001 (GM)|
|Price of after-mkt. receivers||$250 plus||$240-$299|
|Monthly subscription rate||$12.95||$9.99|
|Number of channels||100||100|
|Programming||50 commercial-free music channels; 50 news, talk and||sports (with commercials) 71 channels of music (more than 30 commercial-free); 29 news, talk, comedy, children, sports|
|Unusual channels||Eclectic rock, bluegrass, classic soul, gospel, Latin love songs, Scandal Channel||NASCAR channel, trucker, Babble On youth channel, disco, Hindi music, unsigned artists|
|Exclusive program providers||CNBC, NPR, USA Networks/Sci-Fi Channel, Ray Manzarek||BET, Clear Channel, CNN SI, CNNfn, CNET, Bloomberg, Radio One (urban music), Salem Communications, MTV, VH1, HBC|
|Automobile partners*||Ford (exclusive; includes Mazda), DaimlerChrysler (Jeep, Dodge exclusive; "preferred" status for Freight-liner trucks), BMW (exclusive)||General Motors Corp. (exclusive), Freightliner (trucks), Honda, Saab, Chevy trucks, Buick, Cadillac|
|Receiver partners**||Alpine Electronics, Audiovox, Clarion, Delphi-Delco Electronics Systems, Kenwood, Panasonic, Sanyo Electric, Visteon||Alpine, Audiovox, Clarion, Automotive Systems (Ford) Blaupunkt, Delphi-Delco, Electronic Automotive America, Motorola, Pioneer Electronics, Sharp Sanyo, Bontac|
|Receiver-technology providers||STMicroelectronics||Agere Systems|
|Principal investors||DaimlerChrysler, Ford, Apollo Investors, Blackstone Group||General Motors Corp.,DirecTV, Clear Channel, Motient Corp., Apollo Group|