Morning-drive talk on WMAL(AM) Washington, D.C., was interrupted last Monday by an ad touting XM Satellite Radio's largely commercial-free, nationwide radio service. More talk followed, and then came a commercial for Sirius Satellite Radio, which launched across the country that day.
With Sirius's nationwide launch on July 1, the satellite-radio battle is joined. The two companies, authorized by the FCC in 1997, will now see if Americans are ready to pay for the radio they listen to on their way to and from work.
So far, Washington-based XM is ahead of New York-based Sirius. XM started its roll-out last September after a brief post-Sept. 11 delay. XM was offering its service to the entire country by November and last week said it is serving more than 136,500 customers, ahead of Wall Street's expectations. Initially, Sirius was ahead, but problems with Lucent-built chipsets for receivers delayed the launch until now.
Since Sirius began offering its service Feb. 14, though, there have been no technical glitches to speak of, says Julia Topping, analyst for The Carmel [Calif.] Group.
"When you are launching a consumer electronics product that is technology-based, you have to make sure your systems are functioning at the level of performance you want, particularly for a premium product," says Jim Collins, vice president, corporate communications, for Sirius.
Things began moving more quickly for Sirius after it brought in CEO Joseph Clayton last November. Formerly with beleagured Global Crossing, he also had satellite experience, having helped develop and launch consumer equipment for DirecTV's rollout when he worked for Thomson Multimedia.
At $12.95 per month, Sirius costs $3 more than XM. Collins attributes the higher price to the fact that all 60 of Sirius's music channels run without commercials, although commercials do air on its 40 talk, news and sports channels.
Collins says market studies done prior to launch showed that access to commercial-free music channels is "a big differentiator. We've found that that's what people want, so that justifies the added cost."
Maybe so, says Topping, but Sirius is going to have to work hard to make sure consumers understand the difference. "If they can't convey that message to the consumer, then they are going to need to take a close look at their business model. The higher price could be a big deterrent."
Both services will be offered in new cars this fall, and the industry will be watching to see whether consumers opt for satellite radio when they are buying new vehicles. Some 16 million new cars are sold in the U.S. each year. Both XM and Sirius are shooting to have 3 million subs by 2005. XM has an exclusive arrangement with GM, one of its investors, and lists Saab as an automotive partner; Sirius has exclusive deals with BMW, DaimlerChrysler and Ford. Volkswagen/Audi and Nissan plan to offer a choice.
Although the services are similar, much about them is different.
Sirius operates three satellites that orbit the earth in figure-eights. At any given time, two are beaming down programming at 60 or 90 degrees over the U.S. In contrast, XM has two satellites in fixed orbits so they always are hovering in the same place. XM's technology requires it to use terrestrial repeaters—some 800—to fill in broadcast gaps, such as urban canyons and tunnels. Sirius uses repeaters, too, but has only 92 around the country.
Topping says both companies are using fewer repeaters than planned. But XM's placement of its powerful repeaters, along with its filing for a patent that would allow it to insert local programming into its satellite feed, has the NAB worried that XM plans to go local. Sirius's low number of repeaters deflects such accusations.
"For us, local programming is a non-issue," Collins says. "It's never been our intention."
XM, too, says it has no intention of offering local programming.
So far, Topping says, she and other analysts have been pleasantly surprised by the warm reception for both services. "Word of mouth is going to be a huge part of this. Once people hear the service, they want to have it."