   
|
|||
 June 1, 2007 Moon on . . . Satellite Radio
There’s been a lot of talk about the proposed merger of XM Satellite Radio with its only competitor in the field, Sirius Satellite Radio. Much of that talk has come from Sirius boss Mel Karmazin, who knows how to play Wall Street -- his most important constituency -- like a violin, as he makes the case for the merger. He hasn’t been quite so successful with lawmakers on Capitol Hill or with the FCC, which ultimately will have to rescind one of its own rules for the merger to be completed. So what do people see as the future of satellite radio? We’ve looked into our crystal ball, checked with a few knowledgeable sources, and come up with some predictions. But first, a little background: How it works: Each of the two satellite-radio firms uses a unique system to deliver its programming to subscribers. Both operate in the "S" band (2.3 gigaHertz), but there the technological similarities end. XM uses two geostationary satellites (nicknamed "Rock" and "Roll") positioned about 22,300 miles above the Equator. All of the continental US is in the footprint of one or the other bird. In urbanized areas -- central business districts of cities and the like -- more often, subscribers receive the XM signal from a terrestrial repeater. These also allow XM to offer local traffic and weather in 21 major US markets. Overall, XM currently has 155 channels. Some are broadcasts of actual radio stations: "Nashville" and "KISS," are Clear Channel Radio’s WSIX (FM) in Nashville and KIIS (FM) in Los Angeles, respectively. Clear Channel was a significant initial investor in XM (General Motors was the biggest), but has since reduced its investment. XM’s premier service is its carriage of all Major League Baseball broadcasts. Sirius, on the other hand, uses three satellites that follow a figure-8 orbit, with one satellite over the continental US at all times. The encoding/decoding process used by Sirius also is different from that used by XM -- another reason we don’t have receivers that offer both services. Sirius’s biggest draw is the so-called "King of All Media," Howard Stern, who has a $500 million contract and two channels. Other major attractions are the NFL and NASCAR broadcasts, which moved over from XM. Where the industry is now: When XM and Sirius started up, they projected as many as 30 million total subscribers by 2010. With just over two years to go, they’re at about 13 million total, and current estimates are of about 20 million by the end of the decade. When it was announced that Howard Stern was moving to Sirius, analysts projected he might take half his 13-million-strong terrestrial audience with him. As it’s turned out, only 8.4% (about 1.1 million) have. Friends who have subscribed have done so largely for the sports broadcasts. (One, who lives in New York, subscribes to both XM and Sirius so he can listen to his hometown Cincinnati Reds and Bengals.) Some radio-industry observers think the rise of WiMax (wide-area wireless Internet) dooms satellite radio to being some sort of interim solution that will quickly lose favor. It’s quite possible the merger will not occur: Wall Street analysts currently say chances are less than 50-50, and more like 33-67. If that’s the case, one or both services ultimately will fail, or be scooped up by some other media business. There are recurring rumors that CBS will make a run at one of them, though no one is sure which. The companies’ business plans must change: Developed during the tech boom of the 1990s, XM and Sirius have never played out as projected. Both companies lose money hand over fist. In 2006, Sirius had a net loss of $1.1 billion; XM’s loss was "only" $719 million, according to financials we found on Orbitcast.com, the website for "All things Satellite Radio," as they like to say. The last we read, each subscriber gained costs the firms something like $140 -- nearly a year’s basic subscription fee. And while XM claims 7.9 million subscribers and Sirius over 6 million, new subscribers are becoming harder and harder to find -- first-quarter 2007 vs. first-quarter 2006 rates of new subscribers were down 40% for Sirius, 29% for XM. And "churn" (people who subscribe but do not renew) has been a problem, especially (from what we’ve read) for XM. If the merger goes through, you’ll see a paring of duplicative programming: Sirius and XM officials don’t have much to say about this, but the bean-counters will make a strong case and probably win. Their argument will be: Why should each service have a separate channel of, say, Sixties Oldies? Look for just one, broadcast on both systems. That will cut programming costs, and only people with both XM and Sirius subscriptions will notice. Each service’s signature programming will remain exclusive: We’ll bet that Stern, NASCAR, and the NFL, for instance, will remain available only on Sirius, while Major League Baseball, NCAA basketball, the Indy Racing League, and the NHL will remain available only on XM. Next up: Video. Sirius has announced its "Backseat TV" service for the 2008 Dodge and Chrysler minivans, with content provided by the Cartoon Network, Nickelodeon, and the Disney Channel. Obviously, it will cost extra. Look for an increase in commercials: Neither service planned to offer channels with no commercials. It just worked out that way, as advertisers had no way to determine how many people were listening. Only now has Arbitron, the radio ratings provider, begun to include the satellite services in their audience figures (overall, satellite claims about 3.4% of all radio listening). And given the tremendous financial losses incurred by both services, they need all the revenue they can get. There’s already one lawsuit in the courts whose plaintiff claims that XM committed fraud by advertising "commercial-free" music channels. Chances are it will be settled out of court, but in any event, more and more of the channels on Sirius and XM will carry commercial time. Subscription costs will be tiered after the merger: Just as cable TV services offer different packages of programming for different prices, the Sirius-XM combine will offer a basic service (probably for the current $12.95/month, or a bit less) that includes 50 or 60 channels. Costs for premium services, such as Stern, football, baseball, and NASCAR, may go up. In between will be a middle tier, probably of the "niche" channels that cost a fair amount to produce but don’t get too many listeners. We’ve seen guesses of $5-$10/month over the basic service rate for this middle group. (When asked about costs, Sirius and XM execs are vague.) One thing probably won’t change: Sound quality. Right now, some of the channels don’t have audio bandwidth that’s as good as AM radio. In fact, they’re not much better than a telephone. Sirius has several channels that are good only up to about 6kHz; XM’s lowest-fi offerings top out at about 7.5kHz. The best on both services have response out to 15kHz, about that of analog FM (satellite, however, offers slightly better signal/noise ratios than stereo FM). While we don’t subscribe to either service, we’ve listened to them enough to be generally underwhelmed by their audio quality, especially from Sirius. Many subscribers we know look on satellite radio as the salvation of the aural medium. There’s no doubt that XM and Sirius offer a lot of programming available nowhere else. For those of us who like quirky music, satellite radio is attractive. But if Internet radio survives the current performance-royalty kerfuffle, it can offer even more variety and passion about the programming. And concerns about the long-term financial viability of both services, whether separate or merged, make satellite radio only a nice-to-have, not a must-have. After all, who wants a small, $100 bookend that used to play music? ...Thom Moon
|
|||
|
He’s Thom Moon, a radio geek with more than 30
years in the business, and who specializes in audience research. He’s worked in radio
audience ratings (which determines who listens to what station), audience analysis, been
managing editor of a radio trade journal, and currently edits a series of newsletters for
radio programmers and commercial-time salespeople for a major radio
research-and-promotions firm. He’s one part frustrated program director, another part
would-be general manager and recovering entrepreneur, and a part-time radio tech head.
He’ll be commenting regularly here on radio topics. One warning: Moon tends to fall
into the editorial "we," hoping that by so doing he won’t be the only one
blamed . . .