                 
|
||||
September 1, 2008 Moon on . . . Satellite Radio . . . Again After 18 months of trials and tribulations, the two North American satellite radio systems, XM and Sirius, are now, in the U.S., a single corporate entity: Sirius XM. (The merger of their Canadian divisions awaits approval by the Canadian Radio-Television Commission and the Competition Bureau.) What does this mean? To Wall Street, of course, it means money. Some analysts had projected, perhaps irrationally, that the merger would mean that the services would at last show a profit. Perhaps the most irrationally exuberant of these, Rick Aristotle Munarriz of MotleyFool.com, for months touted the merger as a great thing for investors. However, the day after the merger, when the new firm’s stock had plunged by double-digit percentages for two days over concerns about the $3.4 billion in debt carried by the company, Munarriz was more restrained, noting that the savings, which analysts had projected might be as much as $7.2 billion, would actually be closer to $400 million. Granted, that’s still nothing to sneeze at, but on the corporate scale it’s a drop in the bucket. And for the time being there still will be two incompatible services using two sets of expensive broadcast satellites, several of which will need to be replaced in the near future. Munarriz also noted that, pre-merger, in the first quarter of 2008, XM had gained 322,000 new subscribers and Sirius just shy of 280,000 -- a reversal of recent trends that had shown Sirius on its way to catching up with the older company. Together, the services now have a total of 18.6 million subscribers: 9.7 million for XM, 8.9 million for Sirius. Other sources reported that most of those new subscribers had signed on as a result of new-car sales, and that many are on 90-day or six-month free trials that may never become paid subscriptions. To the Federal Communications Commission, this meant not only that compromise was necessary (the deal was approved by a 3-2 vote), but also that the FCC had to ignore one of its own rules: that the two systems could not merge. The compromises agreed on by the commissioners may have some effect on what subscribers hear down the road (more below). They also meant that XM was on the hook for $17 million in fines for operating unauthorized terrestrial repeaters in defiance of FCC rulings. Both firms were further fined for not offering receivers that could access both services. (Sirius argued that all they had to do was design such a device, but apparently that was not good enough for the commissioners.) Most important, the compromises revealed the incompetence of the FCC: each of the five commissioners pushed his or her own agenda, and Chairman Kevin J. Martin, a political hack if ever there was one, seemingly lacks any leverage with his fellow commissioners. For the industry of terrestrial AM and FM radio broadcasters, the compromises mean that their highly paid lobbyists at the National Association of Broadcasters came up short. Sirius boss Mel Karmazin was able to sidestep their argument -- that Sirius and XM together constitute a monopoly -- by positioning satellite radio as just another broadcast entity rather than a specialized service. Karmazin even went so far as to "thank" the NAB for its opposition to the merger, because it established that terrestrial and satellite radio are still competitors. To some radio-industry observers, NAB’s loss means that that organization’s considerable clout with the government is waning at a time when broadcasting is beleaguered on all sides. To the end user, some aspects of satellite radio will remain the same, and some will change. Neither XM nor Sirius subscribers will have to acquire a new receiver, as both systems will continue to use their current transmission facilities; except in certain circumstances, current subscription fees won’t change for three years; and some new service options, such as à la carte channel selections, will be made available. However, one stipulation of the FCC’s approval of the merger is that, within six months, Sirius XM must offer at least 12 noncommercial/educational (NCE) channels, and another 12 with minority-oriented programming. According to attorney Ernie Sanchez, who practices before the FCC, the choice of who will operate these channels is up to Sirius XM, which will be free to charge for their use. Most assuredly, operators of religious radio stations will be fighting for the NCE slots, as will the public-radio sector. It should be interesting to see how the assignment of the new channels works out. According to the industry journal www.radio-info.com, edited by Tom Taylor, Sirius XM CEO Karmazin told employees that he will pare down the number of programming categories duplicated on channels on both networks, including the "decades" (1950s, ’60s, ’70s, ’80s, ’90s), rock, pop, and country channels. A big question is what will happen to the handful of commercial-carrying music channels that XM grudgingly gave Clear Channel (an XM stockholder) after tense arbitration, such as Nashville, Kiss, and Mix. But Karmazin’s biggest challenges are to make the new firm profitable (or at least show positive cash flow) and boost the stock price for shareholders.
Of course, this all begs the question: Does satellite radio even have a future? Karmazin says that Sirius and XM will be offered as separate services for the next 15 years, but I’m doubtful. The prospect of having radio programming -- not just stations, but Internet-only streams as well -- available via WiMax or WiFi, both down the road and, increasingly today, via cell phones, seems to foretell doom not only for Sirius XM but also for older technologies such as AM and FM. It won’t happen overnight, but I and many others in and around the radio industry see it as inevitable. In the shorter term, unless Sirius XM becomes a Wall Street darling, it wouldn’t surprise me if, in a few years, Karmazin takes his winnings and finds some other company to run. I’ve watched the man for 15 years and can say with some confidence that he’ll retire only when he dies -- he’s too driven to do otherwise. The cynic in me says that he’ll take the elevator while his investors get the shaft. Lots of things about satellite radio will remain, as noted in my June 1, 2007 column. Between them, the two services will still provide +200 discrete program streams, and the premium packages -- Howard Stern, NFL, MLB, NASCAR, etc. -- will continue to cost extra. The sound will remain of generally low quality, with an upper limit of around 7.5kHz if you’re lucky, or 3kHz (about the equivalent of a telephone) if you’re not. And if Mel Karmazin can find advertisers adventurous or stupid enough, he may start running commercials on many of the channels that, so far, have remained commercial-free. (National advertisers like accurate measurements of ears reached, but so far, the measurement of satellite-radio audiences is of dubious reliability.) With the new, less-expensive receivers and the coming, less-expensive à la carte subscription packages, Sirius and/or XM may be just the ticket. But enjoy it while you can -- within a decade, it could be gone. . . . 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 most recently edited
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 . . .