3

Lost in space

Satellite radio has serious problems. But can it be fixed?


 

Lost in spaceChances are the last time you heard from Howard Stern (remember him?) was about four years ago. That’s when he and his bosses at Sirius were telling the world that satellite radio was “the future.” Considering all the hype around this new technology, you’d have thought they were going to unleash the second coming of the Internet.

Well, they didn’t. And so far, at least, the U.S. company’s bid to revolutionize radio hasn’t quite taken off. Sirius XM Radio Inc. (Sirius and XM merged in the U.S. last year) is saddled with about US$3 billion in debt. The collapse of the auto industry, which has been a major source of new customers, is a threat to growth. The stock is trading at about 30 cents a share—at one point recently it slipped under six cents—and last month, to stave off bankruptcy, the company accepted a US$530-million loan from Liberty Media (which runs DirecTV, the largest satellite television company in the U.S.) in exchange for a 40 per cent stake in the company. “I see a lot more obstacles than opportunities,” says Paul Verna, a senior analyst with New York City-based eMarketer. How, then, can they possibly get this spaceship on course, and perhaps even turn a profit?

Identifying what’s gone wrong is easy. Prior to last year’s merger, Sirius and XM spent millions trying to outdo each other—Stern’s US$100-million-a-year deal is proof of the absurdity. In addition to the money spent on talent and on deals with automakers to get receivers installed in new cars, it costs an estimated US$250 million to send a satellite into orbit. “Google didn’t have to launch their own satellites to create Google Earth,” notes Verna, as a point of comparison. More troubling, though, is the business plan itself. “Satellite demands a payment plan and a type of customer relationship that there isn’t a whole lot of appetite for,” he says. People expect content for free these days and have multiple ways to get it. Even the company’s founder described the business model as “outdated.” In the current technological climate, say critics, satellite radio lacks a clear competitive advantage over iPods, iPhones and free content online. It doesn’t help that the hardware, says Verna, “is a bit clunky.”

While many have played around on the satellite dial at one point or another, thanks largely to rental cars kitted out with receivers, just 20 million Americans (and a million or so Canadians) are coughing up the monthly fee, $12.95 in the U.S. and about $15 in Canada, to listen to satellite radio’s commercial-free talk, sports and music. Trouble is, in lean times, a fee for radio, no matter how good, is an easy thing for consumers to cut.

Satellite radio in Canada, where both Sirius and XM operate separately, is insulated from the U.S. affiliate’s debt problems. Both are privately owned and have their own content partnership agreements. But they do count on the U.S. conglomerate for some of their programming.

Verna says that the answer to some of the U.S. company’s woes may be in finding alternative ways of monetizing talent—namely Stern, Oprah, Bob Dylan, even Martha Stewart. “Right now all of the Sirius XM stuff exists in a closed loop,” he says. Verna envisions a structure that offers premium content to those who buy into the hardware but also distributes material to non-subscribers through content partnerships with sites like YouTube. One analyst estimated that if Stern did a daily podcast and charged non-satellite subscribers $3 a month, he could rake in US$108 million a year. This could remind people what they’ve been missing and help convert some of the 12 million who tuned in when he was on the regular dial (analysts estimate that Stern’s satellite audience is now between one and two million). Others argue that the solution lies in scrapping the satellites altogether and going Web-only with content.

Still, a key will be getting the next generation hooked. Targeting middle-aged boomers with their programming, which has been a big part of the company’s strategy so far, is dangerous in the long-term, says Jeffrey McCall, a professor of media studies at DePauw University. At some point very soon the company will need to shift focus to future users. “They have to hope that in 10 years the 18- to 24-year-olds will see something of value in it,” says McCall. Right now, he says, satellite radio needs to do a better job of letting people know what’s available if they tune in: “It’s not just the Howard Stern network.”

Sirius XM has made some positive steps. This spring, the company plans to introduce an application that will allow subscribers to stream music on their iPhone and iPods. But this bold move into the 21st century may be too late. “If satellite had come along earlier, say in the ’80s, it could have accrued the critical mass that might have weathered what’s going on now,” says Verna. “But it started in the early 2000s, and the Web swept right over it.” And there’s nothing Howard Stern could say to do anything about that.


 
Filed under:

Lost in space

  1. XM Canada is not privately owned, at least not in the sense of being a private company. Canadian Satellite Radio Holdings Inc., which is a public company trading on the Toronto Stock Exchange, is a holding company for XM Canada’s operations.

  2. While what is stated in this article is basically true, consider that 20 million subscribers paying about $13/month equates to a gross annual income of $3.12 billion from which to make payments on 3.5 billion of debt, install receivers in lots of new cars, launch more satellites and pay for expensive content.

    I installed an in-dash nav radio into my car not only so that I could get graphic navigation with a rear view monitor but graphic XM weather/traffic as well while listening XM Radio content. Having recently driven a rental car, this is way beyond the experience of sat radio in a rental car. This costs me $20/month, about the cost of a nice dinner, less than half the cost of mobile internet or satellite TV.

    Airplane pilots are feeling much safer with the advanced XM Weather while enjoying XM Radio for which they pay $30 to $99/month. As I understand it, WIFI doesn’t very well reach flying altitude,omplete never mind providing terrestrial coverage. IMHO, if the bandwidth being taken from television is being redistributed to a new wireless internet service, it is going to be a long time before it even achieves the limited coverage provided by television.

  3. XM, SIRIUS and any other satelite radio that comes out will fail unless it is free to the consumer. it can only survive if advertisers pay for it’s existence. Period.

Sign in to comment.