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Satellite Radio’s Two-Way Competition Takes Aim at Broadcast Radio

March 30, 2005 at 12:00 AM EDT


TERENCE SMITH: It’s a space-age battle between the two new stars in the radio galaxy: XM versus SIRIUS. These two start-ups are locked in a multi-billion dollar battle to dominate the fastest-growing new technology product in decades: Satellite radio.

FRANK AHRENS: It’s an evangelism product, and customers, they don’t just say “ah, it’s okay.” They say, “You’ve got to have this.”

TERENCE SMITH: Frank Ahrens is the media and entertainment industry reporter for the Washington Post.

FRANK AHRENS: It is to radio what cable was to television. It’s not free; you have to pay for it. But in paying for it, you get a whole bunch of extra choice. And I remember when I was covering this in the beginning, people in radio were saying, “Who’s going to pay for radio?” Well people said that about TV about 30 years ago.

TERENCE SMITH: Here’s how the technology of satellite radio works. The digital signal is beamed to a satellite and then bounced to an antenna on a car or other portable devices, which allow consumers to receive hundreds of channels.

HUGH PANERO: Now you can take XM Radio on your belt, into an airplane.

TERENCE SMITH: XM president and CEO Hugh Panero explains the genesis of his company’s name and its aim.

HUGH PANERO: There was A.M., There was FM, and now there’s you know, XM, which is the next generation of radio. I think what we are offering people is this ultimate audio form of entertainment.

SCOTT GREENSTEIN: Whatever we do, we want…

TERENCE SMITH: Scott Greenstein is the president of Entertainment and Sports at SIRIUS.

SCOTT GREENSTEIN: We at SIRIUS, at least on the music side, feel like it’s an iPod without the work. In other words, it’s right there for you to have as much selection of songs as you can go.

TERENCE SMITH: Most of the channels on the satellite dials carry original programs created by XM and SIRIUS in their own studios. Both services also buy other broadcasts like news and sports produced by other companies. The music on satellite radio is commercial free, though XM and SIRIUS do run ads on news, sports and entertainment channels.

XM launched in 2001, SIRIUS, less than a year later. D.C.-based XM has signed up 3.2 million subscribers. SIRIUS, with headquarters in New York, has slightly over one million listeners. Beginning next month, XM will raise its new subscriber rate to $12.95 a month, matching that of SIRIUS. XM listeners can surf 151 channels while SIRIUS offers 120.

TERENCE SMITH: Content is king in this high stakes radio revolution. It could seem like a strategic game of “Let’s Make a Deal.” SIRIUS startled the industry by signing the obscenely popular shock jock Howard Stern for $500 million over five years.

XM has the equally raunchy Opie and Anthony and for contrast, Bob Edwards, the longtime host of National Public Radio’s Morning Edition. In sports, SIRIUS paid $229 million over seven years for the National Football League’s games.

XM upped the ante by paying $650 million to broadcast major league baseball over the next 11 years. SIRIUS recently paid $107 million to snatch live broadcasts of NASCAR races from XM in 2007. Frank Ahrens.

FRANK AHRENS: Well, the two companies are following kind of different business strategies, and different by necessity. XM is taking more of a kind of slow and steady measured growth approach. And SIRIUS, because they started late and they have to make up the gap in subscribers, is taking more of a Hail Mary approach.

TERENCE SMITH: Barry Hirsch is a hardcore commuter and now, a SIRIUS subscriber.

BARRY HIRSCH: You’re able to tailor what your tastes are to kind of fit what you’re doing in your home, in the car. I’m also able to listen to one station without interruption on long car rides anywhere in the country.

TERENCE SMITH: He can also access his satellite service inside his house via computer, or in an adapted boom box, or on his home stereo. It displays the channel, the artist and the song.

Both services are picking up new subscribers as the units are factory-installed in new cars. SIRIUS comes in nearly 80 different car models, including manufacturers Ford and Chrysler. XM is offered in 120 different models, including those of Honda and GM

College student Helen Rivas convinced her parents to buy a Honda so they could get XM.

HELEN RIVAS: I just feel like it’s safer, I can just keep it on one channel and I know that just my music will come on, one or two commercials here and there, but nothing where it’s ten minutes of commercials and fifteen minutes of music.

TERENCE SMITH: With both companies in the red, XM and SIRIUS will need a combination of about 40 million subscribers to break even, says Frank Ahrens.

FRANK AHRENS: Last year, each of them lost well over $600 million each.

TERENCE SMITH: That’s a lot of money.

FRANK AHRENS: Yeah, it sure is, especially if you’re a shareholder.

TERENCE SMITH: To turn that red ink into black, gamesmanship between the companies was on full display at this winter’s consumer electronics show in Las Vegas.

JOE CLAYTON: Let’s get it started in here!

TERENCE SMITH: That’s Joe Clayton, the second SIRIUS CEO, introducing his recently appointed replacement, Mel Karmazin. Formerly of Viacom, Karmazin is widely recognized as one of the top broadcast radio executives in the country.

MEL KARMAZIN: The combination of the awareness and consumer satisfaction is going to make the company even bigger than most people have ever thought it could be. The consumers certainly see it as the next generation of radio.

SPOKESPERSON: The man named innovator of the year by Billboard Magazine, president and CEO of XM, Hugh Panero.

HUGH PANERO: We expect that XM will end 2005 with 5.5 million subscribers, furthering our position as the big dog in satellite radio. While other people are creating smoke, we’re creating fire.

TERENCE SMITH: SIRIUS is banking on the fire it hopes Howard Stern will ignite next year. The shock jock has been fined some $2.5 million by the Federal Communications Commission on indecency charges over the years, and he says he looks forward to his new home on satellite radio where the content is not regulated by the FCC.

HOWARD STERN: I have millions of dollars of fines against me and this my way of checkmating the United States Government and saying, “You know what, I’ve got somewhere to go. We’re going to build a new future. This is the beginning of the new age.”

TERENCE SMITH: Speculation about Stern’s future is common at XM, which has three times the listeners of SIRIUS, will Stern be worth the half-billion dollar gamble? Hugh Panero, who once tried to woo Stern, is not so sure.

HUGH PANERO: Do you really think that there’s going to be Howard Stern’s picture at the Ford Motor dealership in the Midwest where they’re trying to sell satellite radio? I’m really not quite sure.

TERENCE SMITH: Creative flexibility is what attracted other talent to the new medium as well. Springsteen guitarist, Sopranos actor and nationally syndicated terrestrial radio DJ “Little Steven” Van Zandt programs two SIRIUS channels. He plays six generations of rock and roll.

STEVEN VAN ZANDT: The audience is not listening to the radio anymore, okay, and I really, I really wanted to change that. If the Rolling Stones started today, there’s not one radio station in America that could play them. Okay, they don’t fit into any format. There’s no format for rock and roll.

TERENCE SMITH: Over at XM is another terrestrial radio veteran, Bob Edwards. He had an audience of 13 million weekly listeners by the time he was forced out of NPR in a talent reshuffle. He now hosts an hour interview show each weekday on XM.

BOB EDWARDS: That is a very exciting thing to be a pioneer, and to watch a network grow and prosper and gain the confidence of an audience.

And here I am again, in the third year of XM, when it’s still new and doesn’t have a very big audience, 3.2 million subscribers at the moment, and it’s the same feeling: Let’s see what this can be.

TERENCE SMITH: XM says it will break even by 2006. SIRIUS won’t commit to a date. Both say money concerns will not impede the race for the stars.

SCOTT GREENSTEIN: Traditional radio will exist but satellite radio will have a large spectrum of programs and choices for personalized information and choice that America seems to gravitate towards.

TERENCE SMITH: Hugh Panero says there is room for two companies and rumors of a merger are rumors.

HUGH PANERO: It’s a very interesting business in a duopoly like this, where at times you’re both spokesmen for satellite radio and you want to build the category and you really need two companies to do that, to build awareness. Other times, we are fighting tooth and nail to get a subscriber.

TERENCE SMITH: How brightly these young stars might shine in the future will depend on how many subscribers decide they can’t live without this new technology.