EXTENDED INTERVIEW: HUGH PANERO
February 9, 2005

In the second part of the interview, Hugh Panero, president and chief executive officer of XM Satellite Radio Holdings Inc., discusses his company's rapid growth, his vision for XM's future and the unusual competition with Sirius Satellite Radio and its chief Mel Karmazin. Part I of the interview The NewsHour Media Unit is funded by grants from the Pew Charitable Trusts and the John S. and James L. Knight Foundation.

 

Online NewsHour Special Report: Revolutions in Radio Frank Ahrens, The Washington Post Scott Greenstein, Sirius Satellite Radio Little Steven Van Zandt, Sirius Satellite Radio Hugh Panero, XM Satellite Radio Holdings Bob Edwards, XM Satellite Radio Feb. 16, 2005: Update: House Approves Higher Fines for Broadcast Indecency Sept. 22, 2004: Is over-the-air programming too offensive? March 31, 2004: Update: New Liberal Radio Network Debuts Oct. 13, 2003: Terence Smith explores the success of conservative talk radio shows. Browse the NewsHour's coverage of the media   News for Students: Satellite Radio Challenges FM-AM 01.14.05     XM Satellite Radio Sirius Satellite Radio Federal Communications Commission	TERENCE SMITH: Remind me. When did you go on the air? HUGH PANERO: We went on the air in 2001. TERENCE SMITH: Oh, that's right. It was supposed to be September 11th, was it? HUGH PANERO: Right. We were supposed go on on September 12th and we were obviously impacted, dramatically, as the whole world was, by what happened on September 11th.
	XM's rapid rise in three years
	TERENCE SMITH: So when did you -- how quickly did you -- HUGH PANERO: We basically launched about 30 days later, later in September, and we launched, but, you know, clearly, things that happen in your lives, both professional and personal, put all the success in perspective. So we pulled our advertising, you know, on September 11th in markets, and we kind a moved on and then launched it about a month later and, you know, the first subscriber was a very exciting moment. But so is 3.2 million subscribers, and the 5.5 million that we expect at the end of this year. TERENCE SMITH: So that's three and a half years, basically that you've been on the air. HUGH PANERO: Uh-huh. TERENCE SMITH: Look ahead to the next three and a half years or five years for satellite radio, you and the competition. What do you see? A continuing competitive situation for subscribers and attention? HUGH PANERO: Yes. I see a typical, let's say, duopoly market between these two competitors, but, clearly, you know, competing against many other things that people experience in the car. As I said, I think as a company XM will be about 20 million subscribers in a competition head to head with the other company. I like duopoly competition where I'm the leader and they have less market share, which I think we've sort of established. But I see us not just being a satellite radio company per se, but actually being a content distributor that is using our creativity to have our service available wherever people can listen to audio. So whether it be on a telephone or over the Internet, or in what other kind a devices are going to happen over the next ten years, I want to be there because we don't want to be put in some corner of just being a "satellite radio company" and I think we're in the middle of original creation. We have very creative marketing partnerships with, you know, many different companies that are, range from Major League Baseball to Starbucks to production companies. We want to be a very vital part of the whole audio world.
	Exploring new technology for the future
	TERENCE SMITH: Do you see satellite radio providing video images at some point? HUGH PANERO: Yeah, we have demonstrated the ability to do video in the car, and we think that there is a technology that can satisfy that from a technology standpoint. The issue that we basically are working up from a business standpoint is whenever you do video it takes up a lot more bandwidth than audio. So what are you willing to sacrifice by doing one or two or three channels of video? What's the economic model that supports that and what are you willing to give up to do that? And how does that play in the face of a car market where there is a lot of high-end SUVs and cars that have built-in video systems but people who also have, you know, CDs and, and a number of portable games they -- game, and video stations that are coming out every day. Is there a model that works so that, you know, our business works with that as a component of it? And we are constantly exploring that. TERENCE SMITH: What about text and data, and if so, what kind? HUGH PANERO: Well, we've been leading in the text and data. We actually have exclusive data services agreement with companies like General Motors and Honda and Toyota, and just recently Nissan, where we have actually begun to exploit that already. We have a service called XM Nav Traffic which is a partnership between Acura Link, Acura's car band and NavTech and a number of other information providers. And what we do is where you have a GPS system, where you can plug in where you are and where you want to go and it shows you a route, we actually have found a way to superimpose traffic information on top of that, so now you know what happens along the route and actually can change your course based on that information. That's a premium service that's built into a package that you can get from Acura, on the Acura RL and, and it's very exciting. And we have other services in that vein that we're working on with the car companies because we have this great infrastructure where we can deliver a lot of data, you know, one way down to a car, and we're working with those companies on these "telematic solutions," that are proving to be very efficient and that they have been highlighting a lot of their advertising. TERENCE SMITH: Do you then have, I gather, unused bandwidth that you can -- HUGH PANERO: Well, we have unused bandwidth at different times of the evening, during the day, doing data that requires not as much bandwidth as doing a classical channel or a video channel. Right now, on the radios that we sell, we actually display up to 20 stock quotes and sports scores. So we have become a very interesting mobile communication, entertainment, data service, that is just going to become more interesting, and the radios that we just came out with, the MyFI, which is the first portable device, actually has memory in it. So now you can take XM into places that you couldn't take it before. Because it's on your belt you can go into a subway, on an airplane, listen to content that's been recorded, which you can record up to five hours, and it becomes a very exciting portable product. TERENCE SMITH: It's fascinating. A final thought. You were in on the ground floor of this, present at the creation. Has it already surprised you, where it's gone? HUGH PANERO: Well, I mean, we probably spoke five, six years ago when I first came here, and I think, on reflection, I always had a belief that the concept would work and that the people would want a service like this and be willing to pay a price for it very similar to cable television. The journey that has occurred is something that I could never have imagined with regards to September 11th, changes in the stock market, or the crashing of the market, personal issues that have occurred in my life, and the excitement that how quickly it has ramped up, and the knowledge that I have of all these different businesses -- consumer electronics, the car industry, manufacturing -- which are fascinating businesses. At the end of the day, I figure we're all going to be here. Actually, I think we've reached a certain level of awareness and excitement that has occurred faster than I actually thought it would. But with all these businesses, you know, you got to know what the end point is, but you've got to enjoy the journey. If you don't enjoy the journey, you shouldn't be involved.
	Merger rumors and competing against Sirius
	TERENCE SMITH: We've certainly heard speculation that in the end, one satellite radio service is going to buy the other. Is it going to happen? HUGH PANERO: Oh, well, there have been some rumors and, you know, we don't really comment on rumors and speculation. However, what I can say is that I have actually never met Mel Karmazin, (but) I look forward to it because we're building a very interesting business as competitors together. Actually -- the media outlet that reported some rumor to that effect -- that there was some conversation going on -- is the same media outlet that reported that Richard Gephardt was going to be John Kerry's running mate. All I could say is that we are focused very much on building our business and we project that we're going to be at 5.5 million subscribers by the end of 2005, and have over 20 million by 2010. We're marching to those goals. TERENCE SMITH: So you're competing, not trying to swallow each other? HUGH PANERO: We are competing, we are competing. It's a very interesting business in a duopoly like this, where at times you're both spokesman 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. Other times, from a regulatory standpoint, we are arm in arm fighting against a common opponent which maybe is the NAB [National Association of Broadcasters]. We're battling to get car companies to pay attention to one company or the other. So it's an interesting business, but we are fierce competitors and I think we basically demonstrate that every day at retail and every day at car companies, but I think it's a big business and I think both companies can be successful. TERENCE SMITH: Mel Karmazin went through a bit of a conversion himself. HUGH PANERO: Clearly a conversion. Obviously Mel Karmazin was somebody who, very successful businessman who, six or seven months ago would follow me on road shows in his role at Viacom, where investors would be hearing a satellite radio pitch from either me or even Sirius at the time, and the radio guys would come in at a time he was running Viacom and he would just trash the whole category. So I'm just very happy that he's seen the light and we've created this great platform for him to find all this gainful employment. We welcome him to the category and hopefully both companies will be able to grow the whole business much faster together than it has been in the past.

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