The sky's the limit

As satellite radio begins to take off in popularity' two companies find themselves ahead of the field

By Daniel Robin

When Joe Clayton, CEO of Sirius satellite radio, talks about what’s next for his company, it’s easy to see why traditional broadcasters are listening carefully.

Starting in August, the service that’s playing catch-up to market leader XM Radio will air every NFL game, live. By year’s end, subscribers, who tend to listen mostly in the car, will be able to pick up local weather and traffic, services that Sirius’ terrestrial competitors thought they had a lock on.

Cartoon and music videos could show on backseat screens within 18 months. There will be tickers with ball scores and stock quotations, animated maps and interactive driving directions.

And recently in place are two comedy streams, a Catholic station, a gay-and-lesbian outlet and music channels for chilling out, revving up and falling in love.

“ We’re not a radio company,” said Clayton, a genial, silver-haired Kentuckian. “We’re an entertainment company.”

Whatever it is, satellite radio has taken off. Over the holidays, an unprecedented number of subscribers signed with XM and Sirius, the Coke and Pepsi of orbital radio, for programming that plays through special car or indoor receivers and can be heard coast-to-coast. The services have entered into partnerships with NASCAR, NPR, Fox, Playboy and others to create content that has regular broadcasters feeling earthbound.

It is a moment like the arrival of cable television, a novelty 30 years ago, and now a drain on traditional broadcasters’ audience and ad revenue.

“ I think the National Association of Broadcasters members are going to find themselves in a fight for their survival,” said Bob Richards, spokesman for SkyWaves Research Associates in Ann Arbor, Mich. “My expectation is there will be a lot fewer AM and FM stations 20 years from now.”

XM signed up 23,000 people on Christmas Day alone, and ended the year with 1.4 million subscribers. Sirius had its biggest month ever in December, nearly matching the 75,000 subscribers it signed in the entire first half of last year. It ended 2003 with 261,000 customers.

The services have burned through about $2 billion apiece and have yet to see a penny of profit —XM expects to break even first, in 2005. Yet industry observers say the services, which each offer about 100 ultra-niche music, sports and talk channels, must be reckoned with now.

Sean Ross of Edison Media Research wonders if satellite radio’s influence is already responsible for a rock-radio trend: expanded-playlist formats, launched in Denver and Wilkes Barre, Pa., that feature “deep cuts” from CDs in addition to hits.

What’s certain is how fast the new technology has caught on.

It took four years to sell a million VCRs, and three years to sell that many CD players. DVD caught on faster—a million units sold in just more than two years.

Satellite radio has beaten them all, signing a million subscribers within 23 months. Only small satellite dishes reached critical mass faster, said Clayton, former head of DirecTV. He estimates the market for satellite radio to be three times larger, considering all the cars, trucks and boats out there.

XM and Sirius are engaged in an intense rivalry of small differences. Where XM has NASCAR, the NFL will join the NBA and NHL on Sirius. In general, Sirius is deeper into talk and sports.

Music-heavy XM produces most of its programming in its Washington studios. Sirius farms out some of its rock programming to brand-name hosts such as musicians Little Steven and David Johansen. Sirius sells 80 percent of its receivers in retail stores; half of XM’s are purchased from car companies and dealers.

XM’s biggest partner is General Motors, the country’s largest vehicle manufacturer. GM plans to announce next month that it has installed its millionth receiver, said an XM spokesman.

While Sirius launched its satellites before XM, technical problems silenced the service until a half-year after XM’s November 2001 debut. That month, Clayton, a former RCA exec, took over at Sirius and replaced 23 of its top 25 managers. But by then, XM had a formidable lead.

“ It looked like a one-horse race for a long time,” said Tom Taylor, editor of Inside Radio, a trade publication.

Robert Unmacht, a Nashville media consultant, said Sirius had spent too much money on things that don’t matter, such as offices in Rockefeller Plaza.

“ Their programming was too jukeboxy, and not enough radio-like,” Unmacht said, noting that the presentation announcers have become smoother.

Under new programmer Jay Clark, who has 45 years of experience, “They’ve become more aggressive in looking for ‘killer applications,’ like doing a promotion with Pamela Anderson coming over to wash your car,” Taylor said.

The goal for both is to develop a few channels people find so essential that they’ll sign up for more than 100.

“ How many subscriptions did ‘Sex and the City’ or ‘The Sopranos’ sell?” Taylor asked.

Satellite radio’s plan to offer weather and traffic has made commercial radio leaders cry foul. At the request of Edward O. Fritts, head of the National Association of Broadcasters, the services agreed in December not to use “repeaters,” signal-enhancers positioned on buildings and tunnels in congested areas, to transmit local broadcasting. XM and Sirius’ FCC licenses are for national transmissions only.

Less than a month later, XM announced it would launch 21 channels devoted to 24-hour weather and traffic. Sirius plans its own service for later this year. XM’s station will make it possible to hear about traffic jams anywhere in the United States.

Fritts is livid and has asked the FCC to determine whether the “appalling back-door attempt” to skirt the rules is allowed under the satellite services’ license.

Unmacht, the media consultant, thinks it is.

“ If Eddie Fritts was thinking, he’d think about (traditional) stations that don’t do local news and have no local personalities anymore. If he’s for local programming, why doesn’t he rally about (syndicated Indianapolis DJs) Bob & Tom, who are on in more than 100 markets, and Rush Limbaugh, who’s on in 600?”