Satellite Radio: Tune In or Turn Off?

Steve MacLaughlin writes: "After nearly a decade of buildup and anticipation satellite radio has finally hit the airwaves. By now you've probably seen a commercial or read an article about the digital satellite radio service. But what is behind all the hype? And does satellite radio have a viable future? To answer those questions Saltire decided to take an in-depth look at the new service's inner-workings, its potential, and its possible future." Read on for more of Steve's look at the current options and future possibilities for satellite radio service.

Satellite radio has been a technology in the making for many years now. In 1992, the Federal Communications Commission (FCC) assigned part of the S-band (2.3 GHz) spectrum for nationwide broadcasting of a satellite-based Digital Audio Radio Service (DARS). In 1997, the FCC granted American Mobile Radio (now XM Satellite Radio) and CD Radio (now Sirius Satellite Radio) broadcast rights over that band. After several years of tinkering, courting investors and partners, and lining up their content these two companies are poised to finally make satellite radio a reality.

The Players
XM Satellite Radio (NASDQ: XMSR) and Sirius Satellite Radio (NASDQ: SIRI) paid an estimated $80 million each for their exclusive distribution rights to satellite radio. With numerous industry partners and investors these two companies are hoping to become the next giants of the media world.

Washington, D.C. based XM Radio launched nationwide service on November 12, 2001, after two months of regional service. XM Radio currently offers 100 channels (71 music and 29 news, sports, talk, and children's programming). XM Radio has exclusive content relationships with C/NET, NASCAR, and others. XM Radio's most notable auto industry partner is General Motors. Cadillac now offers XM Radio standard on all new 2002 Sevilles and Devilles. XM Radio's service is available for a monthly subscription fee of $9.99.

New York City based Sirius Radio plans to launch their service in Denver, Houston, and Phoenix on February 14, 2002. A Sirius Radio spokesperson told Saltire that their service will be available nationwide by the third-quarter of 2002. Sirius Radio also offers 100 channels (60 commercial-free music and 40 news, sports, talk, and entertainment programming). Sirius Radio has exclusive content relationships with NPR, Hispanic Radio Network, and National Lampoon. Sirius Radio also has exclusive partnerships with DaimlerChrysler, Ford, and BMW. Sirius Radio's service is available for a monthly subscription fee of $12.95.

Although XM Radio and Sirius Radio have their distinct differences there are however some things that that they both share in common. Both services offer similar music channel genres. The big difference being that all of Sirius Radio's music channels are commercial-free as opposed to only about 30 such channels on XM Radio. Both services also share several news and entertainment providers like Bloomberg, CNBC, CNN, ESPN, and the Weather Channel.

XM Radio and Sirius Radio have also partnered with many of the same manufacturing partners including Alpine, Clarion, Delphi Delco, Panasonic, Pioneer, Sony, and Visteon. One very exciting product is Sony's "Plug and Play" DRN-XM01 model that works in both your car and home stereo system through the use of a $150 adapter kit. The two companies have also teamed up with similar retailers to help distribute satellite radio receivers, antennas, and other devices. These retailers include Best Buy, Circuit City, Crutchfield, Good Guys, and Tweeter.

Just The Facts
According to the Radio Advertising Bureau, 75% of all Americans age 12 and up listen to radio daily, and 95% listen every week. But their choices are almost always very limited. Consider the fact that more than 22 million listeners receive fewer than five FM stations, and the communications industry firm Veronis, Suhler & Associates noted that 50% of all existing radio stations only use one of three programming formats (Adult Contemporary, Country, and News/Talk/Sports).

In many cases, huge segments of the music industry get little or no coverage by mainstream radio. One study indicated that up to 21% of annual music sales come from these totally ignored formats. This is especially true of ethnic music formats like African, Asian, Caribbean, or Hispanic. Combine this with the fact that more than 105 million listeners live outside the 50 largest radio markets and you quickly realize satellite radio's potential appeal.

Too Much Information
XM Radio uses two Boeing HS-702 satellites that are positioned over the East and West Coasts of the United States. The satellites, aptly named "Rock" and "Roll", maintain a geostationary orbit at 22,000 miles above the earth. XM Radio has a third back-up satellite on the ground should something go wrong in orbit.

Sirius Radio uses three Space Systems/Loral 1300 satellites in a high altitude elliptical orbit. Sirius Radio contends that this ensures that each satellite will spend about 16 hours a day over the U.S., and that at least one satellite is over the country at all times. Sirius Radio also has a back-up satellite standing by just in case of problems.

Both companies transmit their signal on the S-band, at 12.5 MHz to radio receivers on the ground. Sirius Radio will use the in the 2320.0 to 2332.5 MHz frequency band. XM Radio already uses the 2332.5 to 2345.0 MHz frequency band. They will also use repeaters in urban areas where buildings and other obstructions may interfere with signal reception.

One On One
Saltire interviewed Chance Patterson, XM Radio's Vice President of Corporate Affairs, to get his take on satellite radio.

• Saltire - What are some of the key differences between XM Radio and Sirius Radio?
  CP - The biggest difference is that we have a fully developed and deployed system. We have a proven product that's great, and we developed the system with a retail focus, not just limited to the car. But we're not just an audio service. We've recruited the best people in the industry. These people really make our content come alive.

  Saltire - What will it take for XM Radio to succeed financially?
  CP - We figure that we need 4.5 million subscribers to be profitable. There are more than 200 million registered vehicles in the United States. So we need less than 2.5% of all cars to reach that figure. And this doesn't take into account people who only use it in the home. We think the demand is definitely there.

  Saltire - How important is the auto industry to XM Radio's success?
  CP - They are a part of it for sure. We have a full OEM (Original Equipment Manufacturer) system. We have partnered with GM, and they are also an investor. Right now Cadillac models already have the system. Over the next year more than 20 GM models will have factory-installed units.

  Saltire - What does satellite radio mean for listeners?
  CP - People are spending more time in their cars and they want to be informed, and they want to enjoy that time a little more. XM can do that. If you're listening to the reggae channel you should feel like you're in Jamaica. It's really point-of-view radio.

  Saltire - What does satellite radio mean for traditional radio?
  CP - XM doesn't disenfranchise AM/FM. Terrestrial radio will be forced to get better. Talk to the audience like they're older than 12 year olds. Talk to me about the music. Talk to me about the world when [the song] was written. That's what listeners really want.

  Saltire - But will people really pay for satellite radio?
  CP - People said they'd never pay for cable television because TV was something they already got for free. Look at how that turned out. We're going to do the same thing for radio. The difference is that we already have all of the infrastructure. The one-millionth subscriber doesn't cost more than the first one. We'll offer better quality, less commercials, and more choice. We believe people will pay for their passions.

Word On The Street
Saltire solicited the unfettered opinions of individuals in the technology, radio, and automotive industry.

• What do you think satellite radio means for advertisers?
  "I think it can potentially be very good for advertisers. Specifically, by dividing the content available into so many categories, advertisers can probably make better assumptions about demographics. For example, XM Radio offers a dedicated NASCAR channel, dedicated BlueGrass channel, etc. The targeting is more granular than conventional radio where most stations do a little of everything, music, news, weather, traffic, etc. This should translate to more effective advertising potential for advertisers. That said, some of us are and will be willing to pay for commercial free options - I sure am." - Jason Foodman, technologist and Vice President of Business Development, Aladdin Systems

  Why do you think satellite radio has the potential to be a big success?
  "Abetted by the Telecommunications Act of 1996 that relaxed ownership restrictions and made possible the creation of media behemoths, conventional radio programmers unwittingly sabotaged their own stations through pernicious cost-saving programming trends such as corporate-level programming, format duplication and computer automation. The result: bland, boring, sound-alike radio stations from town to town, up and down the dial all across America, which drive away listeners in droves. That's good for satellite radio services like XM and, soon, Sirius, since listeners may eventually find their way to satellite radio." - Michael Saffran, radio industry veteran and Senior News Specialist, Rochester Institute of Technology

  What does the auto industry really think about satellite radio?
  "Everybody in the automotive/telematics value chain is excited about it. Well, maybe not everybody, but I've just been doing some interviews on a satellite based telematics project, and everybody I've talked to at OEMs, Tier 1 suppliers, cellular carriers, really likes the idea of satellite radio. I get the feeling they want this to work, if only because it lets them get a foot in the car door with subscription-based services." - Thomas R. Elliott, Vice President of North American Consulting, Strategy Analytics, Inc.

The Bottom Line
Both XM Radio and Sirius Radio agree that the market is big enough for two players. But as both services ramp up they need to find a way to stay in business. XM Radio recently reported a third-quarter '01 net loss of $70.8 million. Sirius Radio reported a net loss of $57 million for the same time period. XM Radio just announced financing to operate its business into the fourth-quarter of 2002. Sirius Radio has also publicly announced that they have enough cash to last until the fourth-quarter of 2002.

To succeed both companies will need the support of the auto industry, and quickly. Getting satellite radios installed as standard equipment will help to build their subscriber base. The current $300 to $400 conversion cost might be a bit too steep for most consumers. Also, current receivers only support a single format (XM or Sirius). Future AM/FM/XM/SR models should also help boost more widespread usage.

Finally, there is enough content overlap to keep subscribers to either service happy. Perhaps the biggest decision is whether or not you want ads with your music. Sirius Radio's commercial-free music service can be yours for just $3 more each month than what XM Radio charges. The immense variety of music and other content should be a big hit if consumers can just find an easy way to get their hands on the technology. And reports of its CD-quality audio can only help to increase satellite radio's popularity. I'm still waiting to hear it for myself. Stay tuned.

Re:Who cares?

Britain used to have a radio licence - until the late sixties - which ultimately was a subscription to BBC radio (there were no other radio operators.) So people in Britain did, indeed, pay for radio directly rather than indirectly through higher priced groceries, etc.

Note too that until the advent of cable TV, "the whole world" (except Britain) had "NEVER paid for TV". Cable changed that.

Given a choice between indirectly and directly funded radio I can't say I know whether enough consumers would choose the latter, especially if it requires special equipment. But given time, and given radios that have the additional functionality built in, that may be a matter of time.

Re:Who cares?

The BBC is not a government entity

You're right, I stand corrected.. but...

the government's sole involvement at all is it had the right to appoint members of a group of governors, who are chosen apolitically. The BBC's independence is considered important.

And I argue that the Beeb is closer to the Gov't than most independent companies. They held the exclusive rights to broadcasting in England until about 40 years ago. On paper it may be independent, but for the sake of what we're taking about its a lot closer to its gov't than the likes of XM Radio.

This is about the British Radio licence, not about the TV licence.

True, but its still analogous to the system for radio 40 years ago, except now they never got rid of the TV license when they allowed independent TV into the market. The British pay the TV license for the same reasons they paid for Radio: as you said IF THEY DIDN'T WANT TO PAY IT, they didn't have to, but they wouldn't be allowed to receive radio either. They lose the right to own a radio outright. You may technically have a choice, but for all intents and purposes unless you want to live in a cave you pay. It is similar today. You don't pay the license, you can't own a TV, regardless of whether you watch BBC or not.

And the radio licence was abolished once non-BBC radio channels became available in the UK.

In which lies the problem. The BBC had a monopoly on radio broadcast. You either pay and listen to any radio (even if you wanted to listen to foreign stations from across the channel) or you didn't pay and listened to nothing. Yup, I was wrong calling it a tax (I always thought it was. The damn bill showed up and the gov't would throw you in the clink if you didn't pay) but for all intents and purposes it was. Own a radio, pay the licensing fee. Sure, you're paying for the BBC's content, but by gov't mandate it was the only content you could receive from British soil. Not exactly the most free of markets.

Which was my point. People in the UK didn't pay for a radio license for the same reasons that people are going to pay for XM radio here. There, the only choice was either pay the license or lose the right to hear ANY radio (which was the prominent means of mass communications of the time).

Re:Who cares?

Truck Drivers, Audiophiles, "Gadget People", people who like to drive cross country(or need to).

I spend roughly 1 and a half hours in the car each day. Listening to a single set of mp3s, even a large one, can get tedious.

Then there is talk radio, which I imagine is going to be a large application of this thing. 24 hour Rush Limbaugh Marathons(...what joy...), still I imagined listened too. More selection, less trouble dealing with media/mp3's. Station not playing what you like, pick another. Then there is news, traffic reports(I don't know about localization, but I imagine it's possible), weather, and such - which just can't be taken with you.

Anyway, just because you don't see applications, doesn't mean that noone is going to buy it. Remember, people still listen to radio, not just CD's.

Less interesting that it used to be

Five years ago, this would have been the coolest thing in the world. Imagine being able to commute in the morning an listen to music instead of a pair of DJs chatting. Sure, you could pop in a tape or CD, but that can be a pain.

Now, it's not quite so interesting. The early adopters have been, at least in part, co-opted by car MP3 players. If I had a long commute, you can bet that's the direction I would invest my car audio dollars.

Of course, there is still a significant market for them, but it's just a little harder to get people excited about it than it would have been a few years ago.

XM radio

There's been lots of coverage of their system in the Washington Post [washingtonpost.com]. Look for stories by (former) radio reporter Frank Ahrens. He likes XM

If you liked WHFS back in the day, one of their former dj's now works for XM.

XM handles signal fade in cities by putting repeaters up all over the place.

60 channels of music...

Of the same music! Damn, America has two types of music - Country and Western!

Outside of radio markets

You in the big cities and even you in the more heavily populated rural areas may not realize what this means. But ask anyone who has driven across Montana, Wyoming, and one or both of the Dakotas: There are literally miles and miles where you cannot get any radio at all. I'm not saying "nothing but talk" or "nothing but Hat Act music". I'm saying literally NOTHING.

For this reason, I'm guessing that satellite radio receivers would be a big hit in Ryder/UHaul trucks. It would also keep them from having to reprogram the radio settings at every location.

I will NOT pay for XM.

I will not pay $10 a month for the 'right' to listen to more commercials. I pay $40 a month for internet, and get spammed from them. I pay $80 a month for Directv, and get more "special offer" channels instead of more movies in DD5.1 GM's OnStar deal, more cost the car, and when your 'free trial' runs out, there's another monthly fee, otherwise, you paid for some electronic gizmo in your new GM car that won't work in 5 years, and another route for more spam, crammed down our throats, on systems that WE are paying for.

And don't give me that garbage about "your monthly fee only covers infrastructure costs, someone needs to pay for content." I don't buy that for a second, if I pay for a service, don't cram ads down to consumers. That's why I am using a pay service to begin with.

This doesn't offer me anything that I don't get with free FM (which is financed by commercials, fair tradeoff). CD quality? Big deal, I can throw an mp3 player in my car for cheap these days.

They will fail and blame "poor market conditions" or have some other excuse for not making money. Funny how noone says "We didn't use common sense" as an excuse.

Re:I will NOT pay for XM.

I agree completely. XM has the advantage of being out first, especially right before christmas. But there is no friggin' way in hell I'm going to *PAY* $10 a month for more commercials. I will happily pay $12.95 a month though to Sirius for commercial free music.

An mp3 player in the car would be nice, but it requires love and attention for adding new music, creating playlists, etc. It's nice to just be able to turn on the radio and hear music. Plus, you get exposed to new music on the radio, with an mp3 player, you are limited to what's in your current library.

I've complained many times to XM about their commercials, and several of my friends have also. It appears that they have made a few channels commercial free now because of all of the complaints, but there are still commercials, and there is no way I'm going to pay for that.

Re:You are the exception

Cable TV generates new unique content. Radio just plays music that is available elsewhere.

Yes, but:

• I like to hear new music that I haven't been exposed to before.
• NONE of the 4-5 genres of music I like to listen to is broadcast on the radio where I live.

This is reason enough for me to get it, particularly with the receiver that can move from car to home. I'm sure there are many others in the same situation.

If there were more independent radio stations and less corporate crap, this wouldn't be necessary.

Let's finish the job

Can we finally rid the world of the middleman now? We have:

• A limitless supply of artists
• A limitless supply of music fans
• Ubiquitous medium (satellite radio)
• Music sharing services (Morpheus, etc...) and payment services (PayPal, etc...) that can be improved to be secure and can be coordinated to allow music fans to pay a fair price (read: far less than $17 per CD) directly to the artists.
• A corrupt, outdated system in which the artist gets screwed at the time the contract is signed, the fan gets screwed at the checkout counter, and the industry's trade association lobbies for (and receives) absurd laws with draconian penalties that ensure a limitless profit stream for its minions

Someone please stop the RIAA before they ask their cronies (the gummint) to pass laws making it illegal to hum tunes to ourselves?

The $30 question is

I refuse to pay for extra receivers. THink about it. 2 receivers for your two cars (if you're married or very rich :) ) plus at least one receiver on teh Home AV system. Will it still be $10/month? If so I'd sign up - seems worth it. Or will I get charged another $3-$5 for each additional receiver? I've been a DISH subscriber for years and it just irks me to have to pay $5/month for each extra receiver for additional rooms/TVs. It makes me feel like I'm getting less value.

Nope - from XM's customer agreement:

b) Multiple XM Radios. If you add additional XM Radios to your account, you may purchase a separate subscription for each one (see Section 5).

That's $30 a month - no way in the world am I paying that - sorry.

FCC rules & regulations

Do the same FCC decency rules & regulations apply for satellite transmissions as they do for AM/FM? It would be sweet to listen to uncensored talk radio (imagine what Opie & Anthony [opieandanthony.com] could do on the air....). I think that would be the killer app for satellite radio.

Re:FCC rules & regulations

Notice how the FCC decency rules apply to standard cable, but not HBO... I bet that within 5 years they'll apply to HBO too.

I think "standard" cable chooses to be conservative in what they air. It pisses me off, I have written to CourTV to tell them I don't watch NYPD Blue reruns that they air because they choose to bleep out dialog (and "airbrush" some body parts) the network TV has already aired!

At any rate the networks are getting more bold, not less. I also don't see HBO caving many of their most popular shows (Sopranos, Sex in the City) have nudity in pretty much each episode.

As for correcting the problem at the source, I would be happy to drop the whole lame censoring scheme we use, but many people still support it. In fact I recall writing my congress critter that I was in full support of the "V chip" crap if and only if it allowed any channel to broadcast as much sex and violence as they though was proper so long as it was labeled. I mean, if a parent doesn't want a child seeing that sort of thing, the V chip would stop it, right? If not, what good is it?

I would assume nothing stops XM from broadcasting whichever version of the music they like, the question is which version do they think makes more money? (personally I like some of the "cut" version better, not because the words offend me, but some of the digital scratch out effects that Rage used were pretty cool sounding, better then "Fuck you, I won't do what you tell me!", but for the most part the uncut versions are better)

P.S. My Mac's spell check (OSX -- it's unix for the one button crowd!) doesn't have "fuck", one of the suggestions was "fsck"...

These are easy to hack

One of my buddies bought two XM radios last week and has been very happy with them. In fact, he cracked them open and found that he could "clone" his subscription onto the second radio by copying a serial EEPROM chip. So now he is offering it as a service: he will clone an XM radio onto another one for $50 and he is making a tidy little profit off of friends and neighbors by cloning his own subscription, so that they get the service for free. [microchip.com]

In retrospect, XM should have really considered a smartcard system like that of DirecTV [directv.com]. Those are crackable but they are a lot more difficult. Putting the authenticator on a damn EEPROM chip was just a stupid move, and it is certain to result in large-scale piracy.

~wally

Its the content, stupid....

The bottom line with the success of these services will be a) Is the content actually good, where they'll play a song even if it isn't on a major label or performed by Brittney Spears, or am I going to have to listen to the same 75 songs programmed by mindless corporate drones over and over like I have to do on FM today? b) If they actually get part 'a' right, will they last long enough financially for word of mouth to help them achieve critical mass?

On a technical note, does anyone know the capacity of these systems in terms of the number of seperate channels they can offer?

XM radio poor bitrate

I had XM radio, I took it back. Simply put the quality was about the same as 96Kbit Mp3. It had great selection the music was awesome. The no commercials ruled. But everytime a song I liked came on and I cranked it up, the lack of quality and compression artifacts drove me away.

good idea, poor delivery

Why I will not be listening to satellite radio anytime soon:

- It's a subscription model, and yet I have to buy the equipment which is not cheap (other than the one car manufacturer that includes it).

- It's a subscription model, yet there are commercials (on at least some channels)

- I have to dish out money for equipment and yet there is a good chance it will only work for less than a year. One company admitted that they have money to stay afloat until the end of next year. Which means, there is a good chance they will no longer exist a year from now since I think they're expectations on signing up 4.5 million subscribers is a bit optimistic.

Yikes. No thanks. You won't get me to take the gamble, at least not until they have been around for a couple years. Of course, if everybody thinks like me, they won't be around for a couple of years.