Satellite Radio Industry

Satellite Radio is arguably the biggest step that radio broadcasting has made since Charles Herrold started broadcasting in California in 1909. Instead of broadcasting analogue signals from a fixed transmitter as terrestrial radio does, satellite radio beams down digital format signals from a satellite in Earth orbit. Because the signal comes from satellites, satellite radio is virtually limitless range allowing the user to listen to the same radio station at any point in the United States. Another benefit comes the way of the use of a digital signal which can allow for better sound quality than FM.

Satellite radio service first became available in the United States in 2001. There are currently two companies that offer satellite radio service; Sirius and XM Radio. Unlike terrestrial radio broadcasting companies, XM and Sirius act more like cable companies than radio stations. XM claims to currently have 8 million subscribers while Sirius has surpassed the six million subscriber limit in 2006. XM also has the greater number of channels having a total of 170 digital channels compared to a little over 130 channels for Sirius. According to data from Yahoo! Finance, XM had greater revenue than Sirius in the past fiscal year, posting $ 989.56 million in earnings to Sirius’ $ 714.16 million.

The value proposition of XM and Sirius is to offer their subscribers two main things – mobility and content. Mobility means allowing their subscribers access to high fidelity audio content anywhere in the country. A user can listen to a particular music station or talk show he or she likes whether she is in California, New York or anywhere in between. Content is the multitude of channels that XM and Sirius offer. Much like cable TV, this gives the subscriber a greater amount of choices and allows for specialty channels that appeal to niche markets. Additionally, many satellite radio stations are commercial-free and for the most part have less stringent censorship as compared to terrestrial radio.

Technologically, Sirius and XM have two different approaches. XM uses two geostationary satellites which stay in one place over the United States. Sirius uses three satellites that move in an elliptical orbit. Sirius says that everyday, each satellite stays up to 16 hours over the continental United States ensuring constant coverage. Even though these approaches are different, subscribers note that there is no appreciable difference in quality of service between the two companies. Both services also satisfactorily cover the entire continental US.  Price-wise the two companies are also competitive with each other offering similar subscription rates and receiver prices.

The two main factors between these two companies for new subscribers seem to be two things: car model and content. It is in these two areas that the companies start to differentiate themselves. Each company has promotional tie-ups with differing sets of automobile manufacturers. Some automobiles bought from these manufacturers already have the necessary hardware to receive either XM or Sirius and most already have a limited introductory subscription. This means that a new car buyer will get to experience free XM or Sirius for the first few months in their new vehicle, allowing them a taste of what satellite radio has to offer.

However it seems that for the most part, the two companies are competing mainly on content. Competition with content goes in two ways, providing better quality stations and having more exclusive content. For their music channels, quality will refer to having a respectable play list, minimal interruptions in the form of DJs or commercials and decent sound quality. Edmunds did a comparative study on the strengths of Sirius and XM on different radio categories.  They awarded XM with the advantage in news, and pop music while giving Sirius the edge in sports, talk radio, and rock music. They also declared the stations as equals in their country and hip-hop/R&B offerings.

Exclusive content is another playfield for the two companies. XM has exclusive rights to the Indy 500 while Sirius has exclusive rights to NASCAR games. XM has Opie and Anthony’s show while Sirius has Howard Stern. Indeed, the value of exclusive content for these companies is highlighted by Sirius’ 5-year $100 million deal with Howard Stern to move his show to Sirius starting January 2006.

In a report made by BIG Research released March 2005, they found out that 18-34 year olds are “leading the charge” in Satellite radio.  Additionally, the 18-34 year old age group is also the most likely demographic to subscribe to Satellite radio in the future. Another interesting thing in the report is that 28.7% of the respondents would subscribe to Sirius if they would subscribe to a satellite radio service over only 16.7% picking XM. A little over 54% are still undecided. However, it is to be noted that this report is already two years old in that the current number of satellite radio subscribers is already more than twice the number mentioned in the report thus the data in the release may not be up to date. A more recent report by the Katz Media Group gives the total satellite penetration of XM and Sirius combined at 4.1% of the total US Market.

The future for satellite radio may hold a merger of XM and Sirius. The two companies are currently in talks of a merger which will leave only one company serving the entire US market. This merger is most likely an effort to cut down the expenses of both companies who as of 2006 are still not turning in a profit. Currently, the merger is waiting for government approval. Aside from cutting costs, the merger would provide greater variety for subscribers who will have access to the exclusive content of both companies.

The main adoption driver for satellite radio seems to be dissatisfaction with terrestrial radio. A cursory look at a FARK.com forum regarding satellite radio gives the impression that the reason for subscribing to satellite radio is their discontent with the lack of variety with terrestrial radio, the obtrusive commercials and the constant interruptions from the DJs.

Another avenue that satellite radio might pursue might be the distribution of non-audio content. Theoretically, they already have the infrastructure to deliver any kind of digital data apart from streaming audio. Currently, subscribers can have stock quotes and headlines beamed to their receiver displays. This opens up the possibility of streaming video through the XM and Sirius infrastructures.

Bibiliography

Austen, I.. (February 26, 2007). Can Video Help Save the Satellite Radio Business?. In The New York Times. Retrieved May 25, 2007, from http://www.nytimes.com/2007/02/26/technology/26satellite.html?ex=1330146000&en=e88e313ea0676b27&ei=5088&partner=rssnyt&emc=rss.

BIG Research. (March 17, 2005).  Who Wants Satellite Radio? 18-34 Year Olds Lead the Charge According to BIGresearch. In BIG Research. Retrieved May 25, 2007, from http://www.bigresearch.com/news/big031705.htm.

Katz Radio Group, (2006, December ). Satellite Radio Penetration. Radiowaves, 1(5), 2.

Memmer, S.. (November 30, 2004). Satellite Radio: XM vs. Sirius. In Edmunds Inside Line. Retrieved May 23, 2007, from http://www.edmunds.com/insideline/do/Features/articleId=103686.

RadioSatellite.org. (December 29, 2006). Side by Side Comparison of Satellite Radio Deals Currently on the Market. In RadioSatellite.org. Retrieved May 25, 2007, from http://www.radiosatellite.org/.

Sirius. (n.d.). Sirius Radio – The Best Radio on Radio. In Sirius Radio Website. Retrieved May 25, 2007, from http://www.sirius.com/servlet/ContentServer?pagename=Sirius/CachedPage&c=Page&cid=1018209032790.

Various. (October 3, 2006). FM radio stations run anti-satellite-radio advertising. Satellite radio experiences explosive growth. Marketing 101: Never give free advertising to your competitor (note, purposefully satirical title). In FARK.com Forums. Retrieved May 25, 2007, from http://forums.fark.com/cgi/fark/comments.pl?IDLink=2327061.

XM Radio. (n.d.). XM Satellite Radio – America’s #1 Satellite Radio Service. In XM Radio Website. Retrieved May 25, 2007, from http://www.xmradio.com/.