Sirius Corporation vs. XM Corporation

     Two corporations are at the front of the race to bring satellite radio to the American consumer: Sirius, headquartered at the Rockefeller Center in New York City, and XM, which has its offices on New York Avenue in Washington, D.C. Both companies take a similar approach to satellite broadcasting. Each is beaming a digital signal from a satellite to antennas the size of a playing card. The antennas, mounted in the consumers' cars or homes by suction cups, feed the signal into digital radio receivers that produce CD-quality audio with at least 100 different format selections. As of early 2003, XM offered 70 music channels and 31 talk channels while Sirius advertised 60 music channels and 40 talk channels. Both companies have signed well-known stars to provide special programming for subscribers. Both companies-and here is the big gamble-are charging for their audio services: initially $9.95 (XM) and $13.95 (Sirius, which offers more channels without advertising).

     Investors at XM and Sirius are gambling that enough listeners are dissatisfied with the current fare on AM and FM radio stations that they will be willing to pay a small monthly fee to receive programming unavailable on analog terrestrial stations. Executives at both corporations note that almost 30 per­cent of all recordings sold at music stores come from artists receiving little or no radio airplay. The reasoning goes like this: There may not be enough fans for alternative country acts such as Lyle Lovett or Steve Earl or for new-age performers such as Yanni to support a local radio station format. There are, however, enough of them scattered across the country to make a nationwide satellite feed economically feasible.

     Given the sheer cost of both projects, niche programming alone will not offer the kind of return on investment stock­ holders of either company are looking for. Thus, the need for big-name performers. XM gave a channel to Grammy-winning producer and composer Quincy Jones. Former Yes member Jon Anderson is using the same approach, while Ted Nugent gets his own talk show.

     Lee Abrams, creator of the album-oriented rock (AOR) sound of the 1970s, provides the consulting for all 50 music formats for XM. Abrams claims that XM will not emulate traditional radio. He understands subscribers are paying for the audio services and expect something different for their money. Abrams delivers expanded selections of classic rock artists such as Bob Dylan, The Beatles, or Led Zeppelin to counter complaints from traditional radio listeners that playlists have become repetitive. Abrams also delivers channels for contemporary alternative rockers as well as multiple jazz, country, and blues formats.

     Sirius has given a channel to rock superstar Sting, who produces a daily live show with original and recorded music. With the main studios in New York City, Sirius plans to offer a number of live, in-studio concerts from artists who pass through the city while on tour. National Public Radio (NPR) provides two channels of talk and information, including an original morning program for satellite listeners only. Programmers point out that Sirius, with multiple rock, jazz, country, blues, and talk formats, plans no commercial advertising at this time, while some of XM's channels have up to six minutes of commercials per hour.

     Sirius Corporation used to be known as CD Satellite Radio Service. Focus groups and marketing studies found consumers were confusing the name with the audio CDs available in music stores. Furthermore, company executives felt the name CD no longer implied cutting edge technology. So, a name change to Sirius was ordered early in 2000.

Making Satellite Technology Pay Off

     Several companies launch commercial communication satellites. XM hired Sea Launch to place its two Hughes Corporation satellites (named Rock and Roll) into orbit from an ocean platform located 4,600 miles west of South America. Sirius hired Space System/Loral to build and launch three satellites into orbit from the former Soviet republic of Kazakhstan. The enormous cost of the high orbit satellites for both corporations may be partially offset by leasing unused space on the various transponders to other companies with communications needs.

     In order to maintain a constant signal, or footprint, over a specific region of the planet, satellites must remain in roughly the same position relative to the earth. Sirius and XM are using two different systems to meet that goal. XM uses two geostationary satellites positioned at 22,300 miles above the Earth. At that height, the speed of the satellite's orbit matches the speed of the rotation of the earth. Therefore, the satellites appear to be stationary in the sky.

     Sirius uses three satellites in an inclined elliptical constellation. Elliptical orbit means the satellites are in a lower orbit moving across the sky. Each satellite spends at least 16 hours a day over the United States and at least one satellite is placing a footprint over the continental U.S. at all times. Both companies have a spare satellite on the ground in case of a catastrophic failure.

     What kind of return will the two American corporations need to stay afloat? Wall Street analysts predict that each company will have to attract a minimum of 4 million subscribers within five years to break even. Such numbers are possible, as has been proven by successful satellite radio ventures in other countries.

Satellite Radio Worldwide

     A privately owned American corporation with immense international ties, WorldSpace is the current leader in digital satellite technology. WorldSpace claims a potential audience of 4.6 billion people on five continents. Launched in October of 1998, the geostationary satellite Afri-Star offers three overlapping signals to the continent of Africa with 50 audio channels and multimedia programming available on each signal beam. Asia-Star was successfully placed into orbit with a similar programming array over the Asian continent in March of 2000.

     A third satellite, Ameri-Star, will service South and Central America as well as Mexico. This satellite has no current plans to broadcast to the United States or Canada. However, World-star has signed a cooperative agreement with XM ro share technological innovations.

     Delivering 24 digital radio signals, Orbit Satellite TV and Radio Network serves the Middle East, North Africa, and parts of Asia with "socially responsible" broadcasts in Arabic and other languages. Originally chartered with the Italian Ministry of Post and Telecommunications, Orbit signed with Telespazio to provide space segment services and launched programming in 1994 with 16 TV and four radio channels. Orbit now boasts business offices and uplink centers throughout the Mediterranean, Middle East, and the Indian Subcontinent.

     Orbit first used transponder space on lnTelSat satellites, the international telecommunications satellite consortium established by the United Nations. In 1999, Orbit expanded its coverage area by 22 million households when it began to also broadcast on Arabsat, a satellite placed into space by a cooperative of Middle Eastern nations. Orbit contracts with numerous international providers for programming content including CNN and ESPN Radio.

     Several other satellites carry digital audio and analog radio programming. The Eutelsat array and the Astra satellites provide a radio footprint over Europe. Panamsat and Srasilsat provide programming for Central and South America. Other countries may well adapt to satellite radio faster than America does. Much of Europe and Asia are already used to the concept of a national radio service. Britain's BBC or Germany's Deutsche Welle have for years broadcast a national signal through the use of relay transmitters. A satellite service is simply a logical extension of that system.

Broadcast Opposition

     As early as 1982, theFederal Communications Commission (FCC) began to develop regulations for direct broadcast satellites, or DBS. Signals would be provided to consumers via a three-meter dish antenna. Local broadcasters immediately attacked the proposed service with charges that a national TV service would undermine the localism provided by traditional television broadcasting.

     In October 1992, the FCC again acted on an industry DBS proposal, this time for radio. The original proposal called for a Satellite Digital Audio Broadcasting System or DAB to be located in 50 MHz of the S band (2310-2360 MHz) with the intent to create a system that would provide a national service. Again, local broadcasters rolled out the same arguments used against the DBS system: "The current number of FM and AM stations serving the United States represents the highest level of audio diversity available in the world." In comments submitted to the FCC the association added, "A competing satellite service presents a potential danger to the United States' universal, free, local radio service and, thus, to the pub­lic interest it serves."

     A consortium of radio group owners also weighed in with the following comments to the FCC: "National radio stations raise a troubling question of undue concentration of control of the media, an issue that has been consistently a concern to the commission." The joint comments added, "erosion of audiences and advertising revenues caused by satellite radio would inevitably destroy the ability of many [existing] stations to offer these services."

     Broadcasters opposed only the national delivery of a digital satellite signal and not the use of digital technology. In fact, the National Association of Broadcasters (NAB) began proposing a system referred to as in-band, on channel (IBOC). This system would replace terrestrial analog transmitters with digital transmitters for better signal quality and reception. Local broadcasters would then repeat satellite feeds of the various program services with inserts for local advertising and announcements.

     However, satellite programmers counter that the broadcasters are overemphasizing the continued importance of localism. Listeners, they say, do not tune exclusively to one station. While local news, weather; and information are ·important, research shows many listeners will tune to a station specifically for music or entertainment programming. Satellite programmers believe listeners will tune to their service for specific formats and return to local stations when they need local information. As one programmer stated, "Program directors who think localism is fundamental to successful radio should look at the success of USA Today."

The Box in the Car or Home

     Ultimately, the success of satellite radio in the United States depends upon whether consumers will buy the new digital receiver necessary to pick up the satellite signal. Sirius and XM settled a patent lawsuit in March of 2000 by agreeing that all digital radios will eventually have the capacity to receive both audio feeds. Deals have now been made with Sony, Alpine, Pioneer, Clarion, and other audio manufacturers to produce the receivers. Major retailers have agreed to market and sell the receivers for $200.00 and up, depending on features and installation.

     Some of the retailers, including consumer electronic shops, car sound shops, and automobile dealers, are offering installation for car receivers. Distributors are also marketing a portable device designed to translate a digital satellite signal for existing radios. In January of 2003, Delphi introduced the SkyFi radio, advertised as the first plug and play portable digital satellite radio.

     However, the real key to success is cooperation by major automobile manufacturers in offering digital radios as available equipment in new cars. XM has agreements with General Motors (GM) and Honda. Sirius has a deal with Ford and ten-tative agreements with Chrysler and five other automakers. The deal with Ford is particularly beneficial because the buyer gets a satellite radio and a two-year subscription to Sirius audio services.

     The drawback, if the current marketing arrangement stays in place, is that owners of GM cars will have to take XM audio services while Ford owners will receive Sirius. Will listeners continue to pay for audio services when the initial deals run out with the car companies? As one industry observer put it, "Twenty-five years ago, TV viewers would have thought it odd to pay for watching television." Today, a majority of American homes have cable television and pay a monthly fee for expanded video service.

The Impact on Local Radio

     If satellite radio succeeds, there will be some impact on local radio stations.

     First, three critical audience-rating categories could be affected: time spent listening, or TSL; average quarter hour listening, or AVQ; and cumulative audience numbers, or cume. If enough listeners tune out local stations to listen to satellite radio, the local stations will report reduced numbers in those categories and will have to lower the rates charged for advertising.

     Second, the concept of localism in radio in recent years has really come to mean the ability to generate local ad revenue, rather than the desire to program for regional interests of the community of license. Radio stations are no longer compelled by the FCC to provide specific programming to meet the needs of the local community. Music playlists are almost identical by format in every market. A listener can drive across the country today and find virtually the same 30 or 40 songs being rotated in each format by stations across the dial. If the majority of stations are playing similar music and running many of the same syndicated programs, then the broadcasters' "localism" argument is greatly diminished.

     Despite their more than 100 channels of specialized programming, both Sirius and XM radio added subscribers more slowly than expected. Toward the end of 2002, Sirius was reaching only about 30,000 paying customers while XM (which had aired earlier) was reaching better than ten times as many. But each needed more than a million subscribers in order to survive, and in 2002 it appeared such levels would take at least a couple more years to achieve. One result of the slow growth was that their stock prices declined to record low levels as many observers concluded there was room for only one such service, not two. Both continued to seek additional investors and claimed they were in the competition for the long haul. At the same time, both trimmed their expenses, closing down unused studios and cutting back staff. Talk of consolidation lingered in the air.

     Nonetheless, the investors for both XM and Sirius believe that the public will eventually buy into the idea of satellite radio. They believe enough of the public has grown tired of traditional radio's repetitive playlists and commercial saturation to give satellite radio a try at $10.00 per month. Even radio giant Clear Channel Communications hedged its bet by becoming a major investor in XM. It is not clear that satellite radio will succeed as numerous challenges remain. However, executives at XM and Sirius are literally betting millions of dollars that the time is right for a new national radio service.