Technology

Everyone's Aiming at Satellite Radio


Since their debut a half-decade ago, satellite radio stations have had one main rival: traditional radio. And it's not hard to see why winning subscribers has been easing pickings. Satellite radio offers ad-free music channels and boasts myriad specialized offerings, compared with a few dozen for traditional AM/FM stations. XM Satellite Radio (XMSR) and Sirius (SIRI) had signed up 9.3 million paying users by the end of 2005, compared with fewer than 4.5 million a year earlier.

Competition between XM and Sirius has been furious from the start and has only intensified of late -- most recently with the Jan. 9 debut of a channel for shock jock Howard Stern on Sirius (see BW 12/28/05, "Satellite Radio: Now It's a Race"). But now, the battle for subscribers is about to get cranked up another notch. Traditional radio companies are making a major push into so-called high-definition radio, a new technology that will let them better compete for listeners with a greater range of channels and higher sound quality.

What's more, wireless broadcasting networks as well as services that let you listen to radio on your PC or download radio wirelessly are rushing into the market, offering consumers a slew of new listening options. The big wild card: Apple Computer (AAPL), maker of the wildly popular iPod digital music player, might enter the fray, with results that may not favor the satellite companies.

"ANYTHING IS POSSIBLE." This new challenge couldn't come at a worse time for XM and Sirius. Both have been revving up their content and marketing spending in an attempt to outdo one another. Sirius is shelling out half a billion dollars alone to keep Stern happy (see BW 01/23/06, "Is Howard Stern Worth It?"). Neither company is profitable. While analysts believe both XM and Sirius will reach the black in a year or so, the launch of competing services could make the climb steeper.

"It's very early on in the adoption of satellite radio, and these other services are very early on, too," says Chad Bartley, an analyst with Pacific Crest Securities. "At this point, anything is possible. And it's possible that satellite radio will be impacted." New radio offerings "could affect take rates" -- that is, slow down satellite radio's subscriber growth, says Tom Watts, an analyst with SG Cowen.

Traditional radio stations, catering to some 219 million listeners in the U.S., are fighting back with a major push into high-definition (HD) radio. The technology lets broadcasters stream more channels with a better sound quality (FM channels will sound like CDs, and AM channels more like FM).

HD PUSH. In December, the nation's largest broadcasters formed the HD Digital Radio Alliance to promote HD. The alliance's 11 members have committed more than $200 million worth of airtime in 2006 alone to tell listeners about how HD works, which HD radios to buy, and where to get them.

"The push is enormous," says Jeff Littlejohn, executive vice-president for distribution development at alliance member Clear Channel Radio (CCU). "Verizon Wireless is the largest radio advertiser [today], and this is larger than Verizon Wireless," he says of the spending plan. Marketing might also include HD radio giveaways.

The U.S. has more than 650 HD radio stations today, up from some 200 a year ago, and their numbers should reach 1,200 by the end of 2006, estimates Bob Struble, CEO of iBiquity, which licenses the technology. At the same time, the number of HD-compatible devices from manufacturers such as Boston Acoustics and Kenwood will rise from about 15 today to 25 by yearend.

iPOD RADIO? Today, the cheapest HD receiver goes for about $299, but that will drop to under $200 this year, Struble reckons. While still much more expensive than your average satellite radio (XM radios start as low as $19.99 with rebate), these devices won't require a monthly $12.95 subscription: HD radio service is free. Indeed, the emphasis on keeping the radio free will likely be a big part of the push by traditional radio. Many stations already note their "free"-ness in ads.

One device that could really help HD radio gain traction would be an HD-ready iPod -- which is a definite possibility, says Richard Doherty, director of consultancy Envisioneering Group in Seaford, N.Y. Here's why: On Jan. 10, Apple introduced its first iPod-related radio product, an FM remote for iPod nano and the fifth-generation iPod. The iPod Radio Remote, selling for $49, allows users to skip tracks, adjust the volume on iPods, and listen to FM radio stations. It could be a sign that Apple, long pressured to combine iPod with a radio service, has finally chosen its technological path.

It's too early to say for sure, but signs suggest Apple will take the HD route. A year ago, it was rumored to be in talks with Sirius about making a satellite-radio iPod, but no announcements have been made. And last fall, Sirius introduced its S50 portable player, which incorporates MP3 player functions, as an iPod competitor (see BW Online, 10/10/05, "Sirius Radio's Radical Handheld").

MOTOROLA ROLL-OUT. "As satellite radio recorders incorporate iPod-like functionality, it's important for Apple to find yet another differentiator," says Frank Viquez, an analyst with tech consultancy ABI Research. HD radio might be it. "Apple's entry [into HD] would change things [for satellite radio] overnight," says Doherty. "It could accelerate HD radio adoption by two to three years." An Apple spokesperson declined to comment on the company's plans.

Challenges to satellite radio don't end there. Motorola (MOT), the world's second-largest cell-phone maker, plans to start offering a radio service, iRadio, in March. Expected to cost between $7 and $10 a month, iRadio allows owners of cell phones with Java support, Bluetooth capabilities, and removable memory (pretty soon, most mobiles sold will fall into this category) to record hours of radio programming from 435 commercial-free channels. Users can download programs from six of the channels by connecting their cell phones to their computer's USB ports. Then, they can listen to the songs through their home or car stereo, or through headphones. Unlike satellite feeds, the broadcast isn't live.

iRadio will have many features that satellite radio is just starting to roll out. As you listen to an iRadio program, you can press a button to buy a song you just heard, or to pre-order a favorite singer's album. XM and partner Napster (NAPS) will offer a similar capability at the end of the first quarter, says an XM spokesperson.

EXPONENTIAL GROWTH. While other PC-to-mobile radio download services are around, such as Mercora, Motorola might have the marketing muscle to take iRadio furthest. It has formed a special iRadio marketing team, signaling that this will be a big effort. And Motorola also hopes to get promotional help from U.S. carriers -- it's currently in talks with some.

"We expect, in the first year, to be in the hundreds of thousands of subscribers. In the second year, in the millions of subscribers," says Mike Gaumond, general manager of Motorola iRadio. "And we don't see why, in three to five years, we can't have tens of millions of subscribers."

Finally, satellite radio also faces competition from wireless service providers themselves. Sprint Nextel (S) has been offering two such services since last year. One of them, MSpot Radio, offers 17 satellite-quality channels that are streamed onto your cell phone over Sprint's network for $5.95 a month.

"VERY AGGRESSIVE." Other service providers are likely to follow suit, perhaps using alternative broadcasting technologies, such as MediaFLO. Developed by wireless technology powerhouse Qualcomm (QCOM), MediaFLO allows broadcasters to beam video and audio channels directly onto users' cell phones. Qualcomm is expected to announce its first customer trials this year.

A rival broadcasting technology is being prepared by wireless-towers company Crown Castle International (CCI) and cell phone maker Nokia (NOK). Some carriers are looking at WiMax technology, which could send radio channels to cell phones in rural areas.

Still, analysts expect satellite radio to keep growing. Jupiter Research predicts that an installed base of 12 million satellite radio units in 2005 will grow to 55 million units in 2010. "If there are other success stories out there, that's great," says an XM spokesperson. "We aren't taking anything for granted, we're being very aggressive." As the radio dial crowds, the satellite folks will have to be.


Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus