[Swprograms] As Satellite Radio Takes Off, It Is Altering the Airwaves

[Joel Rubin <jmrubin@xxxxxxxxxxxxx>]

http://www.nytimes.com/2005/04/05/national/05satellite.html

By LORNE MANLY


Just a blink after the newly emergent titans of radio - Clear Channel
Communications, Infinity Broadcasting and the like - were being
accused of scrubbing diversity from radio and drowning listeners in
wall-to-wall commercials, the new medium of satellite radio is fast
emerging as an alternative. And broadcasters are fighting back.
	
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The announcement on Friday by XM Satellite Radio - the bigger of the
two satellite radio companies - that it added more than 540,000
subscribers from January through March pushed the industry's customer
total past five million after fewer than three and a half years of
operation. Analysts call that remarkable growth for companies charging
more than $100 annually for a product that has been free for 80 years.

Total subscribers at XM and its competitor, Sirius Satellite Radio,
will probably surpass eight million by the end of year, making
satellite radio one of the fastest-growing technologies ever - faster,
for example, than cellphones.

To keep that growth soaring, XM and Sirius are furiously signing up
carmakers to offer satellite radio as a factory-installed option and
are paying tens of millions of dollars for exclusive programming. On
Sunday, XM began offering every locally broadcast regular-season and
playoff Major League Baseball game to a national audience, having
acquired the rights in a deal that could be worth up to $650 million
over 11 years. And Howard Stern is getting $500 million over five
years to leave Infinity and join Sirius next January. Each company
offers 120 or more channels of music, news, sports and talk.

Though satellite radio is still an unprofitable blip in the radio
universe, it is pushing commercial radio to change its sound.
Broadcasters are cutting commercials, adding hundreds of songs to
once-rigid playlists, introducing new formats and beefing up their
Internet offerings. A long-awaited move to digital radio could give
existing stations as many as five signals each, with which they could
introduce their own subscription services - but with a local flavor
that satellite is hard pressed to match.

"At the end of the day, people want to hear what's going on in their
local market," said Joel Hollander, chairman and chief executive of
Infinity Broadcasting, owned by Viacom and the country's
second-largest broadcaster behind Clear Channel. "People are
emotionally involved with local radio."

That emotional connection - to music, personalities, information - has
always translated into strong feelings about radio. Twenty-seven years
ago, in "Radio, Radio," the singer Elvis Costello ranted about the
medium's programming choices, singing that "the radio is in the hands
of such a lot of fools, tryin' to anesthetize the way that you feel."

But such criticism pales beside the complaining unleashed by
Washington's deregulation of radio, beginning in 1996. The loosening
of ownership restrictions set off a frenzy of acquisitions,
transforming what was essentially a mom-and-pop business into an
industry dominated by a handful of giant broadcasters.

To satisfy Wall Street, station owners cut costs by combining station
operations in a given market and pumping up the number of
advertisements per hour; meanwhile, programming formats became
narrower and more uniform. All these moves nearly doubled the
industry's revenue in five years, but they also gave satellite radio
its opening.

"In many cases, radio almost killed the golden goose by getting it to
lay too many eggs," said Sean Butson, an analyst with Legg Mason. "If
you're going to have a third of an hour of commercials, you're going
to turn a lot of people off, and they're going to look for an
alternative." (Legg Mason owns stock in XM.)

Founded in the early 1990's, XM and Sirius endured tough financial
times while waiting for the Federal Communications Commission to
divide up the satellite bandwidth and while preparing to launch their
satellites. XM finally began offering its subscription service in late
2001, Sirius in mid-2002.

Car owners - the companies' prime targets - have clamored for the
service once they have been introduced to it.

Joseph O'Neal of Royal Palm Beach, Fla., is a self-proclaimed
Elvishead who laments that his local stations do not play enough of
the King. So Mr. O'Neal, a 44-year-old drywall contractor, is a
zealous convert to Sirius, the home of Elvis Radio.

Mr. O'Neal installed the service in his truck in January. Between
Elvis, blues and Sirius's six country music channels, he said, "I
haven't listened to regular radio since - not once."

That kind of devotion was eye-opening for Mel Karmazin, a longtime
radio executive hired last year as chief executive of Sirius after he
stepped down as president and chief operating officer of Viacom. "The
thing that surprised me the most was the passion the subscribers had
for the product," Mr. Karmazin said.

Both companies offer stations devoted to the most popular songs, but
it is their national reach and dual revenue streams - subscriptions
and advertising sales on nonmusic channels - that allow them to offer
niche programming. Genres that receive little exposure on commercial
radio, like bluegrass, reggae or talk devoted to African-American
affairs, get their own channels on satellite services. Individual
ratings matter little; listener satisfaction counts for much more,
because it determines how long subscribers will keep paying $12.95 a
month.

Indeed, formats ignored by commercial radio or relegated to its wee
hours have emerged as some of the most popular.

For instance, XM Comedy, a channel that features the often raunchy
stylings of Chris Rock and others, is among the company's 10
most-listened-to.

"Comedy - who knew?" said Hugh Panero, XM's chief executive.

A glimpse of how these channels are programmed highlights the
differences between satellite and commercial radio. Even satellite
radio executives say that tales of corporate automatons determining
every record played on local radio are overblown, but a level of
autonomy exists at XM and Sirius that would rarely be tolerated by
broadcasters.

Michael Marrone, who programs the Loft, XM's channel focusing on
singer-songwriters, finds it difficult to define precisely why Elton
John's "Your Song" makes the cut while Jimmy Buffett's
"Margaritaville" does not. "I'd rather lose an arm than play it
again," he said of "Margaritaville," chatting in a control room in the
company's Washington headquarters. (He quickly added that he likes and
plays many other tracks by Mr. Buffett.)

Ultimately, Mr. Marrone's tastes determine his selections. He also
enjoys inserting connective tissue between songs. Don Henley's "Boys
of Summer" segues into a Grateful Dead song because Mr. Henley sings
about "a Deadhead sticker on a Cadillac."

"Ninety-five percent of the audience won't get it," Mr. Marrone said.
"The other 5 percent will never change the channel."

Steven Van Zandt, who plays in Bruce Springsteen's E Street Band and
is in the cast of "The Sopranos," programs two music channels for
Sirius. He supplies a slightly more detailed explanation of his
programming philosophy. On "Underground Garage," which borrows the
name and concept of Mr. Van Zandt's syndicated show on commercial
radio, the idea is to juxtapose tracks and styles from 50 years of
guitar-driven rock 'n' roll, never playing two songs of the same genre
(like punk) in a row. A recent morning, Iggy Pop coexisted nicely with
the Monkees, the Mooney Suzuki and the Byrds.

"In the end, I don't pretend," Mr. Van Zandt said. "It's my opinion.
And it's good to be the king."

Satellite radio has ridden that unconventional thinking to its current
size, and both XM and Sirius expect to begin making money in the next
two years. How big the market can become remains debatable. By 2010,
analysts estimate, subscriber levels will hover anywhere from 30
million to 45 million. Some think the totals could eventually rival or
surpass the 90 million people who pay for cable and satellite
television.

Still, satellite radio is also unlikely to inflict fatal damage on
commercial radio, which has about 230 million listeners, according to
Arbitron, the radio ratings provider. Profit margins for stations in
big markets can surpass 50 percent.

But commercial radio has begun to change. Radio stations in the Top 10
markets played, on average, 11 minutes of commercials an hour during
daytime broadcasts in February, down from 11.7 in October, when Leland
Westerfield, a media analyst at Harris Nesbitt, began tracking spots.

Strict formats have also loosened a bit. Infinity, like a number of
radio chains, has changed some of its stations to the "Jack" format, a
Canadian import that broadens the play list across rock genres.
Instead of 300 or so songs, these stations' program directors are
allowed more leeway in choosing from more than 1,200 songs.

Commercial radio, which also is combating the growth of digital music
players like iPods, is making investments in technologies like
Internet and digital radio as well as podcasts, audio programs that
can be downloaded to computers or portable devices.

But satellite radio is rushing to innovate, too. It is planning, for
example, video services that would beam cartoons and music videos to
children and teenagers watching television in the back seats of cars.

All this technological and corporate ferment promises that the battle
between commercial and satellite radio will only intensify.

"This book won't be written for another 10 years," Mr. Hollander of
Infinity said.

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