[Swprograms] Satellite Radio - House of Cards, Will Bury Terrestrial, Neither?

[Mike Barraclough <softbulletin1@xxxxxxxxx>]

Posted on the Worldspace Radio forum by buzzbunch:

Here is an interesting article written by Don Barrette
at L.A.Radio.com

Is Satellite Radio a House of Cards Ready to Tumble? 
Or the Service That Will Bury Terrestrial Radio? Or
Neither? 

(November 1, 2005) A few years ago I wrote an
editorial on the future of Satellite Radio. I
predicted it would be stillborn or would hemorrhage
and bleed to death before it got off the ground. The
premise was not built on a prejudice for terrestrial
radio or a desire to keep LARadio alive and vibrant.
It was built on a belief that backers of the services
would run out of money before they could turn things
around. 

Sirius posted a third-quarter loss for the quarter
ended September 30. The company lost $180 million for
the quarter, as compared to a year-ago loss of $169
million. Revenue rose to $66.8 million from $19.1
million a year earlier.  

Sirius guided toward a $540 million operating loss for
2005 on revenue of $230 million, with cash burn of
$375 million from operating uses, capital spending and
restricted investment activity, according to
TheStreet.com.  

XM Satellite Radio reported a wide quarterly loss and
disappointing results converting new car buyers with
free trials to paying subscribers, said KFI?s Jim
Cramer. The thesis has always been that once people
get XM in their cars, they will sign up for the
service. Automakers account for 50% of XM's sales,
said Cramer.  

XM converted 56% of new-car-buyer free trial customers
to subscribers in the third quarter, down from 58% in
the second quarter and 60% in the year-ago third
quarter. "It's worrisome," said Cramer. XM is a "very,
very speculative situation" right now, and he believes
the stock is going down before it goes up. He
indicated that the car manufacturers are very
concerned about this continuing downward trend of
converting customers. 

XM shares fell 20% in October on fears of widening
losses. 

Part of the LARadio.com editorial was a belief that
the marketing promotion was an abortion. The tv ads
featured pianos falling out of the sky, apparently
some sort of metaphor that we would be hearing music
from a faraway Satellite. And then the emphasis turned
to truck drivers or those who travel across the
country: You could hear your favorite channel without
interruption from state to state. It seemed like a
stupid reason to sign up for the service.  

The final blow to Satellite Radio would be the
emphasis on hardware and not content. I sat next to
the chairman of Sirius at a luncheon a couple of years
ago (pre-signing Howard Stern) and for ten minutes Joe
Clayton told me about the hardware intricacies of the
new Satellite he was sending up. He turned to me, and
said, ?Well, Mr. Barrett, what do you think??EI told
him that in my humble opinion he had no chance for
success until he concentrated on the content and not
the hardware. The public is up to here with gadgets
that have a monthly fee and there would have to be a
compelling reason to sign up. There would have to be
content not currently available on terrestrial radio. 

The beginning marketing fiasco has certainly corrected
itself. The PR machines for the two radio Satellite
companies have been spectacular, far more effective
than explaining the benefits to the consumer in their
ads. And, speaking of ads, terrestrial radio?s
obsession with covering all aspects of XM and Sirius
has been confounding. Allowing Howard Stern to
badmouth his parent company and promote Sirius for a
year is inexcusable. And terrestrial radio?s
acceptance of paid advertising is controversial at
best. 

Howard?s move to Sirius in January does not signal the
death of terrestrial radio. The biggest victim with
Howard leaving will be Infinity. They have no idea the
fall-out of not only losing Howard?s revenue, but the
resultant station drops without Howard as the anchor.
A station manager told The Washington Post: "Stern's
departure is the worst natural disaster to hit a media
company in the decade?Even though he was only on four
hours a day, many of the sponsors on his show were
required to buy time through the rest of the day as a
price for getting spots on the Stern show."

Where XM waits until a car buyer activates the service
to add to its new-user tally, Sirius sometimes starts
counting as soon as a car with a factory-installed
radio arrives at the dealership, according to
TheStreet.com. ?So a number of those freshly minted
Sirius subscribers could actually be Chrysler
Concordes sitting on a dealer's lot somewhere.
Observers say that kind of liberal math could be
bolstering Sirius' growth - especially now, as dealers
are receiving a new crop of 2006 models. Sirius'
practice means the company can ?call it a sub, even if
it is sitting under water on a dealer's lot in New
Orleans,?Esays one investor who sold Sirius and holds
XM.?E

How the two Satellite services count subscribers
should give much concern to investors. So it is a bit
disconcerting to some industry observers that XM and
Sirius differ in their definitions of subscribers

Apparently if a car goes unsold or if a user doesn't
activate the service after the year-long free trial,
they don't immediately come off the subscriber count.
It could take as long as another 17 months before that
subscriber is subtracted. 

Trade publication Radio Business Report has been
concerned with the Satellite churn ?Esubscriber
turnover. The publication believes it is a real
threat. ?Both companies claim their churn rates remain
?low?Eat 1.4% or 1.5% per month. Never mind that that
works out to 16.8-18%, which is well above the 15%
annual rate that both companies projected,?Eaccording
to RBR.

Ed Christian, ceo of Saga Communications, is concerned
that the $13 monthly fee for Satellite service is not
a real number. When his wife?s 90-day trial on her new
Cadillac ran out, the company reps hounded her to sign
up, which he repeatedly declined. ?A cheery XM
representative offered me a rate of five bucks a month
or $60 a year if I would come back. You do the math.
So much for the incredible subscription gains,?Enoted
Christian.

Is Satellite Radio built on a fault line ready to
topple over at the first signs of trouble or are these
just growing pains in this new delivery service of
audio content? More shall be revealed.


	
	
		
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