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

[jfiglio1@xxxxxxxxxxxx]

Interesting perspectives.  I've taken a bit more than a passing 
interest on this topic and--while buzzbunch is not incorrect on any 
points he makes here (IMHO)--I do think he's attaching too much 
importance to the details and not enough on the big picture.  (He's 
also sort of tied to his previous pronouncements.)  

The long-term essential question is: "Are these services growing at a 
pace sufficient to sustain their operations until the business itself 
matures into a "going concern"?  The answer, even now, is no one knows 
for certain.  For every argument that this is a loser, you can come up 
with an argument that says it's going to be a winner.

Two things are certain:  (1) This business is the fastest growing 
consumer electronics-based business ever, significantly outpacing 
direct satellite television's growth here during its formative years; 
and (2) During their early years, cable and satellite television were 
erroneously derided as losing propositions too.  

Ah, the future!  It's like predicting the weather...  the longer you 
go out, the more likely you are to be proven wrong.  :-))  I think 
I'll just enjoy my subscription to Sirius, not worry, and see how it 
all works out in the end. 

John Figliozzi

----- Original Message -----
From: Mike Barraclough <softbulletin1@xxxxxxxxx>
Date: Wednesday, November 2, 2005 10:46 am
Subject: [Swprograms] Satellite Radio - House of Cards, Will Bury 
Terrestrial, Neither?

> 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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