New digital transmission technology recently approved for the United States’ existing analogue AM and FM radio stations could effectively “short-circuit” the subscription model the country’s two rival satellite radio services are built upon, The Car Connection (TCC) website said this week.
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For US car owners, the satellite radio concept works much like satellite TV services offered in much of the world. Users buy an appropriate receiver (many car and truck makers now offer the units as factory- or dealer-fit options) and sign up with either Sirius or XM for around $US10-13 a month, giving access to about 100 digital radio channels receivable nationwide.
On its website, Sirius boasts that its 60 or so music channels, covering such genres as classical, jazz, rock ‘oldies’ and country, are completely commercial-free while XM’s site says its similar line-up carries “minimal” advertising.
The TCC report said that sluggish subscriber growth means the future of the two services has remained uncertain since the two well-funded pioneers began trying to attract subscribers in the last two years.
Just-auto has, in just the last four months, reported that Sirius reached 201,500 subscribers by the end of October while Sirius announced in mid-August that it had signed BMW to sell its service but its future was in jeopardy unless it secured new funding.
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By GlobalDataThe Car Connection report this week said that the situation hasn’t been improving much, even as both services gradually pick up subscribers and sign big OEM deals.
During the past few months, TCC noted, negative press has forced down the share prices of both Sirius and XM to all-time lows, trading at just below a dollar and $2.60 a share respectively.
According to TCC, the biggest problem facing the fledgling networks is, of course, the number of listeners. TCC said XM’s last reported number of subscribers was 200,000 while Sirius has an estimated 16,000 after a late market launch.
TCC noted that, despite the short-term share value woes and an insufficient number of subscribers to bring the companies into profit, high-profile investors continue to back the two ventures. The website said that a recapitalisation plan announced this month saw Apollo Management and the Blackstone Group promise to increase their stakes by $25 million each in Sirius, after the company ran through more than $1 billion in start-up costs.
TCC also noted that General Motors owns an investment stake in XM, and offers its satellite radio service in its entire Cadillac line as well as in 25 of its 2003 cars and trucks.
But TCC cautioned that both Sirius and XM Satellite estimate that they need at least four million subscribers to achieve the necessary cash flow to cover operating expenses, a goal both companies say can be achieved in two years.
However, the Yankee Group analyst firm told The Car Connection that satellite radio will only reach about nine million subscribers in four years while analyst firm Forward Concepts forecasts that there will be 10 million subscribers in 2006 and only 5.4 million in 2004.
Mahy Churylo, an analyst for Forward Concepts, in Tempe, Arizona, told TCC that, while the idea of having over 200 channels to choose from is appealing, the $10 to $13 subscription fee makes it prohibitive.
“I don’t think satellite will take over the mainstream in the way satellite radio companies hope in the near future, and if that does happen eventually, it will not be anytime soon,” Churylo reportedly told TCC.
Churylo added that price was the issue, TCC said. “When you add everything up on a monthly basis that consumers pay each month, they now often have a monthly phone, Internet, and cable bill, so they really don’t want to add on something else just for satellite radio, especially if their [driving] commute range is limited,” Churylo told TCC.
Interviewed by TCC, Sirius senior vice president of OEM and special markets Doug Wilsterman responded: “…when you look at a cost of a CD, the comparative value of satellite radio can be measured in thousands and thousands of dollars. We also know that after someone tries it, there is no going back: it is like an addict in need of a fix.”
XM Satellite Radio, meanwhile, told TCC it would meet its 350,000-subscriber target by the end of this year.
Sirius vice president and treasurer Greg Cole told TCC the service would offer real time weather data, which is based on radar and sonar technologies, and would also offer “unique video and audio applications” next year.
TCC said Sirius executives downplay the approval by the Federal Communications Commission of a new digital radio technology developed by iBiquity Digital and Motorola, which improves radio signals and offers digital music as well as digital readouts of music titles.
British listeners are offered a similar system called Digital Audio Broadcasting (DAB) which delivers digital radio signals and text to specially-equipped car, home and personal computer receivers. The service, carried by a series of nation-wide multiplexes, hosts numerous unique-to-digital radio stations as well as a number of BBC- and privately-owned national channels such as Classic FM and Jazz FM.
But, as in the US, consumer take-up has been slow, due in part to inadequate promotion, weak signal strength in some parts of the country and a limited choice of receivers.
Interviewed by The Car Connection, Sirius’ Wilsterman acknowledged that US digital radio’s sound quality is an improvement over existing radio but consumers are still left with more of the same. “You are still left with the radio, with a limited playlist,” he told the website.
TCC noted, however, that localised digital radio in the US could offer the same “killer app” that digital cable TV does – custom regional content like weather and talk radio, plus the sound quality lacking in today’s analogue FM transmissions.
TCC said US subscription satellite radio services could be threatened by the new iBiquity digital radio receivers which allow both [‘free-to-air’] AM and FM radio to sound better than CDs while there are plans to add new technology, enabling the receivers to download data.
This is also possible with some the DAB-equipped receivers sold in the UK where some so-called ‘radio’ channels are in fact data-only, using the DAB multiplex as a wireless data transmission medium.
Analysts told The Car Connection that Sirius and XM will collectively burn through billions of dollars in losses and face steep odds before they will make a profit, even as they develop new offerings and services.
Forward Concepts’ Churylo told the website: “Satellite radio represents a niche market [and] it might be worth it now at the current price for truckers or other commercial drivers, but will not hold as much commercial appeal for the average user.”
