In the two years since satellite radio first appeared in the
United States, the concept has rapidly gone from being a technological
curiosity to a viable alternative to traditional radio stations.
But the two companies that divide the fledgling satellite radio
business, Sirius Satellite Radio Inc. and XM Satellite Radio
Inc., have a long road ahead as they try to convince millions
of Americans to pay for new audio receivers and shell out $10
or more per month for access to radio stations -- something
people are used to getting for free.
XM of Washington, which beat New York-based Sirius to market,
commands the lions share of the business, with more than one
million subscribers at last count. Sirius, about six months
behind XM, had about 150,000 subscribers at the end of the third
quarter, which ended Sept. 30.
Sharp growth expected
Analysts expect those numbers to grow sharply during the coming
years as more consumers are introduced to the services and people
get used to the idea of paying for radio. Jimmy Schaeffler,
who runs the Carmel Group, a media consulting firm in Carmel,
Calif., predicts that XM could have 28 million subscribers in
five years -- if the company is able to execute its business
"They have been able to build a phenomenal new industry, and
they are the leaders in it," he said.
Steve Blum, president of Tellus Venture Associates of Marina,
Calif., notes that XM and Sirius face the formidable task of
creating a new industry and overcoming skepticism from analysts
and investors that the concept of pay-radio will be viable.
"Four or five years ago it would have been tough to convince
anybody that there was even a market for subscription radio,
but since XM and Sirius have come along they have demonstrated
that there is a market, and once you do that, peoples attitudes
change," Blum said.
Although subscriber numbers are on the rise, neither Sirius
nor XM are profitable.
Sirius reported a pretax loss of $79.8 million for the third
quarter of 2003 and generated $4.3 million in revenue during
the period. XM posted a $64.4 million pretax loss for the quarter
on revenue of $26.9 million.
From a broad perspective, XM and Sirius are employing similar
strategies to attract subscribers. Both emphasize that they
offer channels that are unavailable on the traditional AM and
FM bands, including genres of music that do not attract enough
listeners to justify their own terrestrial radio stations and
audio feeds of programming primarily intended for TV viewers,
such as CNN and Fox News, now also available via satellite radio.