Sky is the limit for birds

Satellite radio gains momentum as radio talent, big-name exex flock to fledgling outlets

Dear Santa: All we want for Christmas is for you to stuff a couple hundred thousand satellite radio receivers in as many stockings as you can. Love, XM and Sirius.

The defection of Howard Stern to Sirius Satellite Radio — followed by the arrival of broadcasting vet and Wall Street favorite Mel Karmazin — gave the fledgling industry its biggest shot of legitimacy yet.

But the real test will come in the next few weeks, as holiday shoppers decide whether they’re finally ready to give satellite radio a spin.

By the end of the year, XM hopes to boast 3 million subscribers — up from its current 2.5 million tally — while Sirius expects to reach the magical 1 million mark (it currently programs to 800,000 listeners).

As for the feel of the competing services, one can get a sense of the differences from their respective headquarters.

Sirius is situated in midtown Manhattan, next door to the News Corp. building, with great views from two high floors. Along the long halls are a succession of small radio studios, most occupied by a lone shock jock or gabber. They generally sit behind monitors with their headphones, but the right-wing talker flaunts an American flag right next to his desk. Some of the rock flock seem perfectly cast for their roles, with long hair, faded jeans, and a 60’s demeanor.

XM’s Washington digs, a former printing warehouse, mainlines industrial cool. Exposed brick, ducts and piping coupled with glass walls and dividers surround the cubicles. The staff, mostly young, hip and bluejeaned, sits amid racks of electronic equipment and often two computer monitors per desk.

Each cube is home to a different music genre, and, per orders from chief programming officer Lee Abrams, similar genres must not be located next to each other: Opera sits next to soul sits next country, etc. Genre insularity and group-think are thus avoided, or so the theory goes. XM and Sirius have been preparing for this moment over the past year, placing their bets on expensive programming rights in order to win new converts. The two publicly quoted companies are both bleeding red ink and have market caps that most anlaysts believe are absurdly high.

This fall XM signed a record (for satellite radio, at least) $650 million for an exclusive 10-year contract with Major League Baseball coverage. That outpaced the $220 million Sirius fronted last December for a seven-year deal with the National Football League.

Sirius, meanwhile, signed up skateboarding icon Tony Hawk, cyclist Lance Armstrong and surfing star Kelly Slater to host shows on its new extreme sports channel; the service also boasts NCAA football and basketball games.

And it’s not just sports. XM created a public radio channel as a home for radio host Bob Edwards, after he was axed by NPR. The company then made even bigger waves when it began offering, for an extra fee, shock jocks Opie and Anthony (who’d been fired by Infinity and stuck in radio purgatory after they broadcast a couple having sex in St. Patrick’s Cathedral).

Sirius, the No. 2 satellite radio provider signed with Eminem’s Shady Records and Interscope to program a hip-hop lifestyle channel and launched a show with “Sopranos” stars Steven Van Zandt and Vincent Pastore. Outfit also greenlit a Grateful Dead show hosted by basketball legend Bill Walton. (Full disclosure: Variety has also discussed branding entertainment programming for Sirius.)

But the real shot heard ’round the radio world came on Oct. 6, when Stern unveiled his move to Sirius. Luring the King of All Media didn’t come cheap: $100 million annually over five years.

Sirius is betting big that Stern will attract a million new subs by the time he leaves Infinity Radio and joins the satcaster at the start of 2006. That’s a tall order, but perhaps not unreasonable, given that the jock regularly attracts between eight and 12 million listeners nationwide.

It will also likely bring Sirius closer in subs to rival XM, which got a jump by launching in Sept. 2001 (starting 10 months earlier than Sirius).

Besides its early beginnings, XM also holds the advantage in pricing ($9.95 a month vs. $12.95 for Sirius) and is more than a generation ahead of Sirius in terms of hardware — hence smaller, sleeker radios. XM also has more fully-developed automotive deals.

But the road remains bumpy: XM’s subscriber growth showed signs of flattening in the third quarter, while Sirius’ stock price was slammed last week when analysts at two different Wall Street firms downgraded their ratings to “sell,” noting that the satcaster’s price had jumped too quickly following the Stern and Karmazin news.

Sirius’ stock had risen by 340% since summer, leading some to conclude Sirius’ stock had been driven to unsustainable levels. XM’s stock has jumped 20% over a similar period.

“We believe the recent surge in the stock has taken Sirius to levels which are difficult to justify,” warned Smith Barney analyst Niraj Gupta.

While Sirius dominated the headlines with its Stern grab, XM believes its long-term success resides in its music programming, which it argues is more adventurous — and cultivates more listener loyalty — than Sirius’.

Both services offer 120 channels, from rock, country, dance, R&B and jazz to news and talk that range the political spectrum.

With obvious draws like Stern, the NFL and MLB locked in, the satcasters don’t expect to make such large deals in the coming year. For starters, other key broadcast radio talent, like Rush Limbaugh, are locked into long-term contracts.

“There really aren’t that many deals like that left,” said XM’s Chance Patterson.

For all the talk of a horserace, the true contest is not necessarily with each other but to prove that pay radio itself is viable.

In success, it’s possible the market can sustain two satellite radio companies — just as it has on the TV side with DirecTV and Echostar.

Traditional radio broadcaster are looking closely at the satellite experiments — noting that in the digital age, they too could launch a subscription model.

“If there really is a market for pay radio, we will find a way to be in it,” says Emmis CEO Jeff Smulyan, whose company owns both radio and TV stations.

(Bill Triplett, Michael Learmonth and Ben Fritz contributed to this report.)

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