Death Star Strikes Planet Earth Radio
     

We saw it coming. Some said it could never work. Others said no one would buy it. Still others predict it will trigger the beginning of the end for traditional radio as we know it.

It’s here and it plays pretty good. And people are buying it.

XM radio arrived just in time for Christmas amid much hoopla and Wall Street fanfare. It’s one-half of the satellite-delivered tag team radio service that does indeed seem poised to change the radio dial for better or for worse, and maybe even forever.

Sirius has birds beaming signals but no radios. XM has the satellites Rock and Roll along with hundreds of repeaters in most of the larger markets lighting up new radios that everyone can buy. XM’s holiday sales reportedly surpassed its own expectations, launching it as perhaps the most serious competitor to the terrestrial radio business since TV.

Sounds good

I just had to know what this new service was offering and how it measures up, so I forked over $300 at Best Buy plus $130 for a year’s subscription and bought my first new radio in maybe five years. I must admit it is rather impressive, for both content and performance.

I bought the car radio converter model, which provides a 96.1 wireless signal to drive the stock radio. It also has RCA jacks to feed audio to a stereo mixer or tuner/amp direct. Add a 12V wall-wart power adapter and take it inside. Stand-alone models for both the car and the home will soon be available.

XM is offering about 100 channels filled with every music format imaginable, along with various news/talk offerings, Radio Disney, USA Today, CNN Headline News, NASCAR Radio and lots more.

Clear Channel owns a chunk of XM. Its presence is felt with rebroadcasts of heritage top-40 rocker KIIS in L.A. and country WSIX from Nashville. It’s mostly segue serenade on the music channels for now, but live announcers, probably the best CC has in their stable, will be doing DJ duty soon.

The converter comes with a small hand-sized external antenna you can place anywhere to catch the best signal. It worked right out of the box with little effort placed on the car’s dashboard and even the front seat on the open road. And it did well inside an office building within 20 feet of a window. Not too shabby for just two satellites. Depending on where you live, your mileage may vary.

It’s hard to tell when the box loses the bird and switches to an available terrestrial repeater. My gut tells me most of the testing I’ve done was picking up a local repeater. But the XM design boys did their job pretty well – almost no perceived interference or noise until it mutes with no useful signal.

Connection

Hooking everything up to get it running was easy for a radio nerd or gadget guy, but I would not expect anyone who was technically challenged to enjoy this. Too many wires, adaptors and connectors to fool with – just to turn on a radio.

Try coaching any plebian radio listener with FM reception problems to connect and optimize an external antenna and you’ll quickly understand the problem.

I’m thinking the average customer will not have the patience or zeal to contend with all of this just to receive a few more stations. His only easy choices will be the combo AM/FM/XM radio already installed in a new car, or having it installed after-market.

Audio quality is just fine for the typical radio consumer. I can hear some of the minor artifacts from the aggressive bit-rate compression, like slightly smeared cymbals and occasional gritty high end. A few of my golden-ear colleagues who listened thought this was just dreadful and predicted XM will go nowhere as a result.

C’mon, guys. Wake up and smell the radio. XM is not about delivering pristine digital audio to audiophiles. It’s about delivering lots of uncluttered choices with a reliable and interference-free signal to those who can’t get that with terrestrial radio and are willing to pay for it. Pure and simple. Noise and multipath destroy the radio listening experience a lot faster than anything audio bit-rate reduction will ever do.

Business model

The big question for traditional radio broadcasters is how the satellite Death Stars will affect our business.

It’s here. It works. People are buying it. But will enough people buy it to significantly reduce the size of our piece of the advertising revenue pie we expect to claim?

Ask any radio sales manager and she’ll tell you it will likely have only a small effect on national sales. Except for the very largest markets, national sales accounts for only a minor portion of radio’s gross revenues. The math there seems easy.

But we’ll have to wait for Arbitron to tell us what is happening to the ratings after satellite listening is factored in before we really know the true impact.

All kinds of alternate entertainment choices from many electronic media sources have been slicing into the money pie for a long time. Radio has kept reinventing and refining itself with each new assault. Records, cassettes, MP3, CDs, TV, cable, DSS, the Internet, satellite radio and more to come will compete for our audience.

Two elements always have saved traditional radio: Local service and ease of use. Also, it’s portable and it’s free. As long as satellite radio is not local and costs money, it will be a boutique product.

XM says it only needs to win over about 10 percent of the present radio audience to become a successful business. But how XM principals define a successful business is not how Mel and Lowry define theirs.

If recent XM radio sales figures are a reasonable gauge, that goal seems attainable. A $300 radio or a $500 installed package plus the $10 monthly subscription is easily rolled into a monthly car payment and is a fairly painless way for most to climb on board. Certainly 10 percent of radio listeners want more variety and choices on the dial, especially if the reception is solid and reliable.

The big unknown is will they pay for it, and keep paying for it month after month?

XM is banking heavily on the pattern of conversion experienced in television, when over-the-air-for-free gave way to pay cable and pay satellite. But let’s face it, radio is not television.

For most Americans, radio is a convenience appliance that delivers information and entertainment on demand, usually for shorter durations when they are engaged in other simultaneous activities. The majority use radio primarily during their commute in the car. As long as most of their choices feature local content and remain free, the appeal of the XM model for many becomes much more dubious.

Clear Channel has at least diversified its risk exposure with satellite, staking out its sizeable XM ownership position. But Viacom and other major groups still seem satisfied that the "Death Star" threat is small enough to be mostly ignored.

It’s rather interesting to note that Infinity accepts XM commercials for their stations, but Cox, Greater Media, Entercom and others are refusing them.

As in the past, the best product ultimately will win this race.

Digital ahead

The XM business model is based on high capitalization to build and maintain the sizeable origination and delivery infrastructure that will have to include thousands of terrestrial repeaters to fill in all the coverage gaps in populated areas.

They say they have enough money to improve their coverage and keep operating for another year or so. But we’re already hearing about the numerous zoning battles they are waging with local governments for authority to build these repeaters. Broadcasters know how painful and expensive this process can become. It’s deja vu all over again.

The clock is ticking. Anxious investors will be waiting for a pay-off, just like they did with the dot-coms. History tells us Wall Street can be brutal when the boats don’t bring back enough fish. It’s shaping up to be a race against time. Sirius may not be a serious player in this game at all if it can’t get receivers to market fairly soon.

But don’t expect satellite radio to fail and go away, even if XM or Sirius don’t meet their near-term goals. The automobile and consumer electronics industries also have a large stake in this technology. They’re in it for the long haul and have various marketing and deployment strategies that can be tweaked to shore up the roll-out until the marketplace decides how it will become optimized and assimilated before becoming a profitable venture.

How about some more deja vu: They can always raise their rates and run more commercials. They can add data services. Or they can consolidate. Many expect an announcement that XM will absorb Sirius.

Ultimately, they can press the FCC for local origination. Eddie Fritts and the NAB already see the camel’s big cold nose inside this tent and will continue relentlessly to push him back outside. This is perhaps the single biggest threat that would dilute radio further and cripple the smaller independent owner and his ability to compete.

If and when limited local broadcast rights are granted to satellite radio, CC and other major groups by then will own such a major stake in the business that it will all blend together anyway. The consuming public won’t even notice the difference.

So the Death Stars probably are here to stay. But they’ll need to be called something else. Maybe wireless DMX – similar but different, but probably close enough.

I wouldn’t be buying any XM or Sirius stock now or anytime soon. Once the novelty wears off and investors understand neither company can expect to make any real money for many years, prices could really tumble. We’ll be watching closely.

The best thing we can do now is compel our owners to commit funding for DAB and move ahead with plans to add Ibiquity IBOC transmission capability. In the grand scheme of things for stations that want to survive, it will be a tiny investment to be able to maintain technological parity with this cutting-edge competitor we’ll all be using eventually.

Rating People: 2   Average Rating:     
Comment List:


Post your comment

Your Name:  Required
Your Mail:       Your email will not be published.
Your Site:    

max. 800 characters


Posts are reviewed before publication, typically the next business morning. Radio World encourages multiple viewpoints, though a post will be blocked if it contains abusive language, or is repetitive or spam. Thank you for commenting!