Satellite Radio, Still Young, Enters a Growing-Up Phase
By Mike Farrell -- Multichannel News, 8/14/2005 8:00:00 PM
Once the backbone of early satellite-radio programming, cable-network offerings in that medium are undergoing a transition.
Companies like Sirius Satellite Radio and XM Satellite Radio Holdings Corp. are focusing more on original content and are beginning to use some cable programming feeds and information to provide subscribers with data and, in the future, possibly even video.
| Tuning in to Satellite | ||||||
|---|---|---|---|---|---|---|
| Satellite radio subscriber forecast (millions) | ||||||
| Source: Sanford Bernstein estimates and analysis. |
||||||
| 2005E | 2006E | 2007E | 2008E | 2009E | 2010E | |
| XM Satellite Radio | 5.7 | 8.3 | 11.7 | 15.2 | 18.8 | 22.1 |
| Sirius | 2.98 | 5.9 | 9.7 | 13.9 | 17.98 | 21.5 |
Not that cable programming is losing its importance — news and sports feeds are still an integral part of satellite-radio offerings. It is just that as satellite radio matures, it's seeing increasing demand for its own original programming and finding opportunities to use some information provided by cable for niche services.
Both XM, which launched on Nov. 12, 2001, and Sirius, which rolled out on July 1, 2002, offer robust lineups of cable fare on their audio services.
At Sirius, feeds from Cable News Network, CNN Headline News. CNBC, The Weather Channel, Discovery Networks U.S., ESPN, Fox News Channel, Bloomberg, C-SPAN, Wisdom Radio, Court TV, E! Entertainment, EWTN, and The Word Network compete for listener attention against a host of other music genre and talk channels.
On the XM dial, listeners can tune in feeds from Fox News Channel, CNN, CNN Headline News, The Weather Channel, CNBC, Bloomberg, MSNBC, C-SPAN and CNN en Español in the news format. Sports offerings include ESPN, ESPN Radio and Fox Sports Radio. On the talk side, there's fare from MTV Radio, VH1 Radio, Discovery Channel and E! Entertainment Television.
At Sirius, spokesman Jim Collins said that while the cable fare available on the company's service essentially consists of the networks' audio feeds, Sirius is able to insert its own commercials on some of the channels. Collins wouldn't say what Sirius is charging for those spots.
Sirius's ad rates are lower than what a terrestrial radio network would charge, but Collins said that it represents a healthy second revenue stream in addition to the $10 per month, per subscriber charge for the service.
While both Sirius and XM started out as a commercial-free radio service — not unlike some cable channels that later added ads — Collins said adding commercials to some programming does not contradict its earlier mission. And Sirius still has 65 commercial-free music channels.
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Collins said that subscribers are more receptive to commercials in the talk format, so that's where most of the ads run.
“We're just interested in providing programming that is the best possible on all of radio, not just satellite radio. That's why we've concentrated so much on the right mix of commercial-free music channels with compelling talk, news, sports, weather, traffic information” Collins said. “Howard Stern coming next year, Martha Stewart coming in later this year, all these things are to enhance our overall programming offering. Whether that programming is coming from a cable network isn't the point.”
As the industry has evolved, Collins added, Sirius is beginning to roll out niche channels that could possibly utilize some data from cable networks.
“The platform is flexible in that it's a digital platform and we can put other types of digital data over this platform; we don't just have to do music and talk shows,” he said. “Later this year, we will offer a data service for marine customers. Also later this year, we're introducing a traffic data service for the automotive market; and next year we'll be introducing video service for the automotive market.
“The platform itself is evolving into other uses. In terms of what part cable companies will play in, this is to be determined.”
VIDEO CHANNELS DUE
The video service, a joint venture with Microsoft Corp., was first announced at the beginning of the year. Sirius plans to offer two to three channels of video by the second half of 2006.
Collins would not say what programming will be on the channels, although the company said at the January announcement that it would be largely skewed toward children's shows and music videos.
He added that Sirius would be open to deals with cable programmers for content, but that no agreements with any programmers have been reached as of yet.
Sanford Bernstein & Co. cable and satellite analyst Craig Moffett, who began coverage of both Sirius and XM in June, said the difference between the two centers around content — Sirius, headed by former Viacom Inc. chief operating officer Mel Karmazin, seems more interested in being a content creator, while XM concentrates on content distribution.
That is evident by some of the deals Sirius has cut recently — signing shock-jock Stern (scheduled to begin in 2006) and locking domestic diva Martha Stewart into an exclusive contract.
“The case can be made, however, that Sirius views itself as a kind of 'audio Viacom,' with a collection of radio brands that will one day be agnostic to distribution media,” Moffett wrote in a research report. “This positioning could, in fact, mitigate what is likely to be significant competitive/technological risk in the future. It could also significantly influence investor perceptions.”
Not that XM is ignoring content, Moffett added. Instead, he wrote, XM sees itself as more as the Home Box Office of satellite radio, growing new content brands in-house, rather than buying programming from others.
XM spokesman Chance Patterson said that has been the company's strategy from the start, but that cable plays an important role.
Patterson pointed to XM programming like its public radio channel, hosted by former National Public Radio mainstay Bob Edwards; its “High Voltage” channel, with shock-jocks Opie & Anthony; and exclusive Major League Baseball programming.
“We continue to develop more and more content in-house, but at the same time there are certain brands — in the news area in particular — from the cable business that are great brands, that have great content and that our listeners find desirable,” Patterson said. “In those cases, there is no need to replicate it.
XM is also using some cable information for at last one niche channel. According to its Web site, XM's Instant Traffic and Weather Channel uses data from Traffic Pulse and The Weather Channel.
XM SPECTRUM PLAY
XM also could be eyeing a move into video — it recently agreed to purchase WCS Wireless for 5.5 million shares ($200 million), which will expand the satellite-radio service's available spectrum in 15 of the top 20 markets in the country. That deal is expected to close by the end of the year.
In a research report, Lehman Bros. cable and satellite analyst Vijay Jayant speculated that spectrum could be used for future video services.
“We estimate the capacity added by the additional spectrum to be sufficient to offer as many as 12 to 20 video channels, depending on the actual bandwidth gained and the quality of the video delivered,” Jayant wrote.
Patterson said XM has not decided whether it will offer video, but that the additional spectrum more than makes a video offering viable.
“We are looking at different services like video,” Patterson said. “As we get closer to rolling them out, be it two channels or six channels or what have you, we'll have a little more detail. The core of the business is satellite radio and that will be our main focus as we grow here. Video is interesting, whether we utilize that type of offering with our WCS spectrum remains to be seen.”
The acquisition will nearly double XM's spectrum — WCS has 10 MHz; XM's FCC license is for 12.5 MHz.
“This is a significant opportunity for us to offer additional services be it data, traffic, video,” Patterson said. “We haven't announced our final plans for the spectrum, but certainly that's a piece of bandwidth that will be very valuable to us.”
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