Death Star Strikes Planet Earth Radio
RW’s Masked Engineer Takes XM Satellite Radio Out for a
Spin
 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.
|
