[BC] WSJ: Satellite Radio Runs Into Static

[Rob Atkinson]

I read the whole thing at lunch time.  For those who did not see it, a 
lengthy front page story in today's wall street journal (8/15) laid out a 
multi-point picture of problems for XM and Sirius.   It's kind of the radio 
version of satellite tv, which is getting killed now by cable since cable 
can offer a combination of tv, internet and phone service.  Apparently, 
people can get news and information and sports from broadcast radio and any 
kind of music to their liking from iPods so many do not see satellite radio 
as an imperative.  Here are the story's highlights:

XM and Sirius are still reporting heavy losses.   A few years ago they said 
they would need 4 million users to break even.  They have signed that number 
more than a year ago and earlier this year respectively, but last year XM 
lost $667 million; Sirius $863 million.   Shares:  Sirius lost 44% of value 
this year; XM 60%.

Feb. this year: XM board member Pierce "Jack" Roberts resigned writing that 
there is a "significant chance of crisis on the horizon."

XM is aggressively paring costs, cutting  back on advertising, restructing 
debt, curbing their rebate program.  It has twice lowered its subscriber 
targets for the year but still leads Sirius by about 2  mil. customers.  
Sirius is cutting costs but working hard to build subscriber growth with 
rebates and longer free-trial periods.

Early on, both companies focused on financing, launching satellites, and 
getting air talent.  XM got a deal with GM in 1999 and in 2000 Sirius landed 
Ford and DaimlerChrysler.  Sales of subscriptions to new car buyers didn't 
take off so with 2003 models GM offered free 3-month trials.  55% of buyers 
went on to be paying subscribers @ $12.95/month.

Originally you had to call an 800 number to activate the radios after car 
purchase.  Few buyers did this.  Therefore, begining with DaimlerChrysler, 
the radios were activated at the factory.   Chrysler won't know until the 
end of the year if the factory activated free trials will boost the no. of 
converts from free to paid because they offer 1 year of Sirius.  Some Ford 
models come with a free 3 year trial.  Now, over half of Sirius's 1.4 mil. 
car users don't pay directly.  It has 4.7 mil. users total.

Many analysts say the % of subscribers who don't renew could rise 
significantly at Sirius and XM in coming months as the trials begin to 
expire.

Retail:  The companies sold radios last holiday season with big rebates.  
Sirius and XM ate the costs posting giant losses in their '05 4th qtrs:  
Sirius $311.4 mil.; XM $268.3 mil.  Analysts estimate that about 10% of 
store bought radios given as gifts weren't activated resulting in lost 
subscriptions on subsidized radios.  Siruis still offers rebates of up to 
$100 which is helping move more radios, getting it over 50% of all retail 
sales for Apr. May and Jun.  But, increasing costs further, the companies 
also pay incentive fees to retailers each time a prospect buys a radio in 
the store and activates it, typically $10 to $20 per unit.

Talent:  Sirius has paid substantial sums for talent--$220 mil. for the NFL 
for 7 years, and most importantly, $500 mil. over 5 years for Howard Stern.  
These programming coups set off a bidding war with XM that drove up 
everyone's expenses with XM paying $650 mil. for 11 years of Major Leage 
Baseball.  Sirius benefitted from Mr. Stern's unusually long transition, in 
which he remained in his old job at CBS, lambasting his bosses and promoting 
Sirius for more than a year before he made the switch.  The flood of free 
publicity prompted XM to spend heavily, almost doubling its marketing costs 
in 2005 from the previous year.  Early next year, Sirius will find out how 
many of the more than one million listeners who bought the service for 
Howard Stern, will renew.

Legal issues:  The satellite radio industry is getting heat from music 
labels because of a radio that can store songs called the S50.  In March 
Sirius agreed to pay a fixed fee for each of these radios it sells.     XM 
was unable to reach an agreement and now has a Recording Industry Assoc. of 
America lawsuit.   Meanwhile, the FCC is investigating the use of small FM 
broadcast band transmitters, used in cars to allow satellite radios to play 
through regular car FM receivers, because in many cases the signal is so 
strong it can be heard in nearby cars.   Both companies are working on fixes 
but these could be expensive if they require product recalls.  Last week, XM 
reported regulators had requested information on addtional models.

Previous industry forecasts have proven too optimistic.  Currently many 
analysts believe satellite radio will eventually become a profitable but 
modest market similar to tv's HBO.

rob atkinson
st. charles IL
k5uj

From: Rich Wood <richwood at pobox.com>
Reply-To: Broadcasters' Mailing List <broadcast at radiolists.net>
To: "Broadcasters' Mailing List" <broadcast at radiolists.net>
Subject: Re: [BC] WSJ:  Satellite Radio Runs Into Static
Date: Tue, 15 Aug 2006 16:47:12 -0400

------ At 10:31 AM 8/15/2006, Rob Atkinson wrote: -------

>Low Fidelity:  Until Recently Full of Promise, Satellite Radio Runs Into 
>Static

Based on today's Wall Street Journal article (8/15). I decided to visit one 
of my area's largest multiple brand car dealers to see what they'd do if a 
customer brought a properly operating "defective" radio (IBUZ or satellite) 
back. The answer was absolutely nothing. Dealers now are often selling new 
cars below their cost, especially during "employee pricing" days. The 
purpose is to bring in used cars in trade on which they really make their 
money. The days of "we'll give you a CD changer" to compensate are gone. 
Manufacturers do not compensate the dealer for a returned radio simply 
because they're unhappy it doesn't work as they'd expected.

At this point, it leaves the dealer with an unhappy customer. This dealer 
carries about 7 major brands. None of them offer IBUZ receivers as options. 
No one in sales or service knew what it was even when I used the HD 
Dominion's preferred name that sends everyone to the TV department.

In the case of the unactivated satellite receivers, the dealer doesn't get 
spiffed until the receiver is activated. They activate it in their shop and 
include a note with all the paperwork that notifies the customer the radio 
will work for one year. After that, they have to pay for the service 
themselves. No one there knew how many people renewed their subscriptions.

Rich


_______________________________________________

The BROADCAST [BC] list is sponsored by SystemsStore On-Line Sales
Cable-Connectors-Blocks-Racks-Wire Management-Test Gear-Tools and More! 
www.SystemsStore.com       Tel: 407-656-3719    Sales at SystemsStore.com

_________________________________________________________________
Express yourself instantly with MSN Messenger! Download today - it's FREE! 
http://messenger.msn.click-url.com/go/onm00200471ave/direct/01/