Would people be willing to pay $12. 50/month for commercial free radio beamed right to their car or home. Well two companies and many big investors are betting about $3 billion dollars that people are willing to do just that. In 1997, the Federal Communication Commission (FCC) granted a portion of the S-band spectrum for satellite radio and two companies purchased use of these bands and started the only two companies competing in the satellite radio business today, namely Sirius and XM.
Analysts like William Kidd of CE Unterberg Towpin, predict satellite radio will generate about $10 billion a year in revenues by 2007 (McClean, 2001). However, to date neither of these companies has earned a dime. According to industry analyst though, its not whether satellite radio will take off-rather its a matter of how fast. (Helyar, 2004). Despite lofty predictions, satellite radio has some big issues to overcome before it becomes a serious threat to the $19. 6 billion per year terrestrial radio industry.
The article that appeared in Fortune entitled Radios Stern Challenge by John Helyar discusses Sirius marketing strategy to not only take market share from the entrenched and free terrestrial radio industry but also to beat its only competitor, XM. The Fortune article presents how a fat and lazy radio industry has failed to react to an eroding listening base and an increasing number of competing technologies. Issues like lack of attention to programming, no on-air talent, and an increase of 166% in the time devoted to commercials have driven listeners away from radio.
Teens aged 12-17 spend 11% less time listening to radio compared to five years ago and adults 18-24 spend 13% less time compared to five years ago (Helyar, 2004). The article further discusses that terrestrial radio has much to fear from competing technologies like satellite radio, streaming digital radio on the Internet, and Apples iPod. What terrestrial radio does have in its favor is that its free compared to any of the current competing technologies like satellite radio.
However, satellite radio is banking on a commercial free format to steal listeners away from terrestrial radio. Sirius offers 65 commercial free channels of music and 55 news, sports and talk stations. And the one thing that satellite has over its less lofty competitor is that you cant loose the signal as you drive across America. The two major competitors for the satellite radio listeners are Sirius and XM. Sirius strategy to beat XM centers around attracting big on-air talent like Howard Stern who Sirius has agreed to pay $500-million dollars over five years.
In addition, Sirius has locked up deals with the NFL for $220 million dollars to air every NFL game on Siriuss satellite radio stations. Sirius is spending big money in order to catch up with its only competitor XM. XM was the first to enter the market and has struck deals with General Motors and Honda to install their receiver in all of its new automobiles. This represents about 50% of its new subscriber base. XM spends about $57 for each of its subscribers compared to the $227 that Sirius spends.
However, the fortune article concludes by stating that Sirius threat may not be terrestrial radio or XM, rather the growing number of new technologies poised to cash in like Apples iPod and the digital streaming radio. To better understand the assertions made in this Fortune article one must first understand the general trends in the current terrestrial radio technology. Then one must understand how satellite radio technology works in general and how XM and Sirius use this technology within each of their respective companies to gain the competitive edge over each other.
In addition, the history, company structure, financing, and strategy of both XM and Sirius are presented in order to further understand the two companies. And finally a comparison between XM and Sirius is made so that the reader can understand how the two companies are approaching the problem of starting a satellite radio company. Most of us have traveled too far in our cars when listening to the radio, to find that our favorite station turns to static and we can no longer listen to it.
This is because conventional radio signals can only travel 30 to 40 miles from their source (Bonsor, 2004). Fortunately, similar to television before it, since radio is now available by satellite, there is a solution to this problem. Satellite radio can launch its signal greater than 22,000 miles with extreme clarity and often little or no commercials to interfere with your listening program (Bonsor, 2004). Basically, satellite radio, also known as digital radio, offers uninterrupted, near CD-quality music transferred to your radio from space.
How satellite radio actually works is simple on its surface. According to Silverstein (2004), satellite radio providers take a music, news, or talk station, beam the signal up to a satellite, and overcome the limitations of ground-based transmitters whose signals generally drop off as distance increases. Then make sure the programming is more appealing than traditional radio stations and cut down on the number of commercials in exchange for a monthly subscription fee. However, it is slightly more complicated than this.
It took numerous years to develop the cutting-edge technology to make the satellite radio systems used by Sirius Satellite Radio and XM Satellite Radio actually work. Sirius and XM each take somewhat different approaches with their systems, although the end result from a listeners perspective is the same: 100 channels of music, news, sports, and other programs available virtually anywhere in the continental United States. How XMs System Works XM Radio uses two Boeing HS 702 satellites, appropriately named Rock and Roll, placed in parallel geostationary orbit, one at 85 degrees west longitude and the other at 115 degrees west longitude.
Geostationary Earth orbit (GEO) is about 22,223 miles above Earth, and is the type of orbit most commonly used for communications satellites. XM Radios ground station transmits a signal to these two GEO satellites, which bounce the signals back down to radio receivers on the ground. The radio receivers are programmed to receive and unscramble the digital data signal, which includes the digital audio, the song title, the artist, and the genre of music. All of which are displayed on the radio (Bonsor, 2004).
Since GEO satellites are above the equator, the terminals on the ground must have a good view of the sky to receive signals from them. This posed a challenge for XM, since obstacles on the ground, such as buildings or tall trees, can block listeners traveling in their cars from receiving the GEO satellites signals. Their solution was to supplement their system with a network of repeaters, ground transmitters consisting of antennas on buildings and other sites that receive satellite signals from an optimally placed antenna and retransmit them (Silverstein, 2004).
These repeaters are primarily located in urban areas where the loss of the satellite signal most commonly occurs. Each XM receiver contains a proprietary chipset, consisting of two custom integrated circuits designed by STMicroelectronics and uses a small, car-phone-sized antenna to receive the XM signal (Bonsor, 2004). Each of these XM receivers is equipped to receive signals from both of the Boeing satellites as well as from a repeater simultaneously. Provided one of these sources is available, the radio will play with no interruptions.
In the event a signal is briefly unavailable, the receivers also have buffers that store programming for several seconds to ensure continuing programming (Silverstein, 2004). How Sirius System Works Unlike XM, Sirius does not use GEO satellites. Instead, Sirius uses three Loral FS1300 satellites in unique elliptical orbits in an effort to avoid the problems presented by GEO satellites (Silverstein, 2004). The elliptical path of these satellites ensures that each satellite spends approximately 16 hours per day over the continental United States, with at least one satellite above the US at all times (Bonsor, 2004).
Furthermore, the orbits allow the satellites to appear higher in the sky than XMs satellites, reducing the potential for a listener to be out of range of the satellite signal, thereby allowing Sirius to have a fewer number of repeaters (Silverstein, 2004). Similar to XM, the Sirius system involves programs that are beamed to one of the three Sirius satellites, which then transmits the signal to the ground, where the radio receivers pick up one of the channels within the signal (Bonsor, 2004).
The Sirius receiver includes an antenna module and a receiver module. The antenna module picks up signals from the satellites or the ground repeaters, amplifies the signal, and filters out any interference. The receiver module, which consists of eight chips, then picks up the signal. This chipset converts the signals from 2. 3 gigahertz (GHz) to a lower intermediate frequency. Sirius also offers an adapter that enables traditional car radios to receive satellite signals (Bonsor, 2004).
