The second major development of 2004 was satellite radio's move from a curious technology most people had never heard of to the Next New Thing. Big names were joining its ranks. Major business publications were doing cover stories about it. And, while some in old media turned out to fight it in Congress, the biggest terrestrial radio company made sure it wouldn't miss the satellite boat.
From the perspective of the listener, satellite radio may not seem very different from terrestrial radio. It's an audio broadcast received through a receiver. Unlike traditional radio, however, content is broadcast not from ground-based antennae but from satellites, allowing radio stations to be broadcast -- virtually uninterrupted -- nationally (see How Satellite Radio Works [1]).
Currently, two satellite radio networks are competing in the U.S., XM and Sirius. Their appeal, like that of the Internet or cable TV, is that they are the ultimate niche form of radio. XM, the industry leader, offers subscribers 122 different narrowly targeted channels for about $10 a month. Want to hear music from the 1940s? They've got that channel. Want the Nascar network? It's here. Boston weather and traffic? All yours. Sirius, launched about a year after XM and the smaller of the two, offers its own collection of 120 stations.
Many involved in radio are quick to point out that by sheer numbers, satellite radio hasn't arrived yet. An October 1, 2004 press release from XM announced that the company had exceeded 2,500,000 subscribers as it closed its third quarter. Sirius announced its subscriber numbers as more than 800,000 by late November 2004. Given that audience numbers in Arbitron's Radio Today indicate that "over-the-air" radio reaches some 94% of Americans (the U.S. Census Web site counts a population of 295 million) these subscriber numbers represent a small percentage of radio users.
And the economics of satellite radio aren't even close to being there yet. A Barron's article of August 30, 2004 noted that XM and Sirius combined are losing somewhere in the neighborhood of $700 million a year.13 [2]
In spite of all this, other trends in radio indicate that satellite might be in the right place at the right time.
Because it runs on a subscription basis, it is able to avoid such economic concerns as declining ad sales and the devaluation of advertising and promotion spots that are affecting its commercial over-the-air owner groups.
In a way, XM and Sirius are capitalizing on a version of the highly successful formula of National Public Radio. Satellite listeners essentially become "members" of either XM or Sirius. In doing so, they are making a financial statement that this is a product that matters to them. Moreover, because receivers are built to translate only the XM or Sirius signal, they are locking themselves into one network. The networks are therefore building a solid and loyal audience that is perhaps dissatisfied with what they can receive on traditional commercial radio.
Some observers have also noted that zero-tolerance and the expanding applications of the FCC's decency standards may result in a situation where investors no longer see satellite radio as an experiment but as an opportunity - to be involved in a medium that has greater flexibility and content freedom than terrestrial radio. When he defected to Sirius, Howard Stern declared that traditional radio was dying, and that satellite was radio's future. "'It's time to go,' Stern said on his show… 'I believe more in satellite than I do in radio.' "14 [3]
And there are respected radio insiders who not only believe in the future of satellite but are willing to lay money and reputations on their bets. In November 2004, Sirius Radio signaled a further coming of age when it announced the hiring of Mel Karmazin as CEO. A former president of Viacom, Karmazin was the man at the helm of Infinity during its meteoric rise from, reportedly, a $10 million company to an $18 billion company. It also seems significant that Clear Channel Communications, the terrestrial radio giant, owns about 2.5% of XM Radio.15 [4] Given that, it might be wise for others to hedge their bets before dismissing the impact satellite might have on the medium.
Even the special receivers required for listening are becoming increasingly available. Hertz and Avis offer satellite radio in some of their rental cars and Honda and Porsche offer it as an option in their new vehicles. General Motors now offers XM in its new cars. Both Sirius and XM have developed equipment that can be brought out of the car and into the home, and XM has developed the personal, portable Delphi MyFi.
This is not the first time questions and challenges have been raised over the introduction of new media technology. Why, skeptics wonder, would listeners pay for something they're already getting free? Similar arguments surrounded the starts of cable television and satellite television and even the addition of the FM radio band.
Both XM and Sirius operate under 8-year licenses awarded to them by the FCC in 1997. And as with cable television before them (and FM radio before that), those in the broadcast industry have not welcomed the new technology with open arms.
The battle over satellite radio goes back about 15 years. In 1990 Satellite CD Radio (now Sirius Radio) approached the FCC with a plan to begin a 30-channel digital radio network. The National Association of Broadcasters, a Washington, D.C.-based "trade association which represents the interests of free, over-the-air radio and television broadcasters,"16 [5] initially made little noise about the proposal. That dismissal of satellite's possibilities lasted until 1992, when the FCC set aside "a 50-megahertz swath of radio spectrum for new satellite services - two and a half times the size of the FM and AM bands combined," as Forbes magazine recalled in its September 6, 2004 issue.17 [6]
That article noted that in the early 1990s the NAB was already working to protect the interests of its membership from the new technology of satellite television. The article quoted a "former NAB lobbyist" saying, " 'The NAB viewed satellite TV like it was the Death Star. Clearly they didn't want satellite radio to repeat the same pattern [as cable]… They got broadcasters across the country to hammer like hell on the Congress and the FCC." The article went on to say that the NAB literature's central talking point was straightforward: … " 'There is no need for 'more' radio service, no need for national radio service and no need for more competition in radio service.' "18 [7]
But the satellite radio networks' founders continued working and maneuvering through the FCC's bureaucracy.
In November 2001 XM Satellite Radio (which, as American Mobile Satellite, had been one of the original four companies applying in 1992 when the satellite bandwidth was approved) began broadcasting.
And there is now another wrinkle that could prove important. Perhaps most troubling for terrestrial radio, XM radio has patented technology that will allow the satellite network to insert local content - such as weather and traffic - into its broadcasts. While the satellite radio networks are required, according to their FCC licenses, to broadcast content nationally, XM's patent seems to step carefully around that rule.
To navigate signals in metropolitan or densely built areas where buildings and other obstacles would hinder broadcast from the satellites, XM Radio designed a system that included Earth-based transmitters that broadcast the same content as the satellite signal. But those terrestrial transmitters also have 20 additional "blank" radio stations each. As the system currently operates, the XM satellite receiver switches between the extra-terrestrial and the terrestrial signal depending on which is stronger. Listeners never know which signal they are listening to or when the signal switched.
The transmitters, all monitored from XM's control room in Washington, D.C., could easily be used to insert local news, weather and sports. Since the transmitters are spotted throughout certain urban areas, and can be individually controlled, one could also envision a situation where news reporting could become as hyper-local as all radio once was.
Hypothetically speaking, this system would not seem to violate XM's satellite agreement (though setting it up would be costly and would require a shift in XM Radio's operating system). Because these signals would be sent via XM Radio's satellites, the content would still be nationally broadcast. The station could still be accessed by anyone using an XM receiver. Not only could the person driving through Boston hear whether traffic was snarled around Fenway Park, so could a person stuck in L.A. gridlock.
The National Association of Broadcasters has claimed that any such local system would be a violation of government regulations and the FCC's intentions when it created the licenses for XM and Sirius. And their position had at least some support on Capitol Hill in 2004.
Congressmen Charles Pickering (R-Miss.) and Gene Green (D-Tex.) introduced H.R. 4026 -- the "Local Emergency Radio Service Preservation Act of 2004"19 [8] -- which would bar satellite companies from broadcasting programming that varies from location to location.20 [9]
The irony is difficult to ignore. In a landscape where a single corporate entity, Clear Channel, owns 1,211 stations in almost 189 markets21 [10] (and, interestingly, a significant amount of XM Radio stock) it's puzzling that any government entity is suddenly concerned with the state of local radio content. Is letting a satellite radio network insert local weather or traffic reports into a broadcast any different from, say, letting a company like Cumulus use voice-tracking technology to perform the same function on "over-the-air" radio? Or are the NAB and its membership looking to make the move that many radio observers are saying over-the-air radio must make to survive? Will there be a return to local?
The start of the new Congressional session leaves the Local Emergency Radio Service Preservation Act in limbo;22 [11] whether H.R. 4026 will be re-introduced and passed is yet to be seen. Also questionable is whether passage of the bill would actually move radio back to Main Street.