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What Makes Satellite Radio So Great Anyway? Print E-mail
Wednesday, 24 November 2004
What makes satellite radio so great? The critics glow with accolades and if you ask early adopters, they will wax poetic about how cool their XM or Sirius is and how they could never live without it. But why? After decades of dominance, how did terrestrial radio lose its audience and will it ever earn them back? In FM radio’s heyday from the late 1960s to right after deregulation of radio in America in the mid-1990s, radio was the single most powerful source for consumers to find out about new music. On a no-cost media that was installed in every car, Walkman and AV receiver, radio was everywhere and had the power to literally make or break an artist overnight. Financially, radio has always been TV’s bastard stepchild, with some radio insiders saying the media has never earned more than seven percent of the total ad revenue in a given year. Despite this relatively small portion of overall ad revenues, radio stocks boomed with almost the same enthusiasm as dotcom stocks in the late 1990s. It was during this time of consolidation when radio’s leadership took their eye off the ball, looking to economies of scale to cut costs and boost profits. Wall Street loved it, but what FM radio needed to be doing was creating new formats. But who needed new formats when the stock price is through the roof? FM radio did – badly.

Enter satellite radio in the early 2000s. For the first time in radio’s history, it potentially had a real competitor on its hands. While the numbers of satellite subscribers were relatively small, this new media looked at the business and media of radio in novel ways, ways that stubborn terrestrial radio might not have an easy answer to, other than mergers and acquisitions. On a programming level, satellite radio has the ability to offer many times more channels than any major U.S. radio market. With these added channels, satellite radio is able to niche-program while terrestrial radio is trying to cast a big net around an audience that is increasingly difficult to capture. With dozens of niche stations ranging from death metal to ‘70s ballads, satellite radio’s odds of finding the exact genre of a listener’s tastes are far better than FM’s offering, which results in increasing listener loyalty for satellite.

What satellite radio does that makes its programming so much better is offering niche programming channels that allow for the best of a certain genre or subgenre. For decades, traditional radio research said that listeners wanted “variety.” However, a famous oldies format program director, Steve Rivers, has proven on many major market Infinity radio stations that the best ratings for an oldies format come from playing a very limited playlist. By Rivers’ standards, that list can be as selective as 300 or fewer songs. Ironically, it is satellite radio that is best suited to exploit Rivers’ example. A dedicated reggae station on XM can play Bob Marley every hour and be more successful than a more varied competitor. A vocals and standards station on Sirius can play Frank Sinatra every 30 minutes and never get a complaint. The reason for this is the diversity of the nature of the channels on satellite vs. radio. Yet on those channels, satellite radio (in many cases) keeps the playlists tight, thus making the stations sound better.

Beyond programming, terrestrial radio has abused the goodwill of its listeners by constantly increasing the length of its commercial stop sets. On Howard Stern’s controversial morning show, which will be moving to Sirius in 2006, the commercial breaks can be as long as 14 minutes. Even with a commute on the 405 freeway, you can spend half of your morning commute listening to nothing but ads if you don’t start flipping stations. When there was no good alternative, like in the Los Angeles market, where only one station plays rock in the morning for 10 million residents, many of us were stuck. Now cars from nearly every auto manufacturer come with the option of satellite radio perfectly installed and integrated into your new car. With each model year and each new car model, there are millions of new potential satellite subscribers. Aftermarket satellite radio also is affordable and relatively easily installed for people not in the market for a new car. This brings the number of potential new subscribers up to hundreds of thousands above the reported 17 million new car buyers each year.

Traditional radio will likely never be the same nor is it likely to recover. FM radio hasn’t invented a new format since “rock and roll oldies (AKA: Arrow for LA radio)” from the early 1990s, which isn’t even really much of a new format. It is a modified oldies format merged with classic rock designed for Baby Boomers. FM radio has lost tech-savvy Generation X and isn’t even talking to the younger Generation Y, who would just as soon download a song to their iPod minis than listen to an analog source. Younger listeners are much more willing to take a leap of faith on a subscription-based service if the content is good. As a generation, they have proven this with their love of cell phones, adoption of Internet dating and willingness to pay for downloads from sites like Apple’s iTunes. Ultimately, satellite radio will convert itself from a satellite-based media to more of a wireless media, complete with goodies like video and surround sound. It will be available over wireless networks throughout entire cities. Mayor John Street in Philadelphia is already working to make his city completely hooked up for wi-fi. San Francisco is likely next, with dozens of other cities to follow.

Howard Stern might have said it best in one of his ill-tempered rants about the FCC and Clear Channel when he intimated that radio stations that the big radio conglomerates overpaid for in the late 1990s may go from once being worth hundreds of millions of dollars to being worth close to nothing. While it might be hard to imagine an American radio station worth literally nothing any time in the future, it is easy to see radio’s audience drop by tens upon tens of millions of users, who now are willing to pay a modest subscription fee as part of their car payment for commercial-free entertainment. Factor in the damage that losing Generation X, the most influential and financially important generation since World War 2, and you start to see how the business of traditional radio may be broken for good. Things will simply never be the same for terrestrial radio – mainly because satellite (soon to be wi-fi) radio is simply more compelling, more relevant and more targeted entertainment.

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