Satellite Radio: It Will Succeed. Period.
It’s rare that an experienced analyst plants his feet in terra firma and takes a firm position on new technology, but it happens here: Satellite radio will succeed and will become a normal part of our lives (and our children’s) by the end of this decade.
Why? Well, the reasons are almost too numerous to list, even though there are a plethora of doubters and reasons they supply for the new industry sub-sector’s demise. Yet rather than emphasize those negatives, which have been the topic of article after article, and report after report, lately, we prefer to focus our analysis on the positives. The main reason we do has to do with human nature.
Why human nature, you say? It’s got to be human nature to concurrently criticize, yet admire, because we’ve seen this same kind of exercise time and time again, with technology after technology. From the model-T to the telephone, from cable to computers, from DBS to satellite radio, critics galore have repeatedly, consistently, and regularly opined, “It won’t work, it won’t make money, and people won’t buy it.” Yet, in almost every of these examples thus far, decades later, most who were positive, or even those who were neutral, end up laughing at the doubters and wondering, “How could you question whether people would adapt to and want to make this part of their lives? It just works so damned well.”
For example, in the early days of cable TV (in fact, for the first ten years), the subscriber growth was so minimal, that it barely registered on a comparative chart (See below). Yet today, cable has truly become a normal part of our (and our children’s) lives, and those that doubted it missed the opportunity to make bunches of money.
The last quote above, i.e., “How could you question whether people would adapt to and want to make this part of their lives? It just works so damned well,” best reflects the future for the U.S. satellite radio, and it does so for the following reasons.
The Plusses: Why Sat Radio Succeeds
It raises the listening bar. The consistent, digital quality, combined with the huge sum of different listening choices (e.g., news, comedy and music), takes the radio medium to another, much higher, level. Analog radio spectrum interference is gone. Thus, like youngsters who try a fast new computer, most who try satellite radio—and its digital quality, whereby a listener receives a “perfect” signal or no signal at all—refuse to ever go back to the same old (i.e., terrestrial) standards.
It raises the competitive bar. It is unlikely that the variety and volume of content from one land-based radio source will ever come close to that of either XM or Sirius.
It will get better. Although many are saying that they prefer one service’s content over the other, it is clear that both XM and Sirius will change and flex to accommodate greater listener loyalty. After all, both services have been in full operation less than 13 months. It’s almost brand new.
It has solid financial backing. This backing will get better. Sirius is funded through 2004 and its projected breakeven. XM, especially with its partnership and strategic backing from General Motors Hughes (GMH), will soon present a revived financial plan that should accommodate most observers for many quarters to come.
It has terrestrial radio backing. Clear Channel is likely to be joined by other big time radio companies, such as Infinity, that see the future, as well, and want to make some solid financial and strategic alliances with the satellite radio hitters.
It has solid partner backing. As an example, by this time next year, it is expected that the majority of new cars built in the U.S. will have either an XM or a Sirius service built in and ready for activation. Plus, a large number of foreign-built cars will have satellite radios, as well.
It has OEM backing. The original equipment manufacturers (OEMs) are supporting the product, and doing it well. More will be coming, especially when they see satellite radios drawing people to buy their automobiles. Dealers and retailers should be next.
It should reach one mil. subscribers in 2003. The satellite radio service is expected, by our conservative measure, to acquire 350,000-400,000 net new subscribers by year-end 2002. Continuing momentum is expected to add half again as many subscribers during 2003. Because one million subscribers have served as a propelling mechanism for other subscription consumer electronic products/services, 2003 is expected to be year of “critical mass” for both XM and Sirius.
Its operators, XM and Sirius, appear independently strong enough to survive.
Its operators, XM and Sirius, will have time. Especially with the new funding, the runway for both XM and Sirus has (or will be) extended. This should give both time to perfect their marketing, partnerships, content packages, executive ranks, and everything else that goes into building something that changes the way people live their lives.
Its potential audience is huge. There are 200+ mil. U.S. registered car owners; millions of boats, RVs and trucks; and millions more homes and businesses. Most from each group are yet to be tapped.
Its technology is good and getting better. Some early glitches are being worked through today, where, for example, certain areas regularly lose a satellite radio signal, and repeaters or other technical solutions are necessary.
It will receive technical improvements. Things like smaller chip sets should allow for more portability and the mobility of future generations of satellite radios.
It will have content improvements. For example, when more local services get added so that more geographical areas get local weather, traffic and news, the consumer attractiveness (and stickiness) will take quantum leaps.
Its mobility will improve. XM’s new Sky-Fi device begins this trend, which Sirius will soon follow. When satellite radio is perceived as more than an in-dash motor vehicle product, e.g., something mobile and transportable, the audience will grow, as well.
Its content is reasonably priced. For less than the cost of a standard CD, listeners today can pay for a month of service, which based upon an average American’s hours in a vehicles, is a tremendous value/mile or value/minute.
It’s a cool product. This is especially true with the new XM Sky-Fi portable radio.
The Minuses: What Sat Radio Must Overcome
Its greatest hurdle is the doubters.
It surmounts this hurdle by best educating its future consumers.
It is fighting a troubling economy. Nonetheless, XM is showing that it can succeed even in this dour economic environment. People are subscribing, and getting others to subscribe.
It still has technical concerns. In some areas where signals are occasionally interrupted for 1-7 seconds by obstacles, solutions are wanting and, for a small number of consumers, this will impede purchases. Consumers, especially younger ones, are so used to 99.9% reliability, anything short creates reliability gaps.
It will have limited budgets because of tight funding. The tight money is hoped to get the companies past breakeven thresholds in 2004, and possibly beyond. Should the marks be extended, satellite radio will take a bit longer to catch hold. Yet it will catch hold.
Summing Up
Concludes respected Wall Street analyst, Bear Stearns’ Bob Peck, “Current equity holders may not be able to reap the benefits, but the service (and the companies) are here to stay.”
Our sentiments, exactly.