Analysis: Sirius and XM Should Get Out Of Satellite Radio, listen to Tom Petty

Authored by Jay Baage on March 7, 2007 - 3:29pm.

With combined losses for 2006 expected to hit $1.7 billion, the proposed merger between Sirius and XM will surely help bring economies of scale. However, the main question remains: Is satellite an effective way of delivering radio content? I would argue that the future is not to stay married to one technology. The combined Sirius/XM entity should be a platform agnostic global quality content provider. It’s all about the content, stupid, and Sirius/XM has got it. Now set it free already!

Reading a story in the last issue of BusinessWeek, it occurred to me that the notion of taking the satellite out of satellite radio is not that radical. Rather, it is a simple solution to a series of complex problems with anti-trust regulation, expensive space technology and geographic limitations.

One of the first lessons I learned in Business School was to make sure you know what business you are in. Sirius and XM are not in the satellite radio business, but in the radio business. In fact, Mel Karmazin said it well himself recently - Sirius and XM are not so much competing with each other as they are with iPods, car stereos and every other thing that may draw the listeners' time and attention.

Think about it. Sirius and XM have 14 million subscribers. That is a lot of people. However, not compared to the 57 million Americans that listen to Internet radio each week (and millions and millions more abroad). The satellite radio numbers seem even smaller when you compare it to the 240 million people across the nation that listen to regular radio. Add to that the over 100 million people or so that carry around cell phones where-ever they go.

Now, Sirius/XM has made the mistake of concentrating its business and marketing efforts to pushing an expensive and soon-to-be-obsolete technology that reaches a fraction of its potential audience.

By branding their service as “satellite radio” specifically and not just a quality service for cell phones, iPods, laptops, home entertainment centers or whatever digital media device people want to use, Sirius/XM have put themselves in this position.

My thinking is this: Let the attitude remain (at least as as much as regulators would allow), the indie music and all the best things about satellite radio that you have worked so hard to assemble in one place and make it work in the broader web 2.0 universe.

XM already offers some of it programming on AOL Radio, Cingular’s and Alltel’s network. In the case of XM’s deal with Cingular, the cell phone subscriber pay an extra $9 a month to get the XM channels. That fee is then split between the two companies. This is surely a sign of what is to come. But it needs to happen faster and people need to know about it.

I listen to Sirius every day and I certainly hope that the content that is on there will not go away (my favorite channel is nr. 26 Left of Center), but rather find its way to new distribution outlets where I can access it everywhere I go. I really want Mel Karmazin to prove Tom Petty wrong in the song “The Last DJ”:

“Well you can't turn him into a company man
You can't turn him into a whore
And the boys upstairs just don't understand anymore
Well the top brass don't like him talking so much
And he won't play what they say to play
And he don't want to change what don't need to change
And there goes the last DJ
Who plays what he wants to play
And says what he wants to say
Hey, hey, hey”

Let’s hope it is not too late. Satellite Radio is known for letting the DJs play what they want and if you package it well enough and deliver it in a simple and convenient way to people, I would say that the number of subscribers that are willing to pay has the potential to increase drastically.

We are dealing with the new mass-market of one here. The consumer is in the drivers seat. Ballooning cost structures, including giant costs for talent such as Howard Stern and Oprah, can not be sustained with simple business models with limited revenue streams beyond subscribers.

Joakim Baage

Related Links:
Poll: Will Consumers Benefit From The Proposed Sirius and XM Merger?
FCC Chairman: Consumer Impact of XM-Sirius Merger Remains Unclear

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Comments

This is what I think Tom Petty meant

Submitted by BigRadioFan (not verified) on March 11, 2007 - 5:47pm.

"As they celebrate mediocracy... All the boys upstairs wanna see... How much you'll pay for what you used to get for free" I always thought Petty was talking ABOUT satellite radio when he wrote this song. Sat radio isn't a DJ playing what he wants to play. It's a huge corporation listening to consultants. Anyone who believes otherwise has been successfully duped. Clear Channel is there on the XM side. Sirius hires FM consultants that told them to tighten the playlist. And most of the time, a DJ isn't in the building on either service. It's that nice automated mix. As for your suggestion, it wont work. Internet radio does better than XM/Sirius, and AM/FM radio owns a majority of their talk content so they could never provide it to alternate platforms.