Satellite Radio: Business is Booming

In the two years since satellite radio first appeared in the United States, the concept has rapidly gone from being a technological curiosity to a viable alternative to traditional radio stations.

But the two companies that divide the fledgling satellite radio business, Sirius Satellite Radio Inc. and XM Satellite Radio Inc., have a long road ahead as they try to convince millions of Americans to pay for new audio receivers and shell out $10 or more per month for access to radio stations -- something people are used to getting for free.

XM of Washington, which beat New York-based Sirius to market, commands the lions share of the business, with more than one million subscribers at last count. Sirius, about six months behind XM, had about 150,000 subscribers at the end of the third quarter, which ended Sept. 30.

Sharp growth expected

Analysts expect those numbers to grow sharply during the coming years as more consumers are introduced to the services and people get used to the idea of paying for radio. Jimmy Schaeffler, who runs the Carmel Group, a media consulting firm in Carmel, Calif., predicts that XM could have 28 million subscribers in five years -- if the company is able to execute its business plan.

"They have been able to build a phenomenal new industry, and they are the leaders in it," he said.

Steve Blum, president of Tellus Venture Associates of Marina, Calif., notes that XM and Sirius face the formidable task of creating a new industry and overcoming skepticism from analysts and investors that the concept of pay-radio will be viable.

"Four or five years ago it would have been tough to convince anybody that there was even a market for subscription radio, but since XM and Sirius have come along they have demonstrated that there is a market, and once you do that, peoples attitudes change," Blum said.

Although subscriber numbers are on the rise, neither Sirius nor XM are profitable.

Sirius reported a pretax loss of $79.8 million for the third quarter of 2003 and generated $4.3 million in revenue during the period. XM posted a $64.4 million pretax loss for the quarter on revenue of $26.9 million.

From a broad perspective, XM and Sirius are employing similar strategies to attract subscribers. Both emphasize that they offer channels that are unavailable on the traditional AM and FM bands, including genres of music that do not attract enough listeners to justify their own terrestrial radio stations and audio feeds of programming primarily intended for TV viewers, such as CNN and Fox News, now also available via satellite radio.