For Satellite radio to compete with terrestrial radio and (what I
perceive to be their real competitors) MP3 players, they need a merger.
Sirius is in the weaker market position but the stronger cash and
technology position, and XM owns the market. I believe this merger
will occur in early 2004, and will likely be leveraged buyout of Sirius
by XM. The result will be a formidable media giant that could kill
ClearChannel.
If I'm right, somebody owes me a beer.
-Ian.
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Satellite Radio Set for Takeoff in U.S.
Sun Jun 1, 1:53 PM ET
By BRIAN BERGSTEIN, AP Business Writer
NEW YORK - Satellite radio comes from space bearing gifts: 100 digital
channels with eclectic music options and few or no commercials, beamed
directly to cars and home stereos throughout the continental United
States.
Less than a year ago, potential subscribers and investors were treating
it like an unwelcome visitor from another planet. Its dueling
providers, XM Satellite Radio Holdings Inc. and Sirius Satellite Radio
Inc., were warning they might run out of cash.
Finally, though, the mini-industry seems primed to take off. Automakers
are showing more enthusiasm for putting receivers in cars. Design
advances are shrinking the tuners and their prices, to as low as $70,
from around $300.
Subscriber numbers are jumping for XM's $10 monthly service and Sirius'
$13 offering. Both companies have abated their cash crunches though
financial maneuvers. XM expects to begin breaking even by the end of
2004, and Sirius by mid-2005. XM's stock price has quintupled this
year; Sirius' has doubled.
Some analysts expect satellite radio to grow the way satellite TV did.
If so, XM and Sirius radios won't be standard in cars and homes anytime
soon, but both companies still could be budding media giants.
"I'm glad to have most of the trying-to-get-everything-set-up behind
us, so we can just compete in the marketplace with not only with XM but
traditional radio," Sirius chief Joseph Clayton said in a recent
interview. "And that's the fun part."
When Clayton headed RCA's television sales a decade ago, he once
dressed like Gen. George Patton, borrowed a tank from a military museum
and drove it over a pile of Japanese TVs. Cameras captured it for an
in-house motivational video.
These days, it won't be so easy for the hefty Kentuckian to crush his
competition.
Although Sirius launched its three satellites before XM got its two,
"Rock" and "Roll," into space, New York-based Sirius began offering
service second, in July 2002, because of delays in getting chip sets
from Agere Inc. and what Clayton describes as missteps by Sirius'
original management team.
Sirius has just 68,000 subscribers and is gunning for 300,000 by
December. It has been about a year behind XM's products, such as
portable receivers that can be plugged into cars, home stereos or boom
boxes. Sirius is catching up this summer with $100 models, prompting XM
to drop its price to that level from $129.
Washington, D.C.-based XM had its own problems. Original plans to
launch service on Sept. 12, 2001, had to be delayed several weeks.
Still, XM has used its head start to sign up more than 500,000
subscribers, with 1.2 million expected by December.
"It's pretty clear that we're the ice breaker that's breaking the new
ground and they are following behind us," said XM Chairman Gary Parsons.
But Sirius seems to be getting its act together at just the right time,
with so much growth potential still ahead. After all, Parsons believes
satellite radio could snare 50 million subscribers.
"This marketplace is definitely big enough to have two players," said
April Horace, an analyst with Janco Partners. "I think the competition
is good to raise awareness for both companies."
In a sign of their potential mass appeal, XM radios are now available
in 2,100 Wal-Mart stores. XM and Sirius also believe that within a few
years, they can drop subsidies to car and boat makers for installing
their equipment.
XM will be optional in at least 70 car models this fall, including
General Motors and Honda autos as part of exclusive deals. GM owns 11
percent of XM; Honda has 8 percent. XM also has ties to traditional
radio: Station-owning behemoth Clear Channel Communications owns 3
percent.
Sirius radios will be optional in 65 auto models, including those of
exclusive partners BMW, DaimlerChrysler and Ford. DaimlerChrysler has a
small stake in Sirius; it and Ford each have options to buy 4 million
shares.
Ford technology spokeswoman Emily Foley said the automaker no longer
has doubts satellite radio will take off. Ten of Ford's 2004 models
will have Sirius as a dealer-installed option and more will follow.
XM and Sirius hope the auto partnerships help lure frequent
road-trippers and everyday commuters unhappy with the diminishing
diversity of commercial radio.
"I have very eclectic tastes in music, and a lot of it is not the stuff
you can hear on regular radio," said Mel Harkrader Pine, 57, an XM
customer since January 2002. "It's like having almost an unlimited CD
library and you just hit a button for whatever mood you happen to be in
at a particular time."
Sirius has 60 commercial-free music channels and 44 news, talk and
sports channels with some ads. XM has ads on half its 70 music channels
and most of its 31 news, talk and information channels, helping to keep
the subscription price lower.
Both companies automate many channels, though XM has some live
programming anchored by disc jockeys who can field requests, and Sirius
airs live in-studio performances and interviews.
Sirius recently began carrying National Public Radio, a deal
pooh-poohed by XM because it doesn't include popular shows like "All
Things Considered" and "Morning Edition." XM broadcasts audio feeds
from CNN and Fox News and has a Playboy adult talk channel that costs
an extra $3 a month. Sirius has NBA games and a new station for gays
and lesbians.
Although Sirius is the challenger, Clayton and his team talk more
expansively about the future, like the possibility of Walkman-sized
satellite radios. Improved compression technology could add perhaps 20
channels to XM's and Sirius' menus, and Clayton envisions some sending
data and video — perhaps even backseat movies for cars.
"Just because you're No. 1 out of the gate doesn't guarantee you
success," Clayton said. "The satellite radio industry has just begun."
___
On the Net:
http://www.sirius.com
http://www.xmsr.com
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