Tuesday, May 12, 2009

Satellite Radio Is On Life Support

 
ORIGINALLY PUBLISHED ON MAY 12, 2009 (on a blog hosting site that's not very friendly about exporting their data)

Biking alongside someone for hours at a time gives riders plenty of time to talk. My #1 riding buddy (and great pal) Andy and I have clocked thousands of miles together, all the while talking about business, arguing about politics, laughing about the sheer stupidities of life and generally covering a lot of ground - both literally and figuratively.

A few years ago Andy got his first satellite radio and was instantly hooked. He loved the clear sound, choice of channels and absence of advertising. My comment, as we pedaled along, puzzled him. "Enjoy it while you can. It won't last forever," I said.

As with a lot of other predictions I'm off by a few years in one direction or another. However, I'm convinced that satellite radio is currently on life support and is doomed to be a marginal product for however long it lasts - despite the opinions of Andy and millions of his fellow satellite-radio-addicted compatriots.



It's not that satellite radio isn't cool - it is totally way cool. But the amount of cool products and services that became techno-roadkill during the past few years due to a sheer lack of demand bears witness to the fact that without customers, cool doesn't cut it. Andy's two sons - Daniel and Noah - think it's as addictive as he does and, in fact, it probably is. But what I think they don't get is that the cool factor doesn't make it a profitable or durable business.

There's just way too much competition and way too few people willing to add yet another communication/entertainment cost to their monthly bill.
Let's look at some facts:
  • When satellite radio was first introduced two services were licensed - Sirius and XM. Neither of them had enough customers to make it on their own so they were forced to merge about a year ago. Probably not a good sign.
  • The car industry - source of the overwhelming majority of Sirius/XM's customer base - is in the dumpster. People who are buying cars are looking for deals and adding more monthly cost doesn't fit into today's tight budgets.
  • Satellite radio was introduced about 10 years ago. What didn't exist back then?
    • cheap portable cell phones
    • gzillion-minute cell plans
    • back-seat DVD players
    • Blackberrys and iPhones with tons of music storage
    • Pandora
    • YouTube
    • A little gizmo called the iPod.
  • Sirius/XM currently has about 15 million subscribers - a pretty hefty number but not nearly enough to support their costs. They lost "only" $50 million in the most recent quarter - an improvement over the $100 million they lost last year at this time but not exactly my idea of a business model.
  • The company continues to pay professional sports leagues ridiculous fees and moronic shock-jocks whose presence on radio will rate, at best, a footnote in the history of radio, insane amounts of money.
In short, the service debuted in a world without competition and now they're being suffocated by it.  If you've got a smart phone of any kind - be it a Blackberry, iPhone or some other brand - you've got access to your own music collection, podcasts, radio stations from around the world and much more in the way of entertainment at virtually no additional cost. There are downloadable apps in the app stores for all these devices that let you access your home music library, listen to National Public Radio stations from anywhere in the U.S. even tap into the ever-growing list of Internet radio stations.
And of course let's not forget the most obvious competition in the car (where the vast majority of radio listening still occurs): the time we spend on the phone.  The average cell phone user in the United States is spending vastly more time talking on the phone now than ten years ago and there are no signs of that trend decelerating.
(Let's not even get into dealing with kids, talking to spouses, putting on makeup, reading the newspaper or any of the other truly frightening distractions that drivers engage in.)

Is satellite radio a goner?  Maybe not.  What can save it? Here are my thoughts:
  1. A merger. If Sirius/XM was to merge with (or be bought out by) let's say DirecTV or a cable company then it could become an add-on for a small additional fee.
  2. An app for the Blackberry and iPhone (rumored to be coming out soon) that allows users to subscribe directly from the devices they're already carrying instead of having yet another device installed in the car/home/boat.  This convenience, combined with the next point, could be sat-io's salvation.  
  3. The same thing that has saved hundreds of now-profitable web sites - the "freemium" model. Get people hooked on the quality and variety of the service by offering them a lot of it for free and then charging for the premium services. In their case, especially, the costs of the satellite, on-air talent and operations are fixed regardless of whether they have one customer or 100 million customers, so why not offer some of it for free as an enticement to get people to buy into the premium channels?
Satellite radio is undoubtedly on life support today and without some changes Andy, Daniel and Noah are all going to be woefully disappointed when Sirius/XM shuts down in a couple of years and they have to find something else to listen to.
Or maybe by then we'll all be so sick of phones, talk radio, a thousand sports channels and a non-stop world we'll all just want to enjoy the silence every now and then.
Posted by at