Build Programming, Listeners Will Come

By Staff Writer | September 22, 2003

By Jimmy Schaeffler

One of the great maxims of the multichannel subscription services industry is that consumers really don’t care about the technology. They just care about the content. That thinking suggests that if service providers build their programming, customers will come.

If true — and The Carmel Group believes that it is — one factor that favors satellite radio is that listening to each service’s 60-70 music and 30-40 talk/news channels is a quantum leap over today’s FM and AM radio. Even with the development of digital terrestrial radio just around the corner, it is still hard to imagine any single FM and AM stations – virtually all ad-supported — competing with satellite radio.

A wide array of programming offered by U.S. direct broadcast satellite (DBS) services helped to boost that sector’s subscriber base from zero to more than 20 million in just over nine years. Satellite radio also features impressive programming choices that The Carmel Group projects will attract nearly 25 million subscribers by 2008.

Without question, satellite radio is quickly building up a devoted customer base. Early adopters of satellite radio already are exhibiting great loyalty.

XM’s Extras

For a basic 100-channel package of digital programming, Washington, D.C.-based XM Satellite Radio [Nasdaq: XMSR] charges subscribers $9.99 a month, or $119.88 a year. The premium service Playboy Channel costs an extra $2.99 a month. The basic package price is about 23 percent less than what is charged by rival New York-based Sirius Satellite Radio [Nasdaq: SIRI], presumably because XM’s business model is supported by an average of two minutes an hour of advertisements, in addition to a subscription fee.

Steve Gavenas, XM’s executive vice president of programming and business development, told us recently of several developments on his side of the business:

XM’s plan is to create fans, not just listeners.
A large number of fans interact regularly with XM’s on-air talent.
XM is becoming much better known in the musicians’ communities.
The company has worked closely with various partners to make the most out of niche channels and content.
Listeners are becoming passionate about what they are hearing on XM.
More niche services are likely to arrive on XM, based upon recent successes.

To optimize the potential success of each channel, XM is investing in live programming, offering occasional interviews with artists on its music channels, and airing special programs. XM channels collectively received roughly 72,000 calls from listeners during August. In addition, listeners of XM’s NASCAR Channel recently banded together to sponsor a particular driver at Daytona when reports aired that the driver lost a major corporate sponsor.

XM’s future niche programming will include ethnic, foreign language and cultural channels. Also featured is The Power channel, described by XM as the only nationwide African- American talk channel.

Sirius’ Story

Sirius’ claim to fame is clearly its ad-free programming. For this luxury, Sirius charges almost $3 a month, or $36 a year, more for basic service than does XM. Sirius also has pursued niche audiences with a passion. The company’s channels are aimed at groups that include sports fans, the gay community, Broadway lovers, news listeners and others.

Sirius has conducted research that shows the popularity of an advertising-free bouquet of channels. In fact, much of Sirius’ marketing theme today is tied to the idea of ad- free listening intended to create a channel-by-channel “mood” devoid of commercial interruptions.

Demographics also are important to Sirius executives. The company is looking into how much a listener with a strong income might spend on premium Sirius channels. With such prospective programming as a National Basketball Association premium package, potential exists to drive the industry average revenue per unit (ARPU) way beyond the current $10.32.

Another emphasis of Sirius executives is talk radio. That category of programming typically does not involve royalty or rights payments to third parties. As a result, Sirius itself owns the talk content and controls the revenues. The ability to avoid paying rights fees aids Sirius’ bottom-line. Sirius also has attached itself to NASCAR through sponsorships of races and a car on the circuit. Additional enticing programming offered by Sirius includes Public Radio International, National Public Radio, and the Sirius Trucking Network that is affiliated with Disney-ABC. Sirius has exclusive contracts that prevent XM from airing any of those channels. Another exclusive affiliation is with WSM-AM in Nashville, Tenn., which provides broadcasts and rebroadcasts of The Grand ‘Ole Opry.

According to Jay Clark, Sirius’ executive vice president of programming, “Content is king. Plain and simple.” Clark focuses much of his programming expertise on finding new opportunities for thousands of potential niche audiences. Efforts to serve sports fans and the gay and lesbian communities are perfect examples. Sirius created a channel called OutQ, tailored to serve the interests of the latter group. That channel launched last April. The gay audience is particularly important to operators such as Sirius. Key reasons are that the gay community typically 1) represents a strong economic demographic, and 2) is known to have a significant number of members who tend to be early adopters of new technology. Previously, only a terrestrial radio service in San Francisco, Calif., had focused on serving that niche.

Programming Proliferation

Inevitably, more and more channels will be added to XM’s and Sirius’ lineups. The accompanying chart shows duplication among 13 percent of the channels on XM and Sirius.

This shouldn’t be a problem since, typically, content providers want to avoid exclusivity scenarios because their success turns on getting in front of more, not fewer, viewers and listeners. At the same time, expect a smattering of additional exclusive channel offerings when these relationships make business sense for the content provider and either XM or Sirius.

Whatever the future programming mix, appealing content that draws listeners to pay monthly subscription fees will be continue to be the key. Content has pushed XM’s subscriber base to an estimated 885,000 people today. And content will help XM attain one million subscribers by late next month. Sirius also should be able to ride its compelling content to the 300,000-subscriber mark by Dec. 31. That level of growth will give U.S. satellite radio services a total of more than 1.3 million subscribers by year-end 2003. It also is what will bring 24 million total subscribers to satellite radio by year-end 2008.

Jimmy Schaeffler is a subscription services analyst at The Carmel Group, a publisher of industry data books and newsletters and a consultancy based in Carmel-by-the-Sea, Calif. (http://www.carmelgroup.com). The company specializes in telecommunications, computers and the media. He can be reached by e-mail, [email protected], or by telephone, 831/643 2222.

13 Duplicate Channels on Sirius and XM

NEWS:

CNBC
Bloomberg Radio
CNN Headline News
Fox News Channel
The Weather Channel
C-SPAN Radio
BBC World Service News
Total News Duplicates: 7

SPORTS:

ESPN Radio
ESPN News
Total Sports Duplicates: 2

ENTERTAINMENT:

Radio Disney
Radio Classics
E! Entertainment Radio
Discovery Channel Radio
Total Entertainment Duplicates: 4
Total Duplicates: 13

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