May 6, 2009
Getting Sirius: Satellite Radio Broadens Reach
By SARAH MCBRIDE
Garrett Huffman of San Francisco loves the Sirius satellite radio that came with his Volkswagen Jetta so much that he would like to get another one for his waterskiiing boat.
But the 31-year-old says he’s going to hold off until he can get the new Sirius iPhone application, which Sirius XM Radio Inc. has promised to launch in the next few weeks. Compared to buying and installing a Sirius satellite radio on the motorboat, "that would save me money," says Mr. Huffman, a shipping manager for Chevron Corp.
In releasing the new application, which will allow customers to stream satellite radio over their iPhones, Sirius XM appears to be tacitly conceding that the satellite-delivery system that once was cutting edge now has competition far beyond what its founders imagined. Sirius must prove it can hold its own in a world where cars have iPod jacks and phones can go online, allowing people to stream free music stations. And cars, where many people do most of their radio listening, are expected increasingly to have built-in Internet access.
That’s good news for consumers, who will have another way to listen to Sirius, which for a $12.95-a-month subscription offers 130 channels of music and talk programming, including stations created by artists like hip-hop star Eminem and homemaking icon Martha Stewart. Currently, most Sirius listeners tune into specialized radios that get their programming from satellites. The radios can cost $200 to $300 for the most popular models.
Tapping into alternative distribution methods could help Sirius XM recapture some of the momentum it has ceded to Internet services like Pandora.com, which allows listeners to customize music stations for free. XM, which Sirius acquired last year, already has a BlackBerry application, allowing subscribers to catch the separate XM service on their Blackberry devices. And Sirius is pushing online delivery of its radio service. The company is currently offering Sirius subscribers an Internet-compatible radio made by Grace Digital Audio for $149.99. The service, which offers about 80 channels, requires an Internet subscription at $12.95 a month.
For some consumers, satellite radio offers programming they aren’t able to find on the Internet, on over-the-airwaves radio, or elsewhere. Mr. Huffman of San Francisco, for instance, who bought his satellite-radio-equipped Jetta at the beginning of the year, says he has fallen for a politics-oriented station called Potus, an inside-the-Beltway acronym for President of the United States. "I’m a confused conservative," he says, and the station gives him a "midline between right and left" that he couldn’t find on regular radio stations.
The iPhone application likely will require purchasing a subscription, although Sirius XM has announced few details of how the plan will work. An estimated seven million people in the U.S. have iPhones, estimates Richard Klugman, an analyst at Majestic Research. Exposure for the Sirius service on the iTunes Store site of Apple Inc. could draw valuable attention from the gadget-loving crowd that flocks to the site.
Analysts say the iPhone application will probably be considered a success if it can simply help retain Sirius subscribers who might otherwise be tempted to defect for a service that works better with their phones. "It’s all about minimizing churn," says Joseph Stauff, an analyst at CRT Capital Holdings LLC. Sirius XM has managed to keep the percentage of paying subscribers who give up the service after trying it out fairly low; in the last quarter, that figure was 1.8%. Overall, Sirius XM gained 1.6 million net new subscribers last year, or more than 8%, to about 19 million.
To be sure, satellites will remain important for Sirius XM. That’s especially true in parts of the country that don’t have good mobile-phone coverage or where the selection of free radio stations is limited. "There are plenty of places where it’s going to be more efficient to use the satellite," says Greg Maffei, chief executive officer of Liberty Media Corp., which took a 40% stake in Sirius XM earlier this year.
A challenge for Sirius XM is the slump in car sales, since many listeners first encounter the radio service while driving. But many car companies say a growing share of their new vehicles are being equipped with satellite radios. For instance, Jon Bucci, vice president of Toyota Motor Sales USA, says satellite radio was factory installed in four times as many cars in the year ended March 31 as in the year-earlier period. Growth rates should be similar this year, he says.