Satellite Radio Is Dead

Wednesday Nov 19th 2008 by Mike Elgan

Satellite radio is nothing more than an insanely expensive, limited, proprietary content delivery system that competes head-to-head against the Internet itself. Oh, and Howard Stern gets paid $100 million a year.

I hate to say it, but somebody has to: Satellite radio will come crashing down to Earth within the next two years. The newly merged Sirius XM Radio is already living on borrowed time -- and borrowed money -- and simply will not and cannot survive.

First of all, I'm not an anti-satellite guy. I don't want satellite radio to end (partly because I have a lifetime subscription). My family has two subscriptions in all, and I listen to satellite all the time. But reality is working against both the Sirius XM Radio company, and the idea of radio delivered by satellite.

As a competitor to radio, satellite rules. It has most of the advantages as radio, namely that it's easy to use, it's in the car and it has content you can't get elsewhere (Howard Stern, for example). Plus, it has qualities regular radio doesn't have: better sound quality, far more content and focused channels, like the Elvis Channel. Satellite radio isn't remaining static, either. It's evolving into something better than what it used to be. The devices are becoming better and smaller, and gaining great features, such as the ability to "TiVo" programs.

Unfortunately, however, the rest of the world is evolving, too. Six trends will kill satellite radio:

1.) The rise of MP3 phones. Cell phones in general, and the iPhone in particular, are mainstreaming the idea of listening to music on a cell phone. Because people carry cell phones everywhere, including in the car and other places where current subscribers listen to satellite radio, every phone is now a direct competitor to satellite radio.

2.) The rise of MP3-compatible cars. When satellite radio first hit, it was very difficult to listen to an iPod in a car. Now, it's becoming very easy, with dashboards either containing MP3 players or supporting them with jacks.

3.) The coming wave of mobile broadband dashboards. Cars are increasingly getting cell phone wireless connectivity built in to the dash, starting with the same high-end automobile categories that are most likely to offer satellite radios -- and targeting the same kinds of car buyers: audiophiles with money. Once your car is on the Internet all the time, iTunes (or something like it) becomes the Mother of All replacements for satellite radio.

4.) The rise of podcasting. This "talk radio" delivery system has been very slow to take off, but it has been growing and will continue to grow unabated. The difference between the growth of satellite radio and the growth of podcasting is that podcasting doesn't depend on the marketing of one company, or an expensive delivery system. It's free.

5.) The rise of live podcasting. Most podcasts are better served asynchronously. But for news and games, live is superior. And that was a huge advantage of radio -- satellite or otherwise -- over podcasts. But sites like BlogTalkRadio are changing all that, and podcasting is quickly turning into a medium where shows are broadcast live, then made available as a download forever.

6.) The economy is "cratering." The stake in the heart of satellite radio, the looming recession, will finish off the Sirius XM Radio company -- and the concept of satellite radio -- forever. How bad is the economy for Sirius XM? Let me count the ways.

First, understand that Sirius XM has $3.4 billion in long-term debt, $1 billion of which is due next year -- $300 million of that due by February. The company racked up this debt during an economic boom. We are now entering a bust. How will Sirius XM get out of this fix? The current plan appears to be little more than creative debt refinancing -- this in the most hostile credit market ever -- to buy time for some unspecified future miracle.

Satellite radio depends almost entirely on subscription revenue. The biggest source of new subscribers has been new-car buyers. Unfortunately, the downturn has not only radically cut car sales, but is reducing the percentage of new cars that have the fancy satellite radio upgrade (compared with pre-recession projections). The biggest channel for satellite radio is -- or was -- GM, which has recently suffered a 45% reduction in new-car sales. Other car companies are looking at reductions of between 20% and 30%. And that's now, before the recession has really even begun. Sirius XM Radio hasn't released recent sales figures, but it's likely that lucrative new-car subscriptions have decreased by at least 40% in the past couple of months.

One advantage Sirius has is Howard Stern. But Stern is also a disadvantage because he gets paid $100 million per year. As the Sirius ship starts to sink, and the board starts looking for cargo to throw overboard, Stern and his giant salary will be the first to go. As the King of All Media, and with a fiercely loyal following, Stern will probably go on to mainstream the concept of subscription-based podcasting. Why? Because Stern is tired of being jerked around first by the FCC, then by the old-and-busted radio industry, and now by the financial unsustainability of satellite radio. A subscription podcast would finally put Stern in complete control of his show.

The ugly truth is that satellite is simply an obsolete way to deliver sound. It's nothing more than an insanely expensive, limited, proprietary content delivery system that increasingly competes head-to-head against the Internet itself. The monopoly that provides satellite radio is billions in debt, with no way to pay off that debt and a looming recession characterized by dramatic slowdowns in consumer spending.

It's over. Satellite radio is dead.

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