The World: Can satellite radio become a serious medium?

Big-name DJs are pulling in the listeners. But will satellite radio ever be big enough for advertisers, Noel Bussey asks.

Howard Stern's debut on the Sirius satellite radio network was marked by customary gravitas from the original US shock jock. His breakfast show launched at 6.00am on Monday 9 January with a loud farting noise and a short announcement by the actor George Takei (better-known as Mr Sulu from the original Star Trek series). His message? "This is the maiden voyage of Howard Stern's satellite radio show. Its five-year mission, to seek out new lesbians with sexy stories."

Thus began Stern's long-awaited move to satellite radio.

Stern signed to Sirius from CBS amid much fanfare in October 2004 for a fee of $500 million. Sirius' gamble - that a big name such Stern's would pull in listeners - seems to be paying off. Satellite radio is emerging as one of the US's biggest growth media, with subscribers to the two networks, XM Radio and Sirius, now totalling more than nine million.

Since Stern signed to the network, the number of Sirius subscribers has exploded from around 600,000 in October 2004 to 3.3 million today. And, while Sirius' audience size is only just over half XM's 5.8 million, such has been Stern's draw that before he'd even broadcast a single profanity, he'd earned himself 34 million shares of common stock. These were worth $2 a share when he signed up, but climbed to more than $6 a share by January this year, netting him around an extra $220 million.

Satellite radio stations in the US can be listened to on special radios.

They retail at between $40 and $280, but can only be accessed by subscription, which is $12.99 per month for both networks.

In true US style, a pitched battle is raging between Sirius and XM for listeners, with both companies throwing hundreds of millions of dollars at their content and signing big-name presenters to draw in new subscribers.

Along with Stern, Sirius has Martha Stewart. XM, meanwhile, has a chat show hosted by Ellen DeGeneres, and the network also recently secured the signature of Bob Dylan, who will host a weekly music show.

Spending big seems to be paying off, but could prove problematic in the long term: both Sirius and XM have yet to make a profit.

"We expect to be free cashflow positive by 2007. But, with the recent subscriber increases, we may be able to do this by the end of 2006, a year before our target," a Sirius spokesman says.

Sirius claims that it will have around 15 million subscribers by the end of this year, while analysts are predicting that the total number of subscribers to both stations could surpass 40 million by the end of the decade. On Christmas Day 2005, 180,000 new subscribers logged on to the networks' web sites to activate new radios.

However, Mary Kang, the associate media director at Starlink, a division of Starcom MediaVest, believes that, although the subscriber base will keep growing, there is going to be a cap. This is concerning advertisers used to the hundreds of millions of listeners that conventional FM radio reaches.

"There are only a certain number of customers who are going to subscribe.

The market is only so big and won't continue growing at this rate," Kang says.

Satellite radio listeners, though, are still attractive to advertisers.

Typical audiences are businesses or well-paid white-collar workers with high disposable incomes, a demographic that is highly valued but hard to reach on the radio.

Sirius believes this is the reason more and more advertisers are looking to satellite radio. "Unlike commercial radio, we can target a paid-for audience of a specific demographic. Plus, Howard has a lot of advertisers who have been loyal to him for years, who have moved across to us from CBS," the spokesman says.

However, Kang believes the smaller listener base puts off too many advertisers.

"We have loads of clients who are just not interested, and others who we wouldn't even offer it to. We're also hampered by the amount of advertising space that is actually available."

On both networks, ads can only be aired on the news and talk stations and during personality-led shows and sports programming. Even then, airtime is scarce.

All music channels have a no-ads rule, and a recent survey carried out by the research company Arbitron showed that 54 per cent of the country said they would listen to more radio if there were fewer ads.

The lack of ads has led Sirius and XM to look for alternative revenue streams, such as lucrative deals with car manufacturers and mobile phone networks to integrate radio receivers into their products.

Such moves will be crucial to drive a medium in competition with thousands of local FM radio stations. While satellite is riding the crest of a publicity wave (thanks, mostly to Stern), serious questions remain over the sustainability of such rapid subscriber growth and whether satellite radio will ever be a serious advertising medium in what is, after all, a very big country.

SATELLITE RADIO - HOW THE COMPETITION SQUARES UP SIRIUS Launched: July 2002 Subscribers 3.3 million Celebrity presenters: Howard Stern (daily talk show), Martha Stewart (weekly talk show) Sports contracts: National Basketball Association, National Football League, English Premier League Car manufacturer deals: BMW, DaimlerChrysler, Ford XM RADIO Launched: September 2001 Subscribers: 5.8 million Celebrity presenters: Bob Dylan, Snoop Dogg (both have weekly music programmes), Ellen DeGeneres Sports contracts: Nascar (moving to Sirius in 2007), Major League Baseball ($650 million for 11-year contract) Car manufacturer deals: General Motors, Honda, Hyundai