- The Washington Times - Monday, January 8, 2001

Hugh Panero's XM Satellite Radio Inc. is about to reinvent radio, an industry that has changed little since FM hit the airwaves in 1961.

The D.C.-based company and its only competitor, New York-based Sirius Satellite Radio Inc., are preparing to beam powerful signals for hundreds of static-free channels of music and news that consumers will be able to pick up anywhere in the country.

"We're going to take radio to a new level," Mr. Panero, XM's president, said Friday at the Consumer Electronics Show in Las Vegas, where he showed off retail satellite radios for the first time.

XM, founded in 1992, plans to launch the first of two satellites today that will transmit its signal. The company intends to begin broadcasting in June. Sirius could begin broadcasting in July.

XM's programming will originate from the 82 studios at its $65 million office building in Northeast Washington. Signals will be delivered to its two satellites then transmitted to radios equipped to pick up the signal.

Signals from XM and Sirius also are transmitted from satellites to ground-based repeaters, devices that resend signals to receivers in cities, where buildings may block a transmission.

Even though satellite signals can be blocked in urban areas, the satellites are strong enough to reach everywhere, so listeners don't have to worry about losing a signal as they drive.

In addition, music and news at both XM and Sirius will be recorded and delivered in a digital format, a method that improves sound quality.

Analysts say the advent of satellite radio is equivalent to the birth of cable television. Cable succeeded because it marketed a wide range of programming to counter limited local television programming, and satellite radio also will offer a wide range of choices.

XM and Sirius each will broadcast about 100 channels of music and news.

XM will include 50 music stations for consumers fed up with commercial radio stations whose play lists are dominated by a limited number of hits. XM will beam six separate rock stations to its receivers. It will also carry 50 "talk" radio stations. The company has agreements with USA Today, C-SPAN Radio, Bloomberg, CNNfn, CNN Sports and other companies to provide information for XM stations.

Fewer commercials

In another departure from commercial radio, XM and Sirius won't bog down broadcasts with commercials. XM will have no more than six minutes of commercials each hour on its stations, while Sirius won't have commercials on its music stations, and its talk stations will have no more than five minutes of commercials an hour.

"People love to hear music on the road. The problem is trying to get it, and when you finally do get music, and not commercials, you hear the same songs over and over," Sirius vice president Doug Wilsterman said at the Consumer Electronics Show on Friday.

Like the cable television service it's compared to, satellite radio will be available only by subscription, not freely available. XM and Sirius each will charge $9.95 a month. Subscription fees make collecting revenue through commercial advertising less important, but it remains to be seen whether consumers are willing to pay a fee for radio.

"I think people will be willing to pay for the advantages satellite radio gives you over commercial radio the better quality, greater choice and fewer commercials," says Robert Peck, associate director of satellite communications at investment banker Bear, Stearns and Co. Inc.

It also remains to be seen whether consumers are willing to buy radios designed to pick up satellite signals. Sony, Motorola and Pioneer are among the manufacturers making the new radios, which will pick up AM, FM and satellite signals. The radios could cost up to $400.

Despite satellite radio's range of choices and fewer commercials, satellite radio companies are unlikely to put local radio stations out of business because the appetite for local personalities, local talk shows and local news won't soon die, says Ryan Jones, media and entertainment analyst for Boston-based Internet researcher the Yankee Group.

Unlike cable, analysts say the potential audience for satellite radio is not in the home it's in the car. Both XM and Sirius are targeting drivers, and both have a series of agreements with automakers to install their radios in new cars.

XM has agreements with General Motors Corp., Honda, Isuzu and Suzuki.

General Motors, an investor in XM, will put satellite radios in Cadillac Sevilles and DeVilles this year.

"Based on all the market research we've done, there's very strong demand for this. People are dissatisfied with commercial radio," says Rick Lee, executive director of satellite radio services for Onstar, a subsidiary of GM that makes satellite-based security and navigation devices.

GM will put satellite radios in about 20 models next year, Mr. Lee says.

Sirius has agreements to have their radios installed in cars made by Ford Motor Co., DaimlerChrysler, BMW, Mercedes, Mazda and Volvo.

Attracting customers

With nearly 200 million cars on U.S. roads, XM and Sirius are optimistic their agreements with automakers will help them attract consumers.

About 800,000 consumers will subscribe to satellite radio by the end of 2001, according to the Yankee Group. Mr. Peck has a more modest year-end target of 200,000 subscribers.

There is one advantage to consumers of the plan to beam signals to cars. Consumers are unlikely to have to pay the monthly subscription fee. Car makers will simply include the fee into the vehicle cost.

But consumers getting the signal in cars will only be able to listen to either XM or Sirius stations. GM cars with XM service won't be able to pick up Sirius' signal, for instance.

Enthusiasm over satellite radio has spread beyond automakers. XM and Sirius have attracted massive amounts of venture capital. Sirius has collected $1.5 billion in venture capital and XM has collected $1.1 billion in private equity investment.

Mr. Peck says XM still must raise another $150 million to get through 2001, but he expects the company to make money by 2004. The potential to make money is even greater because only XM and Sirius got licenses in 1997 from the Federal Communications Commission to market satellite radio service.

That doesn't ensure success for the companies. They will compete vigorously with traditional radio, emerging Internet radio and with each other.

"There's a good chance they will pull it off, but it's a first because no one has tried to deliver a satellite signal to a moving target on such a wide scale before. There's a lot of room to screw up," Mr. Jones says.

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