- The Washington Times - Monday, May 7, 2001

Hugh Panero's plan to reinvent radio falls into place tomorrow when a 200-foot rocket escorts a 10,289-pound satellite into space from a launch pad in the Pacific Ocean.
The device will drift into its orbit 22,300 miles above the Earth, allowing Washington-based XM Satellite Radio Inc. to usher in a new era in radio.
The new high-tech radio service that Mr. Panero, XM's president and chief executive, will help introduce to North American listeners later this summer should interest consumers both for what it is and what it is not. It is free of static and largely free of commercials.
But it is not free, and the nascent satellite radio industry will have to prove the service is worth the monthly subscription fees charged for the service.
The challenges have not deflated Mr. Panero. The 44-year-old former cable industry executive considers himself unflappable, though he does carry a string of "worry beads" in his pants pocket to grab hold of when panic strikes.
"This is a big deal," he says.
Satellite radio is considered a significant technological development in the history of radio, which has not changed since stations began transmitting FM signals in 1961.

Broad range

Most radio signals travel no more than 40 miles.
Satellite radio signals travel more than 22,000 miles, nearly equivalent to the Earth's circumference.
XM's programming will originate in its 82 studios on New York Avenue Northeast. The signals will be beamed to the company's two orbiting satellites, which will transmit them to specially manufactured radios built to receive the broadcasts. A network of about 1,200 ground antennas that cost $240 million to build will boost the signals in large cities so they aren't weakened by tall buildings that can cause interference.
The Federal Communications Commission gave XM and its only other direct competitor, Sirius Satellite Radio Inc. in New York, licenses to market the service.
Now, on the verge of transmitting its signal, XM is in a frenzy.
"It's busy. People are everywhere. I love busy," Mr. Panero says.
The company received more than 2,000 resumes for jobs after posting help wanted ads in trade magazines. The company has about 350 employees now and plans to grow to 400 workers by the time it flips the switch on its satellites.
Construction workers are completing a performance studio at XM's $65 million headquarters, a former printing plant the company moved into last year. Work on a futuristic broadcast operations center, where employees monitor the satellites and ensure each studio is broadcasting its signal, is nearly complete.
Disc jockeys are digitizing 1.2 million song titles and loading them into the corporate computer system. The music files can be accessed from any of the 82 studios.
"We're looking at it as a birth. We think we are going to be a big part of history," XM Vice President Chancellor Patterson says.
So far, analysts are in agreement.

From rural to urban

The number of people who commute to work is staggering, Mr. Panero says.
About 130 million people spend an estimated 16 billion hours a year driving to work. Mr. Panero is one of them, and he is not averse to flipping on the radio during his 30-minute commute.
He is one of the U.S. adults who spend an average of three hours a day listening to the radio while in their cars or at home, according to statistics from the Radio Advertising Bureau.
The overwhelming number of consumers listening to radio leads analysts to predict consumers especially the motorists whom satellite radio companies are targeting will embrace the service. An estimated 19 million people will subscribe to satellite radio by 2005, according to Webnoize Inc., a technology research firm in Cambridge, Mass.
Consumers are expected to subscribe to it even though satellite radio won't be free. Both XM and Sirius Satellite Radio will charge consumers $9.95 a month. Listeners also must buy a radio equipped to receive the signal, and XM's radios will cost up to $299.
Analysts don't view the additional costs associated with satellite radio as a significant hurdle between the companies and their audience. That's because both XM and Sirius will beam signals for up to 100 stations all available on the same radio. More than 22 million Americans live in rural areas where they can tune in fewer than five FM stations, says William Kidd, satellite analyst at New York investment bank C.E. Unterberg Towbin.
"There are some audiences we will reach that local radio can't reach," Mr. Panero says.
XM will deliver a stream of 100 static-free stations, which will have no more than six minutes of commercials each hour. Mr. Panero says XM already has $2 million in advertising contracts with State Farm Insurance, Kmart and more than 20 other national advertisers.
Up to 20 of XM's stations won't broadcast any commercials. Sirius won't have commercials on its music stations, and its news stations will have no more than five minutes of commercials each hour.
Traditional radio stations broadcast as much as 24 minutes of commercials each hour, Mr. Patterson says.
"It's like HBO. People said consumers wouldn't pay a monthly fee for television, but now it's everywhere," Webnoize analyst Ric Dube says.
Mr. Panero predicts XM will have an estimated 100,000 subscribers by the end of the year. XM will need about 4 million subscribers to break even, he says, a threshold the company expects to reach in 2004.

The new car stereo

Through an agreement with General Motors Corp., radios built to receive the XM signal will be installed as optional equipment in 2002 model year Cadillacs and could be available by October.
GM is so optimistic about consumer acceptance, they plan to make satellite radios available in more models next year and in all models by the end of 2004.
"We will make it widely available because satellite radio appeals to a wide audience. We still see AM and FM radio being a requirement in our cars because people like traditional radio, but satellite radio has a broad demographic appeal," says Rick Lee, executive director of satellite radio services for Onstar, a subsidiary of GM that makes satellite-based security and navigation devices.
GM's interest in seeing XM succeed stems from its $50 million investment in the satellite radio company. It owns 5.6 percent of XM, which has raised a total of $1.5 billion from investors.
With 208 million cars on U.S. roads, XM is confident it can carve out a niche from the massive auto market. It also has agreements with Honda which owns 3 percent of XM and semi-truck manufacturer Paccar.
Sirius has made agreements with Ford Motor Co., DaimlerChrysler and other automakers.
But there's a hitch. A consumer who buys a car made by GM that has an XM radio can't receive the digital signal sent by Sirius, and Sirius customers can't tap into the XM signal.
So the companies agreed they need a unified standard and will work together to develop a radio that can receive signals from both companies. Future agreements with automakers that haven't subscribed to one service or the other including Toyota, Volkswagen and Nissan would mean radios capable of tuning in both signals would be installed in their cars. No automakers have signed up for the unified-standard radios, but Mr. Panero predicts those could be available by 2003.
XM radios also will be available this summer in retail stores, and the company hopes to tap into the market for car stereos. Consumers buy about 11 million car stereos a year from retail outlets. They also can be plugged into home stereos.

High expectations

Despite analysts' favorable long-term outlook of satellite radio, XM and Sirius have been subjected to increased scrutiny as they move closer to transmitting their signals.
Last month, Sirius Chief Executive David Margolese said the company's first products will be available in the fourth quarter and quantities will be limited. Fewer than 20,000 radios will be available at retailers, Mr. Margolese says, and he doesn't expect Sirius to have significant sales to automakers that would install the radios in cars and trucks as original equipment until 2003.
Problems with the technology in its radios have caused the setback at Sirius, though officials say they are overcoming their technical glitches.
That's significant because Sirius was expected to be the first among the two to transmit its signal. With its satellites already in orbit, Sirius planned to begin service in January.
Now it may not begin broadcasting its signal until September. Mr. Panero won't pinpoint the day XM will begin broadcasting its own signal, but the company now appears likely to beat Sirius.
While Mr. Panero isn't making much of the Sirius versus XM debate, shares of stock in both companies fell after Mr. Margolese made his statement about his company's subscriber estimates, proving the companies are linked in the minds of investors.
Shares of Sirius fell 36 percent on the Nasdaq stock exchange from $11.75 a share to $7.56 April 3, the day Mr. Margolese made his statement. XM's shares fell 29 percent on the Nasdaq, from $6.96 a share to $4.93 that same day.
XM shares have rebounded, closing Friday at $9.05 a share. Sirius shares also have recovered, closing Friday at $12.14 a share.
"When one stumbles, they both stumble," says Ryan Jones, media and entertainment analyst for Boston-based Internet researcher the Yankee Group.
If XM does get its final satellite in place and begins transmitting its signal before Sirius, it will have an edge over its competitor, Mr. Kidd says.
They also will provide a boost to the industry.
"I think it does help to be first to market. But it's also important for both of them that one of them get to market and start acquiring some subscriptions," Mr. Kidd says.
That is what Mr. Panero has aimed for since he came to XM nearly three years ago. With this week's satellite launch, he and his colleagues will be another step closer.
And he can give the "worry" beads a rest.


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