- The Washington Times - Friday, February 27, 2009

Satellite radio company Sirius XM staved off bankruptcy recently, thanks to a two-phase, $530-million investment by Liberty Media Corp.

Now comes the hard part.

The company faces the same question of long-term viability as its competitors in terrestrial radio: Will consumers in the future be amenable to anything less than absolute control at little to no cost?

What if, in the not-too-distant future, wireless Internet and cellular data networks can deliver the same quality of programming as satellite radio — but at the price of terrestrial radio?

Sirius XM has seen its subscriber base peak at approximately 20 million and its stock price plummet.

Terrestrial radio companies such as Regent Communications, Citadel Broadcasting and Cumulus Media have fared no better in recent years, with stock price declines in some cases surpassing 90 percent.

Sean Ross, vice president of music and programming at Edison Media Research, recalls being asked on numerous occasions when the satellite radio industry took off in 2001 whether the new service — with its diverse, ad-free programming — spelled the end of terrestrial radio.

Now he wonders if both media formats need to downsize expectations — and for the same reason.

“Listening has been in a steady decline for the last 15 years,” he says. “People still want preprogrammed entertainment, but we have less time and energy for it.”

From 1998 to 2008, according to a report in the New York Times, the average share of Americans who listened to the radio at any given time shrank by 14 percent. Edison has found, moreover, that declines in listenership have been sharpest among teenagers and college graduates.

Of course, short-term macroeconomic problems have only exacerbated the problems facing the radio industry.

Terrestrial stations, like all media companies, have suffered from a steep drop-off in advertising revenue.

And Sirius XM, the product of a merger last year of the two former satellite radio competitors, has been an indirect casualty of the dramatic decline in automobile sales; new-car buyers who activate already installed receivers account for an outsized share of the company’s subscriber base.

Sirius XM is racked, too, by $3.2 billion in debt, what with the enormous capital costs required to launch satellites into space, not to mention hefty salary contracts with superstars such as Howard Stern, Oprah Winfrey and Martha Stewart.

”A company like that had to assume a lot of debt,” notes Jeff Jarvis, the popular Buzz Machine blogger, author of “What Would Google Do?” and, he ruefully adds, “Sirius stockholder.”

Stock portfolio aside, Mr. Jarvis insists that 20 million paying customers are nothing to sneeze at. “There’s a lot of potential there, clearly,” he says. “Give them credit: They are the one content company besides the oft-cited example of the Wall Street Journal that has gotten consumers to pay for content.”

Jesse Walker, managing editor of libertarian Reason magazine and author of “Rebels on the Air: An Alternative History of Radio in America,” says satellite radio was nearly strangled in its infancy by a federal government that “centrally plans the airwaves” and the National Association of Broadcasters, which successfully sought to protect its competitive advantages in reporting local weather and traffic.

”Satellite radio has always been a small minority, but it still made the people it was displacing nervous,” Mr. Walker says.

But progress and experimentation churn on.

The math of day-to-day operational costs and stock value masks a deeper reality: The ground is slowly shifting beneath the feet of both terrestrial and satellite radio as consumers marshal iPods and iPhones to customize their audio entertainment.

With the latter cellular device, listeners can stream increasingly popular Internet radio stations such as Pandora free of charge. With programs such as Radio Replay and Replay A/V, Internet radio playlists can be recorded for playback on MP3 devices.

All told, approximately 33 million Americans weekly listen to radio online, according to a report by Arbitron and Edison Media Research.

To be sure, that number includes not just channels on popular download sites such as iTunes, Napster and Rhapsody, but streams from over-the-air stations as well.

The broadcast radio industry boasts that it still reaches 90 million listeners a week. It isn’t going to disappear overnight, even if its market value is hurtling south.

Michelle Abraham, a multimedia analyst with the market research firm In-Stat, says if Sirius XM can weather the current financial crisis, it has a firm grip on its market niche. “For those who spend a lot of time in their cars, there isn’t really another mechanism to get consistent streaming in your car,” she says. “For right now, satellite is the best way to do that.”

Yet Chrysler last year offered a glimpse of what’s to come. According to the Los Angeles Times, the auto manufacturer is experimenting with wireless routers in some of its models.

Theoretically, says Edison’s Mr. Ross, listeners will be able to tune into Los Angeles’ famous KROQ-FM or the British Broadcasting Corp.’s Radio World Service.

Think 10,000 stations, free of charge, at your fingertips, plus “widgets” for weather and traffic — not unlike those offered via Verizon’s FiOS (fiber-optic service) for television.

Digital radio is potentially a “hugely disruptive technology for a whole range of providers,” says Richard Robinson, a London-based automotive analyst with the electronics market research firm iSuppli. “It’s a medium that goes beyond a targeted service like radio.”

The next generation of audio consumers, he adds, will “scratch their heads” at such a dedicated medium — especially one that imposes a monthly fee.

Cars already have become portals for video entertainment and navigational services; when they’re Web-equipped, such capabilities will only multiply.

Scarcely a decade old, satellite radio, with its hulking mechanical constellations and old-fashioned compression algorithms, is a “mature technology,” Mr. Robinson says.

He predicts Sirius XM will likely survive, if only as a “content aggregator.”

“But they’ve built up a good brand image,” he says. “They’re not going to just let that go.”

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