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An honest look at the truth behind the numbers
By June Marie London  | | June Marie London | | Satellite radio has grabbed the imagination of the American public. Music and news with high-profile personalities beamed directly to your stylish new receiver from a satellite high above the earth. Commercial free, pristine audio, with an infinite number of listening choices for every taste, interest, and mood. It is very 21st century. But has satellite radio fulfilled the promise behind the hype? And more important to advertisers: Can this new medium efficiently reach their customers, and generate a good return on their advertising dollars? A close look at the recently published numbers of the two satellite companies, Sirius and XM, tells a story that, should you own stock in either company, might just send you running to your online broker. (It also may further convince you that the real estate market continues to out-perform the stock market). First, let's talk about their subscriber counts. There is much hype in the press about big satellite subscriber numbers. But it is reported by Inside Radio that 6% of the reported Sirius "subscribers" may actually be just radios in a vehicle sitting on a dealer's lot. Bank of America analyst Jonathan Jacobys says Sirius is counting 315,000 unsold cars as subscribers. Subscribers also are kept on the Sirius roster for 18 months after cancellation of service. Further, the trades report that more than half of Sirius car subscribers do not pay for the service; they are still on free trials, and only half of these free-trial subscribers plan to renew when the trials expire. When we look at sales of satellite radios, total sales during the Christmas 2006 shopping season were down 46% compared to Christmas 2005, and 10% of those sold were never activated. Recent studies by Scarborough and Simmons measured satellite listening by market to compare it to terrestrial radio listening. They found that satellite listener penetration averages only 4.1% of any given market. And that's Sirius and XM listeners combined. The numbers tell the story behind the hype. The truth is that when advertisers commit to buying airtime on satellite, they are buying a medium that would not make the top 20 of terrestrial stations in most markets. Both satellite companies continue to suffer from "churn." RadioWaves reports that the cancellation rate for satellite subscribers is running at 2% per month, and that the companies are losing $5 million a day. This is bad news, coupled with a recent announcement from Sirius that their satellites will require replacement two years sooner than anticipated, at a cost somewhere in the billions of dollars. New technologies such as WiFi and WiMax could soon make the current technology used by satellite operators obsolete. Consumer listening choices and new media -- Internet radio, streaming, MP3 players, HD radio -- and even good, old-fashioned terrestrial radio continue to see increases in listening each quarter, and these all compete directly with satellite. There is talk in the industry of Sirius and XM merging, creating even more media hype as they go through the paces of challenging the FCC announcement that the "FCC rules prohibit [the] merger." Merger may well be the only way there can be at least one survivor in the satellite industry. Of course, then we are talking about a monopoly. But for two companies still operating at a loss, it's difficult to say how much power they would have over the industry as a single entity, according to Mark Cooper, director of research at the Consumer Federation of America. Perhaps, in time, satellite will find its true core subscriber base, report its performance honestly to advertisers and even be profitable as an enterprise. At that point, HVA may consider advertising with a satellite broadcaster. Until then, HVA Marketing will continue to search for and evaluate all forms of media that can effectively deliver the HVA sales messages. . . . June Marie London is HVA's media director. You can reach her at 972.761.0046, ext. 154. Sources: RadioWaves, Inside Radio, The Washington Post, Bridge Ratings, Simmons, MarketWatch, Sirius, XM
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