XM & Sirius’s Biggest Problem May Not be the FCC
Posted by Wayne on March 26, 2008 – 2:02 pmSo there was a pretty interesting Q&A exchange that appeared on TickerHound this week.
A member asked, “If Sirius and XM get approval from the FCC is it time to buy?” – click here to read the entire question.
One of the members was leaning towards the Bearish side of the argument…and he makes a good point:
“Think about it - iPod docks come in most cars now, iPods are outselling satellite radios by orders of magnitude and with the proliferation of pod casting, the “talk show/news” aspect of radio is rapidly becoming commoditized.”
This got me thinking – how has satellite been doing relative to HD radio and the iPod?
Where will this industry end up?
Many opponents of the XM/Sirius merger argued that the union of these two companies would create a virtual monopoly in the satellite radio industry. But what XM and Sirius argued – and ultimately, what the Department of Justice agreed with this week – was that the battle they’re fighting isn’t with other potential satellite rivals, it’s with EVERYBODY ELSE in the personal audio market, namely Apple and traditional broadcast radio.
And I have to admit, I personally don’t listen to the radio in my car anymore. I plug my iPod in and I have my own personalized radio station for an hour. I know plenty of other folks who can’t stomach the thought of paying to listen to the radio in their car either – even if it is for Howard Stern. They’ll simply tune into the regular radio stations.
It’s pretty clear that the alternatives are compelling and that’s why I think it made a lot of sense for the DOJ to approve this merger – and ultimately I think it’ll pass the FCC as well. There’s a lot of competition in this game and the prize is certainly a big one.
So let’s take a quick look at the battlefield and break it down by the numbers:
XM Satellite Radio
Subscribers: 9 million
Revenue: $1.14 billion
Sirius Satellite Radio
Subscribers: 8.3 million
Revenue: $922.1 million
Together these companies will have roughly 17 million subscribers (have to assume very little overlap here).
Broadcast & HD Radio
While it’s still the clear leader in terms of market penetration, traditional broadcast radio has been plagued by sluggish advertising revenues for the last few years. If this industry has any hope of surviving, its future lies in Digital/HD radio.
iBiquity, the company that invented and sells HD radio technology, is privately held so accessing credible data is difficult. My best guesstimates are below:
HD Radios sold (FY: 2007): 330,000
Revenue ($180 per unit): $59.4 million
Apple iPod
I’ve bought roughly 3 iPods over the last few years, so it would be unfair to use the number of total iPods ever sold as an accurate comparison to XM/Sirius. To be conservative I’ll just use Apple’s Fiscal 2007 numbers instead.
iPods sold (FY: 2007): 51.6 million units
Revenue (FY: 2007): $8.3 billion
Who’s Gunning For Who?
HD Radios certainly seem like the next logical evolution in the automotive market – people are used to it, more and more radio stations are getting equipped with HD broadcasting technology and the price of the units is bound to come down as manufacturing processes and component costs fall.
But will that deter the growth of satellite or the iPod as a compelling alternative?
HD radio sounds good in theory, but you still can’t fit it into your pocket and carry it to the gym with you. With satellite radio and the iPod, you can take your music with you wherever you decide to go – with HD radio, you’re still stuck in your car.
And while satellite is certainly growing, it’s far from profitable and it still lacks the penetration rate of the iPod.
Furthermore, Apple is making a concerted effort to penetrate the auto market – the only big car manufacturer that doesn’t have an iPod option is Toyota and I don’t see that lasting much longer. In any case, with all of the after-market options available, anybody can bring their iPod into their car with ease these days.
This is a direct challenge to both broadcast AND satellite radio, and based on the numbers, Apple’s definitely leading the pack for the moment.
So even if the FCC gives this merger its blessing, I think XM/Sirius have bigger problems ahead.
6 Responses to “XM & Sirius’s Biggest Problem May Not be the FCC”
By PocketRadio on Mar 26, 2008
You are way-off-base about HD Radio. Reportedly, only 130,00 units have sold, with many returned. HD Radio simply doesn’t work, with its poor coverage, dropouts, interference, with no analog backups for the HD channels. Programming on the HD channels is just repetitive reworks off the main analog channels, as brodcasters have put very little effort into HD Radio. Consumers have zero interest in HD Radio, after two to three years:
http://hdradiofarce.blogspot.com/
By driver on Mar 30, 2008
You maybe correct in your assessment but it won’t be from me putting any money into any of the products you mention. I’ve got Allstar and Sirus both available in my truck but wouldn’t waste the money to subscribe to either. I’ll never buy an ipod either. Howard Stern is a waste IMO. Good ol’ country music on FM satisfies me in the truck.
By Bob on Apr 2, 2008
You can keep your ipods. Give me the Sirus and let me listen to the good old country music. You kids can keep your modern music and all your weird commercials.
By moe on Apr 5, 2008
I will not pay for radio of any kind that is what advertisers are for. In my truck or at home building wealth is what my money is for.
By dustbusterz on Apr 16, 2008
I’d like to say , I think you have hit the nail right straight on the head.
I have never thought since day one, that enough people would pay for radio(seems pretty stupid to me with free radio available) to make these paid services anything but a passing fad.
Along comes the Ipod, and every kid on the planet has one(or maybe more) and even the adults are getting into the act.With the more advanced ones, you can get online(which if you look at china) you’ll see, this is they way they like to do things. They don’t like the desk top.
So, Ipod is not some passing fad, as I believe these paid radio stations to be. Mark my words, 3 years from now, they will be bankrupt. and if you have stock in these companies, My suggestion, sell and buy iPod.
By Barbara on May 13, 2008
Hold on a minute here - I know I am “late to the party” but thought you might think about those of us who didn’t grow up with all this technology, but have paid off our mortgages and have a few spare $s to indulge our whims. Why would we want to spend the time to download to, and then feel we should carry around, all sorts of pocket gadgets? We just bought a new pickup (no, we aren’t going to drive a roller skate, either), and love the XM system. I have 23 stations programmed in so far, and love the variety available. The rate for a 3-year contract is reasonable, and I can also listen on my laptop. I enjoy silence at times too, and do not have the need (or desire) to be bombarded with music or news 24/7. I don’t need to wear earbuds (or Bluetooth gadgets) to validate my self-worth or importance. My generation (remember, WE are the ones running corporations and doing most of the hiring and firing) doesn’t need to flash the newest gadgets to flaunt our status. Use them? Yes, many of us, but in addition to traditional methods, not instead of them. Can’t live without an iPod? Get a life!!