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A Comprehensive Study Of The Satellite Radio Industry:

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TABLE OF CONTENTS

HOW SATELLITE RADIO WORKS 5

How XM's System Works 6

How Sirius' System Works 7

TERRESTRIAL RADIO 8

SIRIUS' SATELLITE RADIO CORPORATION 12

History 12

Demographics 14

Product Offering 15

OEM Vehicle Manufacturers Partners 16

Hardware Partners 17

Financials 17

XM SATELLITE RADIO CORPORATION 18

History 18

XM Satellite Radio Holdings, Inc. 19

Demographics 20

Promotions 20

OEM Vehicle Partners 21

Hardware Partners 22

Financials 22

SIRIUS AND XM; A COMPARISON 23

RECOMMENDATIONS 29

INTRODUCTION

Would people be willing to pay $12.50/month for commercial free radio beamed right to their car or home. Well two companies and many big investors are betting about $3 billion dollars that people are willing to do just that. In 1997, the Federal Communication Commission (FCC) granted a portion of the S-band spectrum for satellite radio and two companies purchased use of these bands and started the only two companies competing in the satellite radio business today, namely Sirius and XM. Analysts like William Kidd of CE Unterberg Towpin, predict satellite radio will generate about $10 billion a year in revenues by 2007 (McClean, 2001). However, to date neither of these companies has earned a dime. According to industry analyst though, "its not whether satellite radio will take off-rather it's a matter of how fast." (Helyar, 2004). Despite lofty predictions, satellite radio has some big issues to overcome before it becomes a serious threat to the $19.6 billion per year terrestrial radio industry.

The article that appeared in Fortune entitled "Radio's Stern Challenge" by John Helyar discusses Sirius' marketing strategy to not only take market share from the entrenched and free terrestrial radio industry but also to beat its only competitor, XM. The Fortune article presents how a fat and lazy radio industry has failed to react to an eroding listening base and an increasing number of competing technologies. Issues like lack of attention to programming, no on-air talent, and an increase of 166% in the time devoted to commercials have driven listeners away from radio. Teens aged 12-17 spend 11% less time listening to radio compared to five years ago and adults 18-24 spend 13% less time compared to five years ago (Helyar, 2004). The article further discusses that terrestrial radio has much to fear from competing technologies like satellite radio, streaming digital radio on the Internet, and Apple's iPod. What terrestrial radio does have in its favor is that it's free compared to any of the current competing technologies like satellite radio.

However, satellite radio is banking on a commercial free format to steal listeners away from terrestrial radio. Sirius offers 65 commercial free channels of music and 55 news, sports and talk stations. And the one thing that satellite has over its less lofty competitor is that you can't loose the signal as you drive across America. The two major competitors for the satellite radio listeners are Sirius and XM.

Sirius' strategy to beat XM centers around attracting big on-air talent like Howard Stern who Sirius has agreed to pay $500-million dollars over five years. In addition, Sirius has locked up deals with the NFL for $220 million dollars to air every NFL game on Sirius's satellite radio stations. Sirius is spending big money in order to catch up with its only competitor XM.

XM was the first to enter the market and has struck deals with General Motors and Honda to install their receiver in all of its new automobiles. This represents about 50% of its new subscriber base. XM spends about $57 for each of its subscribers compared to the $227 that Sirius spends. However, the fortune article concludes by stating that Sirius' threat may not be terrestrial radio or XM, rather the growing number of new technologies poised to cash in like Apple's iPod and the digital streaming radio.

To better understand the assertions made in this Fortune article one must first understand the general trends in the current terrestrial radio technology. Then one must understand how satellite radio technology works in general and how XM and Sirius use this technology within each of their respective companies to gain the competitive edge over each other. In addition, the history, company structure, financing, and strategy of both XM and Sirius are presented in order to further understand the two companies. And finally a comparison between XM and Sirius is made so that the reader can understand how the two companies are approaching the problem of starting a satellite radio company.

HOW SATELLITE RADIO WORKS

Most of us have traveled too far in our cars when listening to the radio, to find that our favorite station turns to static and we can no longer listen to it. This is because conventional radio signals can only travel 30 to 40 miles from their source (Bonsor, 2004). Fortunately, similar to television before it, since radio is now available by satellite, there is a solution to this problem. Satellite radio can launch its signal greater than 22,000 miles with extreme clarity and often little or no commercials to interfere with your listening program (Bonsor, 2004). Basically, satellite radio, also known as digital radio, offers uninterrupted, near CD-quality music transferred to your radio from space.

How satellite radio actually works is simple on its surface. According to Silverstein (2004), satellite radio providers "take a music, news, or talk station, beam the signal up to a satellite, and overcome the limitations of ground-based transmitters whose signals generally drop off as distance increases. Then make sure the programming is more appealing than traditional radio stations and cut down on the number of commercials in exchange for a monthly subscription fee." However, it is slightly more complicated than this. It took numerous years to develop

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