Great New Bottle for Old Wine

by Alexander Gelfand
January 2005

Great New BottleYOU DON'T HAVE to be an audiophile or a tech geek to appreciate the power of satellite radio. You just have to read the financial pages.

Thanks to steadily increasing subscription numbers and strategic alliances with companies like GM and Wal-Mart, XM Satellite Radio and Sirius Satellite Radio have become the darlings of the tech sector. At last count, XM boasted over 2.5 million subscribers, Sirius over 600,000. With lower operating costs and the lion's share of the market, XM is the dominant player in this game, but the two providers have much in common.

Both beam over 120 channels of music, talk, and sports from orbital satellites to proprietary receivers. Both offer near-CD quality sound and a range of hardware options, from portable units to home stereo adapters, which can be purchased online and at major retailers. Both enjoy exclusive deals with major auto makers like GM, Honda, and Ford, who now install satellite-ready receivers in many new cars. Both offer commercial-free music programming, and both charge monthly subscription fees, ranging from roughly $10 to $13. Neither company has turned a profit yet, though XM expects to do so this year. And both segment their programming content to an extent unheard of in conventional, or "terrestrial," radio.

Both, for example, offer several jazz channels, each dedicated to a particular niche. Smooth jazz, classic jazz, vocal jazz, and fusion all get their own spots on the satellite radio dial, as do related genres like Broadway show tunes and the blues. But neither company discloses listenership levels for individual channels, so it's impossible to tell how many subscribers are tuning into Kenny G and John Coltrane, and how many are listening to Howard Stern and Britney Spears. Despite the lack of transparency, however -- or maybe because of it -- those in the music industry are giving satellite radio the benefit of the doubt. "I treat them with as much significance as I do terrestrial radio," says Jill Weindorf, director of national promotion for Verve Music Group. "What if they take off? I can't prove otherwise. It might be the next big thing."

And given the limited number of existing jazz outlets, even a handful of additional listeners would make satellite radio an attractive market. Especially since satellite radio subscribers have already proven that they're willing to spend their disposable income on something they can get for free. "I can only figure that if people are willing to pay for this service, they're looking for something that terrestrial radio doesn't offer," Weindorf says.

If nothing else, satellite radio presents consumers with one more alternative to their local terrestrial jazz station -- if they have one. "The state of jazz in terrestrial radio is pretty sad," says Maxx Myrick, programming director for XM's Real Jazz channel. "Public radio is pretty much where all the jazz is, and jazz programming on public radio is diminishing. That creates an opportunity for us."

Unlike terrestrial stations, XM and Sirius can be heard nation-wide. And because both providers offer such a wide range of channels, there's a chance that subscribers who sign up for the sports or shock-jock programming will stumble across a new genre while channel-surfing. "We can reach people who may not really know what jazz is," says Myrick. "They may just come across us scanning through the channels, and go, 'Oh, wow, that's jazz.'"

Given the quality and reach of their digital signals, and the commercial-free environment they offer, XM and Sirius also provide natural competition for public radio. Both satellite providers have already attracted a number of on-air public radio personalities, including several from WBGO in New Jersey, one of the nation's largest public radio stations devoted solely to jazz. Can public radio listeners be far behind? "The demographics of terrestrial jazz radio users and the demographics of satellite radio users are very similar," Weindorf says. Both groups of listeners are drawn to radio for reasons that go beyond a desire to hear the weather, traffic, and time, and both are relatively affluent and well-educated.

Nonetheless, Cephas Bowles, general manager of WBGO, isn't worried. At least, not yet. "I think [satellite radio] is going to help expand the audience for jazz," he says. "It's also a competitor, but it's not having a direct impact on us currently, in terms of the bottom line." "But," he adds, "I think down the road, it could." The technology is still in its infancy. And though it, too, faces competition from the likes of broadband multimedia and portable MP3 players, there's no telling how pervasive satellite radio may eventually become. FM radio also began life as a niche technology, and only surpassed AM radio in popularity once FM receivers became standard equipment in most automobiles, something that XM and Sirius are both pushing hard to achieve with satellite receivers.

And while the notion of paying for radio seems odd now ("Why the hell would you buy something you can get for free?" Weindorf asks), that, too, could change. After all, few people blink at the prospect of paying for cable television service.

"I believe that in the future," Bowles says, "this technology will become a big part of the lives of most people using radio."

Copyright ©2005 Alexander Gelfand

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