Sirius Satellite Radio: Gatekeeper In-Training

Formed in 1990, Satellite CD Radio Inc gained momentum and popularity in 1999. With the simultaneous dot-com boom and introduction of the DVD and MP3, the company we now know as Sirius Satellite Radio Inc currently hosts 69 streams, or channels, of music and 65 streams of sports/news/entertainment channels. With its 69 streams of music, it boasts commercial-free listening twenty-four hours a day, seven days a week. It is able to broadcast worldwide via Sirius-equipped radios/car radios and, as of 2006, Internet radio via a geosynchronous satellite that hovers above North America. It subsidizes its commercial-free music with advertisements on its talk programs and, much like television cable, by charging a monthly subscription fee (currently set at $12.95). In the company's seventeen year tenure, it posted its first positive free cash flow in the Fourth Quarter ending December 2006, with an 82% increase in their subscriber base; 2.7 million net subscribers in 2006, making for a total of 6,024,000 subscribers (Sirius 2007).

Sirius' growth is due in part to the addition of Internet radio (saving the cost of physical radios and a $15.00 activation fee for all new radio/car radio installations) and in part to its network base. In October 2006, the Metropolitan Opera Company began broadcasts via Sirius and Sirius online, offering live recordings of their season performances and historic broadcasts from the opera house dating back to the 1920s. In January 2006, Howard Stern made his debut on Sirius Radio. A major buy for Sirius ($500 million), Stern's move was publicized both by the media and by Stern himself, who dedicated his last few airings with Viacom to promote his switch to satellite radio (Kurtz and Ahrens 2004). While the FCC regulated what the shock jock was able to say on regular airwaves, satellite radio does not fall under regulation.

While Stern's two channels on Sirius were a success-Stern lured in subscribers by the millions and earned several high-profile advertisers with high-profile ad prices on his show-they were also a major leap of faith for the company, which had a mere 600,000 subscribers in 2004 when Stern announced his move (Kurts and Ahrens 2004). Stern's history of R and X-rated content, FCC fines, and banned material is off-putting to many listeners and could have easily limited Sirius' subscriber base profiles. However, President-Entertainment Scott Greenstein, who orchestrated Stern's move, simultaneously created a wide enough stream base for subscribers to avoid Stern's show altogether. Brands such as Maxim, E! Entertainment, Jamie Foxx, Cosmopolitan, Martha Stewart, NASCAR, NPR, and the NFL formed stream channels.

In addition to Greenstein, Sirius is headed by CEO Mel Karmazin. Described by many as bullish, Karmazin came to the company in 2001 after leaving Viacom (along with several other Sirius managers. While Karmazin's optimism is grounded in reality-in 2005 he predicted a profit turn by 2007 which may be the end-result after the Fourth Quarter 2006 cash flow and a subscriber base over six million-his bravado has been off putting to many ad buyers who, apart from subscribers, are the main source of revenue for the company (Donaton 2005). In the same 2005 interview with Advertising Age that led to his 2007 prediction, Karmazin dropped names including Apple, Sony, and Motorola for partnerships with the radio company. While Karmazin continued to predict ad gains for satellite radio in 2005, particularly with the Sirius debut of Howard Stern, critics believed that the CEO was missing the proof of the pudding.

With no commercials allowed on music channels, advertisers are limited to half of the streams available. Yet Karamazin's interviews lead to the belief that he considers talk radio streams secondary to music streams. With terrestrial radio entering maturity in the product life cycle, according to Karamazin, the number one complaint the CEO sees with the form is its commercials. He describes commercial-free broadcasting as the number one draw for Sirius. At this stage in development, however, advertisers feel that the lack of ratings and limited audience for each talk stream makes advertising on Sirius an afterthought or a supplement. Dennis Maguire of Carat elaborates: "If you're buying satellite radio, you're buying it as an enhancement, not to satisfy a reach and a frequency goal" (Bachman 2005). Both Sirius and its competitor, XM Radio, provide limited ratings and market research to convince advertisers: Sirius uses internal studies and XM does not break down its custom research for individual channels (Bachman 2005).

While FCC regulations have yet to hit satellite airwaves, Sirius (along with XM) have faced challenges with broadcast policies. In 2005, Canadian coalitions protested the entrance of Sirius and XM into the country, albeit the two stations each received licenses to launch subscription radio (two of the three licenses available). Canadian broadcasting policy includes Canadian ownership and control of the companies in question and programming that "reflects Canada's multiracial and multilingual population, and a significant level of Canadian-produced content" (Chaisson and Dougherty 2005). Sirius kept quiet on the matter, and in 2007 announced that it planned to merge with XM Radio.

Sirius' biggest challenge since its inception was its competitor, XM Radio. Founded before Sirius, XM was continually one step ahead of their competitors. It developed new technology first and was the first to enlist the help of car companies to make vehicles satellite-ready. When, in 2006, both companies made a combined $70 million and network radio revenue decreased 2 percent to $1.1 billion, the idea of a merger became more plausible for the two companies (Bachman 2007). This, however, has lead to some of the highest criticism for Sirius. Maguire, in a separate article, reiterated the fact that has halted the growth of both satellite companies: "If they want to be taken seriously, they have to show us what we're paying for. We have to be given some sort of accountability in the way of audience if we're to buy them" (Bachman 2007).

Given a merger, there would still be numbers against Sirius and XM. Currently, there would be a combined total of 15 million subscribers-10% of US households and 7% of vehicles. However, in 2006 alone 39 million iPods were sold and 223 million people tuned into terrestrial radio each week (Hampp 2007). Bullish can easily describe Karmazin's defense, which provides few facts: "One day maybe iPod will be interested in putting in a satellite radio...Listening to radio is a very different experience than listening to your own music. The iPod is a great product; it will be ubiquitous. But it will coexist with radio...It's more likely that the iPod will be dramatically lower because of satellite radio" (Donaton 2004). With the advent of car kits for iPod, however, this may not work to Karmazin's prediction. Apple, moreover, has an established customer base that will remain fiercely loyal to their products before they shift to satellite radio providers.

That Sirius does not demonstrate hard facts in general, including audience numbers and proof of diversity, is also against Sirius' growth. The company has the resources to do so, particularly now that it broadcasts via Internet. However, their evasion of disclosure has made them seem less trustworthy than terrestrial radio. While they may indeed reach larger listener bases given a merger, they are still less dependable and trustworthy in their advertisers' eyes. That Sirius also lacks customer loyalty with HD and MP3 competing in the market-and winning-serves as a sign that something may be wrong with the company, both for advertisers and subscribers. That Sirius also bars access to its music stations for advertisers makes many doubt that working with one satellite radio conglomerate would be any easier. The potential for a monopoly is great and would only harm the consumers: "If the satellite-radio industry is able to be one operator, they can do anything they want on price in terms of charging for advertisers, and the consumer's going to get ripped off," Peter Smyth of the Radio Advertising Bureau tells Advertising Age (Hampp 2007).

While the influence of satellite radio is still limited on the public and mass communications, Sirius is attempting to broaden the medium's spectrum. Particularly, this is done by creating exclusive products such as Howard Stern and the Metropolitan Opera. However, as a former subscriber for the Metropolitan Opera stream, the exclusivity is still limited. In a week of programming, there were roughly four or five operas alternated in hour slots with the new program each night being the live broadcast. While nearly eighteen years old, the company got a slow start in terms of the revolution of portable audio media. Its growth is primarily threatened by Apple and the iPod; particularly as the iPod product family grows to include various sound docks to allow iPods to play anywhere and everywhere. While Karmazin may get the last laugh, his cavalier attitude may also prove to be a further impediment.