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February 11, 2009

Why Did Sirius XM Fail?

By Gary Kim, Contributing Editor

With speculation mounting that Sirius XM is about to file a chapter 11 bankruptcy that would allow it to reorganize its business, the question has to be asked: how did the simple analogy "satellite radio will do for radio what cable did for television" apparently go wrong? To be sure, many millions of users likely will attest about the enhanced value: satellite radio does offer higher quality and more variety than available on terrestrial radio outlets.
So were there tactical missteps? In retrospect, any business that requires the launching of satellites has a huge upfront capital expense burden to carry. Then, in an effort to secure exclusive and popular programming, always a favored media technique, both the former Sirius and XM spent lots of money signing Howard Stern and Major League Baseball. The problem is that, for whatever reason, subscriber growth did not match the investments.
Some might quarrel with the decision to rely so heavily on automobile sales as the primary sales channel. To be sure, about 35 percent of radio listening occurs in autos. But about 40 percent occurs in homes and about 12 percent at workplaces. But retail sales of Sirius XM subscriptions have been declining since 2007.
Most observers would agree that digital audio players have changed music-listening behavior for most users, young or old. Since most radio listening is about music, this has to be a key factor. Cable TV did not have to launch into a market that simultaneously was seeing mass adoption of Internet-delivered video, massive packaged music consumption and alternatives such as Netflix.
Satellite radio executives, on the other hand, probably did not anticipate having to compete with the iPod and other MP3 players. So tactical missteps probably are not the most important reason why satellite radio has failed to achieve wider penetration.
There is an argument that there simply is less radio listening overall, now that alternatives - MP3 players being a prime example - are so prevalent. Some 27 percent of Americans are now listening to the radio less than they did five years ago, according to a survey commissioned by American Media Services. About half said their radio listening hasn’t changed during the past five years, and 21 percent said they are now listening more.
On the other hand, though conventional wisdom holds that young people are turning away from traditional radio programming in favor of Internet music and MP3 players, a 2008 Paragon Media Strategies study found that Americans aged 14 to 24 report listening to more radio now than they did a year or two ago.
Other studies suggest otherwise. Teenagers on average spent three fewer hours listing to the radio in 2007 than they did in 1998, according to the radio ratings company Arbitron, and listening had declined more steeply among adults 18 to 24.
Of course, a 2007 survey conducted by Arbitron and Telphia found that about 66 percent of respondents were "not interested" in buying mobile audio services. The ability to "sideload" music into MP3 players seems to provide enough value for music listeners that a for-fee radio service used primarily while driving is a less-attractive alternative, especially when a digital audio player can be used in automobiles.
In many ways, there seems to be a cultural shift in radio or music listening that parallels the shifts in video consumption. Namely, less use of linear programming and more a la carte use, using either on-demand Internet, on-demand cable and telco offerings, Netflix, YouTube (News - Alert) and other Internet alternatives.
As younger users in particular seem to prefer the "singles" format rather than the "album format delivered on compact disc media," so music listeners seem to gravitate to the same format for their music listening.
The issue now is what Sirius XM might be able to come up with, after a bankruptcy that gives it a chance to restructure its costs, and ponder a different future. Still, Sirius XM has to contend with growing competition, from mobile handsets, terrestrial digital audio broadcasting services and its current broadcast radio, Internet and MP3 competitors as well.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Stefania Viscusi

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