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| Opportunities & Exposures: Media |
Siren Songs
David Arnerich
09/01/2005
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There is a revolution going on in radio, or at least that is what satellite
radio pioneers XM and Sirius would like us to believe. To date, roughly 6
million listeners have signed up with these two purveyors of drive-time
distraction and 2 million more are expected to by year’s end. For a modest
monthly fee, satellite radio offers listeners hundreds of diverse channels
featuring news, sports and almost every musical genre imaginable. While such
playlists are impressive, the real selling point—the thing that seduces
listeners to pay for what they can basically get for free on traditional AM and
FM stations—is that XM and Sirius are, for the most part, commercial free.
That’s right: They have few, if any, commercials.
If the basic value
proposition of this “revolution” sounds too good to be true, rest assured, it
is: Commercial-free satellite radio won’t last. As its penetration into the
American media landscape increases, this new medium will eventually sell
commercial time to advertisers on its popular music channels. This is not
bitter, wishful thinking from someone heavily invested in traditional broadcast
media; rather it is the history of a specific business model repeating itself
once again. Since the advent of the penny press in the 1830s, all mass media in
the United States have eventually accepted advertising dollars, and satellite
radio will be no different.
For the most recent example of this dynamic, one
need look no further than the cable television industry. When it was trying to
expand in the 1970s and 1980s, it could not compete with traditional broadcast
TV in terms of distribution, so it attacked the established giant’s content
model by offering shows that were not regulated by the FCC. What’s more, these
shows were presented without commercials. Loyal broadcast viewers quickly
demanded their MTV and signed up for cable in droves.
Like sirens luring
commercial-free sailors to the rocks, advertisers began to offer increasingly
large amounts of money to those cable programmers that could deliver targeted
audiences. As the subscriber bases of XM and Sirius grow, the same thing will
happen. Unfortunately, neither XM nor Sirius is currently in a financial
position to resist the advertisers. Both are struggling to grow and compete, and
despite their widening subscriber bases, both are operating in the red. More
importantly, however, both are publicly traded companies beholden to
shareholders who demand profitability.
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