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Old 03-13-2006, 01:11 PM   #1
mrb42
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Default XM Music Channels now have commercials on 4 channels... than

XM: The Sounds of Salesmen?
Friday March 10, 3:11 pm ET
By Adrian Rush (TMFAdrian)


A ruling that forces ads onto four XM Satellite Radio (Nasdaq: XMSR - News) music channels will surely require the company to rework its "100 percent commercial-free music" slogan, but it may actually bolster the argument for subscription radio in the long run.
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Fool writer Alyce Lomax reported on Wednesday that the satellite-radio provider has been compelled to let commercials run on the four XM music stations that Clear Channel Communications (NYSE: CCU - News) controls. The arbitration panel that ruled in Clear Channel's favor settled a dispute stemming from the terrestrial radio behemoth's 1999 investment in XM. Clear Channel and XM had disagreed about whether the former's investment gave it the right to place ads on the stations it runs.

What is Clear Channel's intent in forcing this issue? It's not going to make a lot of money from ad slots on four measly channels -- especially compared with the truckloads of cash it rakes in from the 1,200-plus terrestrial-radio channels it already owns in the U.S. -- and it has to share the ad revenue with XM.

Let the conspiracy theories begin. When Clear Channel invested in XM, Chairman and then-CEO Lowry Mays said it did so with an eye toward "exploring ways of complementing our existing assets to produce value for our shareholders." In other words, it must have seen a growth opportunity for itself in satellite radio. But since that time, XM has taken its music channels commercial-free, and satellite radio has grown into a major competitor that may actually threaten the future of traditional radio.

Now that those old invisible airwaves aren't so crackling with life anymore, thanks to XM and ad-free satellite rival Sirius Satellite Radio (Nasdaq: SIRI - News), Clear Channel may be trying to undermine XM's business model and/or competitive advantage. Sure, Clear Channel might just be innocently trying to claim what it believes it is duly owed, but it might also be thinking that if it can force XM to carry ads, then subscribers might cool to the notion of paying for the same kind of radio service they can already get for free.

If that's Clear Channel's intent, it's a strategy sure to fail. Even if it's not, forcing the XM issue like this won't win the company any new friends. Clear Channel has created an impressive list of critics and outright enemies for itself over the years. Aside from the well-documented political and ethical issues that many have with the company, music lovers are painfully aware of the role Clear Channel has played in sucking the life out of terrestrial-radio playlists. In between ad bombardments, you have to listen to the same top 30 hits, over and over and over, on virtually every Clear Channel pop and country station across the dial and across the nation.

Traditional radio still may command far more listeners than satellite does, but the 9 million-plus subscribers (and counting) that XM and Sirius have collectively signed up in just a few short years says quite a bit about where things are heading. Traditional radio's mind-numbingly homogenous playlists are going a long way toward fueling the exodus, and the lack of ads on satellite doesn't hurt.

I can tell you I didn't subscribe to XM just to avoid commercials, though, and I'll bet that holds true for most subscribers. No, the migration to satellite radio is primarily driven by its variety. Until terrestrial radio can come to terms with this simple fact, its popularity will continue to dwindle, even if it does get its way with a small slice of the outer-space airwaves.

That said, I wouldn't be surprised if adding commercials makes Clear Channel's XM stations a lot less appealing. As soon as an ad pops up, many listeners will probably scurry off to one of XM's commercial-free music channels. And it doesn't help that the music mix on these four stations may not be all that compelling to begin with. Consider this: One of the presets on our XM radio is the Nashville channel. When I told my wife, the country music fan in the house, that Nashville will be one of four XM channels running ads under the arbitration deal (Sunny, Kiss, and Mix will reportedly be the others), she said she probably wouldn't listen to it anymore, because it repeats songs too much anyway. Instead, she says, she'll focus on the ad-free Highway 16 channel; according to her, it already serves up a more varied banquet of Southern-fried music.

Granted, that's just one anecdote, but it can't be an isolated incident. It may be further testament to how terrestrial radio is chasing away listeners with its narrow, uninteresting playlists -- especially now that there are so many other attractive alternatives out there.

Rival Sirius will probably have a field day with this development, since it can now claim to be the only satellite-radio service with 100% ad-free music. But give XM credit for not taking this development lying down. It's launching four new commercial-free music channels -- two of which are already up and running -- in a move that will keep XM's ad-free music-channel count slightly ahead of Sirius', so that XM can at least still boast about having the most commercial-free music.

Let Clear Channel have its stubborn way with XM. As soon as those ads start to run and the playlists get dull, listeners will remember why terrestrial radio is dying a slow, painful death in the first place.

XM is a Motley Fool Rule Breakers recommendation.

Fool online editor Adrian Rush still uses terrestrial radio -- as a tuner for his car's XM receiver. He and his wife split most of their listening time between Music Lab and Highway 16, but at least they both enjoy the Fine Tuning channel. He has no financial stake in any of the companies mentioned in this story. The Motley Fool has a disclosure policy.
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Old 03-13-2006, 01:36 PM   #2
adam28577
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Old news.


They still have more music channels that are commercial free than Sirius and that will be their new selling line I'm sure.
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