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Old 06-27-2004, 01:13 PM   #1
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Default Revolution is in the Air- Chicago Tribune Article

Revolution is in the Air

Tired of commercials, bad music and censorship, 2.5 million U.S. households are tuning in to XM and Sirius radio stations, and analysts say that number is likely to skyrocket by 2010

By Maureen Ryan
Tribune staff reporter
Published June 27, 2004


"No one will ever pay for television."

"No one will ever pay for premium cable channels."

"No one will ever pay for satellite TV."

"No one will ever pay for music on the Internet."

All of those commonly held beliefs have fallen by the wayside in recent years.

And here's the latest bit of conventional wisdom to be spectacularly disproved:

"No one will ever pay for radio."

- - -

Tell that to the folks at XM satellite radio, whose subscribers just topped 2 million.

Between XM and its rival, Sirius, almost 2.5 million American households have satellite radio, and if those relatively paltry numbers don't scare "terrestrial" radio executives, they should.

Users of one satellite radio online discussion board were unsparing when asked why they abandoned free radio for the "HBO" version of it, which costs $10-$13 a month.

"Regular AM and FM where I live is terrible. It's a small-town market with hardly any national programming of talk radio," said one XM subscriber. "Because I hate commercials!!!" chimed in another subscriber. "To hear stuff that FM will never play," added a third.

Nobody's writing traditional radio's obituary any time soon. But half a dozen financial analysts predict that satellite radio will have 25 million subscribers by 2010.

If that number doesn't scare mainstream radio execs, the rumblings of mutiny from one of the medium's biggest names should.

No less than Howard Stern, America's leading shock jock and the self-proclaimed "King of All Media," has been openly talking of making the leap to satellite radio in recent weeks.

Stern has been unhappy since his syndicated show was permanently bounced from six Clear Channel radio stations in April, after on-air comments by Stern led to record indecency fines from the FCC. (Clear Channel settled with the FCC over the Stern-related complaints by paying a fine of $1.75 million and admitting that the content of some of the Stern broadcasts was, in fact, indecent.)

There is also an effort by some in Washington to have more restrictive indecency rules apply to satellite and cable broadcasts.

Unhappy about the resignation of his corporate protector, Mel Karmazin, former CEO of Infinity's owner, Viacom, and dismayed by what he sees as persecution by a newly emboldened FCC, Stern has talked up a move to Sirius or XM as the solution to his troubles.

"I know our days have been numbered," he said on the air in May. "But now our days are really numbered."

Stern is desirable

For their part, executives at both satellite companies say they'd love to sign up the infamous shock jock.

"We're uncensored and we offer true national coverage," XM programming chief Lee Abrams says. "We'd be fools not to" talk to superstars like Howard Stern and Rush Limbaugh, though he notes that both are currently under long-term contracts to their current employers.

As subscription services, satellite radio companies are not subject to the same indecency regulations as terrestrial AM and FM radio, making them the perfect format for an envelope-pushing entertainer such as Stern as well as shock jocks Opie and Anthony and Bubba the Love Sponge. Opie and Anthony and Bubba are currently without gigs but are often mentioned as potential big-name additions to the realm of satellite radio.

Radio executives don't see satellite as much of a threat right now, but if someone like Stern made the leap, that would change the equation. "Now that becomes a big deal," says Bill Gamble, program director of Chicago's WZZN-FM 94.7.

Even if he doesn't go to satellite radio, Stern has sure made all his listeners aware of the medium, which in the past three years has gone from being a George Jetson-esque novelty to being a standard feature on more than 1 million cars in the 2005 model year.

Signing up for satellite radio isn't much different than getting satellite TV. In both cases, consumers must invest in some hardware and pay a monthly fee ($13 for Sirius and $10 a month for XM). Buyers of new cars pre-equipped with one of the services need only pay the monthly fee, but dozens of aftermarket car radios, adapters for standard radios and even boomboxes for home use are now available, starting at about $100 or so.

All the radios get their signals from satellites, so the XM boombox I've been testing out at home has to sit near a window. And though satellite service can theoretically cut out in the car if you hit a patchy coverage area, both companies use "repeaters" on the ground to boost their signals; the Sirius car radio I've been using for several months has only rarely had momentary glitches.

Aside from CD-quality sound, what's drawing folks to satellite radio? Access to more than 100 different channels of news, traffic, talk and music -- and the music channels are all commercial-free.

But satellite radio is banking on far more than diverse tunes and a lack of commercial clutter to draw new customers. Both XM and Sirius recently added channels that feature traffic and weather updates for more than a dozen major cities, a move that the National Association of Broadcasters regarded as a declaration of war.

Violation of the licenses

The NAB alleges that providing local content -- even though each city's traffic channel is available to all subscribers nationwide -- is a violation of the licenses granted to satellite firms by the FCC.

"They pledged all along, ever since they began applying for licenses, that they would not program local content," says Dennis Wharton, a spokesman for the NAB.

But the satellite guys don't sound worried. In fact, they sound almost pleased that they've gotten the attention of mainstream radio.

"The NAB has a tradition of acting as a bully in defense of the incumbent radio platform, which in this case is AM/FM," says XM spokesman Chance Patterson. "We know that we are permitted to provide these traffic and weather channels. The FCC has publicly stated in different forums that we are in compliance with our license."

Both firms have even more ambitious plans to lure subscribers. Sirius, which with 400,000 subscribers is the scrappy underdog, has talked about offering a cartoon channel or a music video channel for the youngsters in the back seat, and customized stock quotes and sports scores right on the radio screen are not too far off in the future.

For its part, XM will soon roll out a premium service called NavTraffic, which uses GPS technology to create a customized map of local traffic conditions on a screen in the subscriber's vehicle. Say you want to drive from Michigan Avenue to O'Hare Airport: NavTraffic will show you what the quickest route is and where the major traffic tie-ups are.

Still, despite all the futuristic extras, despite the NFL games (a Sirius feature) and the NASCAR races (an XM staple), as well as CNN radio, the BBC World Service and dozens of news and talk channels offered by both companies, right now the bedrock of each service consists of dozens of music channels offering consumers an enticing selection of music.

Satellite executives are banking on the fact that consumers fed up with the homogenization of mainstream FM radio will want to pay for something better. Something that makes hearing RJD2, Lucinda Williams or Grandmaster Flash not an aberration but an everyday occurrence.

"It's like radio used to be," says Dave Frey, manager of Cheap Trick, who recently visited XM's in-house studio in Washington, D.C. "The program directors and deejays can play what they want to and they don't have to adhere to a playlist."

"There are so many parts of people's lives that beat them down," says Meg Griffin, a 29-year FM veteran who now works for Sirius. "Radio shouldn't be one of them."

Artists ranging from guitarist Jorma Kaukonen to Willie Nelson to Musiq (Soulchild) have become big satellite fans, as have promotional folks in the beleaguered record industry.

"XM and Sirius have both become big parts of the radio and promotional plans for our artists," says Zach Hochkeppel, marketing director for Blue Note, home to Norah Jones. "Now that both great [in-house studio] facilities are opened, XM has been an automatic thought any time an artist is in Washington, D.C. . . . . And with Sirius' wonderful NYC studios, it's definitely something we get together for all the NYC-based artists."

Certainly Blue Note artists, and thousands of other hardworking musicians nationwide, have a much better chance of getting airplay on Sirius or XM than they would on terrestrial radio, where big promotional dollars are needed to shoehorn major-label songs into the few remaining slots available for new music.

Making money

Scott Lindy, director of country programming for Sirius, used to work for a Clear Channel station in Baltimore. When he was hired in 1996, he had 23 people working for him. By the time he left, he had 7 full-time staffers -- but the station was making more money than ever.

At many mainstream radio stations these days, Lindy says, "you're working more for an ad-marketing company than you are for a radio station."

That said, the big corporations responsible for radio's recent consolidation make buckets of money. And satellite radio, as yet, does not.

In fact, since XM and Sirius began transmitting in 2001 and 2002 respectively, both firms have flirted with ruin. But Wall Street analysts say both firms are on more stable financial footing now, and the companies say they'll reach positive cash-flow status in 2005.

"If you look at the [negative] headlines from 12 or 18 months ago, both have clearly hung in there past what a lot of people were expecting, and past what a lot of people in broadcasting were hoping for," says Sean Ross, radio analyst for Edison Research.

Subscription signups are strong and getting stronger, especially for XM, whose corporate partners, GM and Honda, will install XM radios as standard equipment in 1.5 million vehicles in the 2005 model year. Sirius' main automotive partners, DaimlerChrysler and Ford, have been slower to make the service a standard feature on new cars, but CEO Joe Clayton says the company's working to change that.

"Today 75 percent of our new subscribers come from retail outlets and 25 percent from automotive programs," Clayton says. "That whole pyramid will invert as we go forward."

In the meantime, Wal-Mart and other giant retailers have recently begun stocking the full range of satellite gear, all of which is getting cheaper every year.

By the end of 2004, nearly 4 million Americans will have subscription radio, according to industry estimates; many business analysts predict that by 2010, 25 to 30 million Americans will have signed up for the service.

But those are just estimates. Will consumers actually peel themselves away from their iPods, Xboxes and computers long enough to check out the $100 satellite boomboxes at Best Buy -- let alone pay a monthly fee for the services?

Sirius' Clayton has heard the naysaying -- "Thinking about satellite radio? The fact is every month, tens of thousands of people who have it cancel it. Maybe they know something you don't" goes a recent ad aired by the Entercom radio chain -- and it makes him laugh.

"That's when you know you've arrived -- when people start saying bad things about you," Clayton says.

Clayton likes to do this math: There are 100 million households in America. Ten years after the debut of satellite TV -- yet another service "nobody would ever pay for" -- 22 million households have signed up for it, according to Clayton, a former satellite TV executive.

But satellite radio has an even bigger market, Clayton says, if you add the number of households in America to the number of vehicles on the road, plus boats, RVs, heavy trucks, workplaces and stores. The way he sees it, there are 350 million potential satellite radio accounts out there. And if satellite radio gets significant chunk of that market, Entercom execs will be eating their hearts out.

But Tom Taylor, editor of Inside Radio, says those satellites in space aren't the only things worrying radio executives back on earth.

Yes, FM and AM radio listenership is down, says Taylor, "but so is TV viewership, so is newspaper readership -- it's easy to focus on radio without noticing there are just so many more options and only so much time in a day, especially for young people."

As threats go, wireless broadband Internet access looms almost larger than satellite radio.

"Wouldn't you love," Taylor asks, "to be able to drive down Clark Street or Wacker Drive and get the entire Internet in your car," including all its radio stations?

But what Internet radio station could afford Howard Stern?

Though his current Infinity contract is reported to pay him $20 million or more, and despite the fact that satellite firms are still losing money, the smart betting says that if Stern became available, one of the companies would somehow find the cash to bring the King of All Media to their airwaves.

And even if they don't do that soon, those satellites in the sky have at least managed to shake up the radio industry here on Earth.

"[Radio execs] are just like the cable guys were 10 years ago" when satellite TV came along, says Jimmy Schaeffler, subscription-services analyst for The Carmel Group. "They just don't get it -- they need somebody to help wake them up."

"Now the real concern [radio execs] have is that satellite has created a quantum leap in quality but more importantly a leap in terms of the level of content," Ross says.

Maybe it's just a coincidence, but on June 15 -- the day after XM announced it had signed up its 2 millionth customer -- Chicago's WRZA-FM 99.9 relaunched itself with the anti-corporate slogan "we play anything." The new Nine FM, which is what WRZA is now calling itself, promises to limit commercials to no more than nine minutes an hour, and claims to play an eclectic mix of music that recalls the glory days of WLS-AM in the '70s and WXRT-FM in the '80s.

"I'm not a person who's going to be all doom and gloom and say that satellite radio is going to kill terrestrial radio," says Harvey Wells, the Chicago radio veteran who helms the WSCR Radio Group, WRZA's owner. "I still believe in radio that's free and easily available and ubiquitous, and I believe that radio can serve a real purpose. We just need to get back to the roots of creativity."
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