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Old 03-29-2005, 11:45 PM   #1
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Default WSJ: Two Upstarts Vie For Dominance In Satellite Radio

WSJ has a new story about Sirius and XM in Wednesday's paper.

Sirius and XM have a lot of unfinished business amid a fight for supremacy in the satellite-radio industry. Racing to win control of an embryonic new medium, the two have followed sharply different paths: XM has cut extensive distribution deals and offers distinctive technology while Sirius is amassing a trove of exclusive content. Both want to lure listeners away from regular radio broadcasts with subscription services offering more than 100 channels.

Click here for the full story. (The link will be valid for 7 days.)
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Old 03-30-2005, 12:25 AM   #2
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WSJ - Two Upstarts Vie For Dominance in Satellite Radio,,SB1...492809,00.html

Two Upstarts Vie For Dominance In Satellite Radio
Sirius Gets Exclusive Content, XM Looks to Technology;
Both Woo Big Auto Makers
Signals From 'Rock' and 'Roll'

March 30, 2005

At a Las Vegas news conference in January, a man standing on the sidelines kept interrupting Sirius Satellite Radio Inc. Chairman Joe Clayton. "Can't hear you!" the man yelled. "Louder!" Finally Mr. Clayton faced the heckler and boomed, "Shut up!"

At the end of his speech, Mr. Clayton told the crowd he had unfinished business with his "friends in the hall." It turned out Mr. Clayton's nemesis was a friend of Opie and Anthony, hosts of a morning show aired by rival XM Satellite Radio Holdings Inc. Hugh Panero, XM's chief executive, later called Mr. Clayton to apologize.

Sirius and XM have a lot of unfinished business amid a fight for supremacy in the satellite-radio industry. Racing to win control of an embryonic new medium, the two have followed sharply different paths: XM has cut extensive distribution deals and offers distinctive technology while Sirius is amassing a trove of exclusive content. Both want to lure listeners away from regular radio broadcasts with subscription services offering more than 100 channels.

XM has an early lead. Because of its deals with auto makers, more new cars are automatically equipped with XM radios instead of Sirius's service. XM has also been first to offer consumer-friendly devices such as its MyFi unit, a hand-held device that allows users to take satellite radio wherever they go.

Sirius, which stumbled in some early battles over technology, is now trying to close the gap by paying rich sums for exclusive programming deals with the likes of radio host Howard Stern. Sirius lured Mr. Stern from Viacom Inc.'s Infinity Broadcasting with a package valued at $500 million over five years. Sirius has also made splashy deals with the National Football League and other sports organizations.

When satellite radio launched, few thought consumers could be persuaded to pay for a service that was similar to what they already got free. But the services' high-quality programming and minimal commercial interruptions have been a strong lure. XM and Sirius have signed up more than four million subscribers who pay $12.95 a month. That's tiny compared with the total universe of 229 million radio listeners, as measured by the ratings service Arbitron Inc., but double the number of subscribers compared with a year ago.

So far, XM is running ahead with 3.2 million subscribers to Sirius's 1.2 million, although Sirius is narrowing the gap. The companies say publicly there's room for two players but some analysts disagree. Both sides acknowledge, and downplay, the other's strengths.

"They today are the technology leaders," acknowledges Mel Karmazin, Sirius's chief executive, talking about XM. "We are the content leader." XM executives say relying too much on big stars could backfire. "In pop culture, people come and people go," says XM CEO Mr. Panero.

Both companies are on the verge of reaching a critical mass of subscribers and are trying to shore up their weaknesses. XM recently made a $650 million deal to air Major League Baseball games for the next 11 years. That's a departure from its typically flinty approach and stems from XM's belief that baseball is a bigger draw than other sports.

Sirius is pushing for the development of satellite-radio receivers capable of accepting signals from both companies. It's also developing smaller radios with new bells and whistles including models that could perhaps double as digital-music players.

Sirius was founded in 1990. For years XM, founded two years later, bumbled along behind its rival. Sirius was first to apply to the Federal Communications Commission to launch satellite-radio services and had all three of its satellites in orbit by the end of 2000. At that time, XM had launched none.

In 2001, Sirius lost the lead. Investors learned that its chipsets -- key components in radio receivers that convert signals to sound -- weren't going to be ready in time. Sirius would have to work with an inferior chipset technology in its first radios. Throughout 2001, the company said its service would be ready by the end of the year only to renege in October, when it said the service would be launched the following year.

Meanwhile, XM's two satellites, named Rock and Roll, went into orbit in early 2001. The company designed chipsets in-house and persuaded consumer-electronics companies, including Pioneer Electronics Corp. and Sony Corp., to build the receivers. It launched nationwide service in November 2001 and six weeks later had almost 30,000 customers. Sirius didn't hit that level for another year.

One of XM's most popular products was its Plug & Play radio unit -- a portable satellite receiver made by Sony that could be hooked up to both car and home radios.

Sirius spent months talking up its own Plug & Play unit. When its service launched in mid-2002, executives said it would offer a Plug & Play within months. At the end of the year, they shifted the timetable to the middle of 2003.

In October, CEO Mr. Clayton slashed Sirius's estimated year-end subscriber numbers in half and blamed, in part, the lack of a Plug & Play. Sirius had a Plug & Play on the market almost one year after its launch. By then, XM had almost 700,000 subscribers to Sirius's 105,000.

XM also had a major advantage in its relationships with auto manufacturers. For example, it's paying General Motors Corp. about $440 million, depending on sales, to be its exclusive satellite-radio partner until 2013. GM has other incentives to help XM. It financed XM's two satellites and took a stake in the company. GM executives figured XM would complement OnStar, its popular navigation and security service.

When XM rolled out, GM ensured that satellite radio was a factory-installed option on 2002 Cadillac Sevilles and DeVilles, meaning it was bundled with other options and was an easier sell to consumers. GM also factory-installed XM on 25 of its 2003 models, ranging from Cadillacs to Chevrolets. GM and other auto partners also sold XM's service at their dealerships.

Sirius had BMW AG, DaimlerChrysler AG and Ford Motor Co. in its camp. Until recently these companies mostly offered satellite radio through dealers, meaning customers had to request it and pay a few hundred dollars extra for installation.

DaimlerChrysler was a Sirius investor, but its commitment was lackluster. Its first factory-installed Sirius radios were available on only a couple of models. "You guys are not getting it done," one investor complained during Sirius's annual meeting last year. Mr. Clayton, then CEO as well as chairman, promised to "pick up the pace." Late last year, DaimlerChrysler expanded its factory-installed program and Ford said it would start installing radios at the factory for the 2006 model year.

XM is already on its third generation of chipsets, an advantage that has helped it quickly introduce popular products like MyFi, which users can take jogging or in the car. Sirius won't have anything similar ready for months. XM's Mr. Panero has also focused on getting his service integrated into more consumer-electronics devices. His engineers have invented a chip that converts any stereo or similar device into a satellite radio if consumers add the right antenna.

Because it has fewer products on the market, Sirius picked up about 45% of sales outside of car dealerships for the year ended Feb. 28, according to research group NPD Group Inc., compared with 55% for XM. That's an improvement on Sirius's previous performance.

To catch up further, Sirius is hoping for help from a new generation of products that can work with both services. That would help blunt XM's technology lead and let Sirius compete on the battlefield it prefers: content. The FCC has mandated that XM and Sirius design a radio that would work with both signals; a team from both companies is currently developing one. Sirius CEO Mr. Karmazin, the former president of Viacom, calls the device "promising," but says it's at least a year or two away from deployment. XM executives agree. Even when such a product is ready, car makers will still be bound by their existing exclusive contracts.

Having fallen behind in certain areas of technology, Sirius is banking on offering better entertainment. In addition to Mr. Stern, it has signed hip-hop star Eminem to produce a station, Shade 45, named for his Shady Records label. Last month, it said rapper 50 Cent would be joining him to oversee Saturday programming. Sirius recently launched a radio station called Maxim, affiliated with Dennis Publishing's men's magazine, featuring banter about women and sports. Sirius's Faction channel features a mixture of talk, hip-hop and rock music hosted by sports icons such as skateboarder Tony Hawk and cyclist Lance Armstrong.

Last month, Sirius swiped the Nascar racing franchise from XM, which has the broadcast rights until 2007. Sirius says it paid $107.5 million for the five years through 2011. That compares with the $15 million XM paid for its five-year deal, according people familiar with the matter. Sirius also airs National Football League games, a seven-year agreement costing $220 million.

A major goal for Mr. Karmazin is to beef up advertising revenue at Sirius. Music stations on Sirius and XM are advertising-free, but talk, news and sports stations run commercials. That, in turn, will allow Mr. Karmazin to further develop programming, which he says will allow satellite to fight off fresh competition, such as Internet radio for cars. "It all gets down to content," Mr. Karmazin says.

XM has made big content pushes of its own, but without the splashy pricetags. It hired public radio's Bob Edwards to host a morning show, developed its own in-house kids channel and broadcasts some exclusive college sports. Music stars Tom Petty, Snoop Dogg and Quincy Jones oversee various shows.

The two companies are carving out different strategies in music, too. Eric Logan, XM's programming head, says his service's playlists are generally broader and its DJs typically talk less.

Sirius says it needs to offer more than just songs. "I don't want to compete with iPods," says Steve Blatter, head of music programming at Sirius, referring to the talk-free stream of music consumers can hear on digital players. "If we're just a jukebox, we're much more vulnerable."

Sirius executives love to poke fun at XM's location, which is in a renovated printing plant in a rundown part of Washington, D.C. Sirius says its posh digs in Rockefeller Center, one of Manhattan's premier business addresses, are worth every penny because they lure more artists for live on-air concerts.

XM's Mr. Panero, who won about $8 million in tax breaks for moving into his building, takes a different view. "We felt the best way to build a business was to be a little bit more frugal," he says.

Write to Sarah McBride at sarah.mcbride@wsj.com1
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Old 03-30-2005, 09:43 AM   #3
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Wow. That was a great article. I loved getting a brief history of both companies. It was also good to see the different strategies each company is taking. Very informative, thanks.
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Old 03-30-2005, 12:02 PM   #4
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Great article!! Sat Radio articles are appearing in the WSJ often, thats a strong sign of how mainstream this will be.

I think Sirius is setting itself up properly, content first! Consumers are the boss and will make their own decisions, can't imagine anything more important then content!

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Old 03-30-2005, 10:04 PM   #5
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Well, my two cents: What is the point in having a shiny, new ultra high-tech device that cannot give me Adam Shine and John Riggins?

Sirius' technology works just fine - just give me something I want to listen to!
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