What's Stalling Satellite

XM and Sirius Merger Won't Solve Category's Problems

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NEW YORK (AdAge.com) -- Last week, Sirius CEO Mel Karmazin and XM Chairman Gary Parsons made headlines by planning to combine their companies' assets into one satellite-radio conglomerate. But getting approval from the Federal Communications Commission is just one of the hurdles satellite radio faces. Even as one company, satellite still needs to compete in an audio market that includes HD formats, MP3 players and podcasts. Here are five challenges that still need to be dealt with:
XM's Gary Parsons and Sirius' Mel Karmazin
XM's Gary Parsons and Sirius' Mel Karmazin Credit: John Harrington

1. Short on listeners

Even if the two leaders merge, satellite's stake in the overall audio market is small. Sirius and XM would reach a combined 15 million subscribers in 10% of U.S. households and roughly 7% of vehicles. Compared with the 39 million iPods sold in 2006 and the 223 million people terrestrial radio reaches each week, the companies have a way to go before they're on par with their competitors.

2. Show us some reach

Satellite has yet to demonstrate proven audience reach. "If you want to be considered mainstream or part of the major radio advertisers' budget, you need to have audience size," said Natalie Swed Stone, OMD's director-national radio. More geographical diversity outside major markets would help too, said Sue Johenning, local-broadcast buyer for Initiative.

3. Is merger justified?

Consumer groups aren't sure one company is better than two. "They may be talking about failing firms. How about idiot managements?" said Mark Cooper, research director for the Consumer Federation of America. High pay packages for talent and inability to get monthly fees for new subscribers shouldn't be justification for a merger, he added.

4. Tough to gain loyalty

Format loyalty is hard to instill -- or break up -- among consumers in the audio market. With HD and MP3 players all gunning for the same device purchases as satellite, getting into consumers' heads as a top priority will be key for satellite's growth.

5. Bring advertisers onboard

Some national advertisers still aren't buying radio. And satellite's barriers to entry (lack of ratings, some commercial-free programming) aren't likely to change that. "If the satellite-radio industry is able to be one operator, they can do anything they want on price in terms of charging for advertisers, and the consumer's going to get ripped off," said Peter Smyth, president-greater media and chairman of the Radio Advertising Bureau.
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