Alf's Articles

Sirius Gets Serious in Its Pursuit of the Radio Listener

by Alf Nucifora

To this observant marketer who has witnessed the encroachment into the cable TV market by its more customer-friendly satellite alternative, as well as the homogenization, heavy formatting and dumbing-down of local radio by its new corporate masters, the recent growth spurt by satellite radio augers well for the long term revitalization of radio. Recently I talked to Mary Pat Ryan, Executive Vice President, Marketing for Sirius, the up-and-coming player in satellite radio with more than 120 channels of commercial-free music, sports, news and talk. Sirius recently made headlines with the announcement that shock-jock Howard Stern would depart the commercial airwaves in 2006 and bring his program exclusively to the Sirius dial

Q. You're trying to sign up 1 million subscribers…how is it going?

A. Business is good and we are on track to meet that goal. We have surpassed the 600,000 subscriber mark which we accomplished in September.

Q. What do you consider "critical penetration"? When do you hit critical mass?

A. In terms of the category, it's a fairly large number to say the least. There are over 200 million cars on the road today. Our radios work beautifully in those cars. There are 16 million new cars sold every year. You look at those statistics alone and you see a huge opportunity. Plus, our most popular radio is called a "plug and play", which works in the car. You pop it out and you use it in your home. So now we have all these households we can reach. We are also on track to reach our cash flow break-even number which is somewhere around the 2 million mark. That's our next, important break point.

Q. If one accepts the standard that 15% category penetration represents critical mass, that's 35 million radios for the category. How long will it take to reach that point?

A. That's the million dollar question isn't it? Let me put a different perspective on the question. There are 20 million satellite television homes today. That took about 10 years. And there was a competitor…cable. No matter what you felt about cable, as a TV viewer, you already had the option of at least 70 channels to choose from. Now we come along. You've got this medium (radio) that has been wallowing in consolidation and following an advertising revenue model that is not consumer-friendly. And you have two well-financed companies, Sirius and XM, with a really fabulous value proposition for the consumer. Under those circumstances, how high is up? Imagine if Direct TV had launched before cable TV had arrived. That's the real analogy.

Q. Let's talk about the satellite listener. Give me a profile.

A. We see some very happy music lovers out there right now. Our base is mid-to-late 30s, educated, fairly decent income, but mainstream in their demographics. They don't consider themselves super-techie. They do consider themselves fairly eclectic in their entertainment usage.

Q. Are these classic early adopters?

A. No. We're a little more mainstream than that.

Q. Then why are they subscribing?

A. They're frustrated with commercial radio.

Q. Is it the music, the talk, or everything?

A. Music is the #1 driver. #2, we believe, is sports. We carry every NFL game, every week, everywhere. We believe sports will become the next big driver and we have a significant competitive advantage in that area.

Q. Male/female. Is it pretty even?

A. No, it's predominantly men at this point. Not surprisingly. Right now the primary place to get satellite radio is in a consumer electronics store. Not a lot of women are walking in to the car audio section.

Q. In-home or office vs. the car?

A. Most of the listening is in the car, but we're seeing some very good trend signs as far as listening-in-the-home is concerned. As a subscriber to Sirius, you get to listen online for free. We give you a pass code and you can be sitting at work and listen to our music service without the need for a radio.

Q. Ford, Chrysler, GM…at what point do you think they will include satellite radio as a standard feature and not just an option?

A. Across the board…within the next few years.

Q. What will satellite radio do to local radio, particularly the big players like Clear Channel and Infinity?

A. We've seen some changes already. They (Clear Channel) said they were going to reduce the number of commercials they run. They'll improve as much as they can. Maybe some of their programming will get better, but they make their money from advertising.

Q. Will you get to a point where you can provide local content…traffic, weather, etc.?

A. We already offer traffic and weather in the Top 20 markets.

Q. Well then, what competitive advantage will the commercial stations be left with?

A. The only thing they have going for them is inertia. Consumers are busy. They won't have time to go buy a radio.

Q. Or they won't pay $12 bucks a month.

A. Oh, they will. This is a great product. You can get a year of Sirius for about $140. If you think about it, one premium channel of television costs you that.

Q. Will we see more competition or will it remain just Sirius and XM?

A. I think the barriers-to-entry are too heavy. You'd have to launch a couple of satellites.

Q. What's the marketing strategy to snag subscribers? What are the best channels…automotive, boating, RVs, retail electronics, car rental, alliances?

A. The real action is at retail. Guys are walking in to look at new things for their car. They get to listen to it, learn more about it, have it installed, or install it themselves.

Q. Competitive benefits…Sirius vs. XM?

A. We already have a reputation for providing better music channels. We have the NFL, which as I explained, gives you every game, every week during the season. And we have an exclusive NFL radio channel which is all-talk, all-season. You get all of that included in the monthly price. You get to listen free online at no additional cost. Our customer service is 24/7. We have all-day Elvis radio. Original to us, we have a politics channel called Sirius Left and another called Sirius Right. On business, we have FOX, Bloomberg, CNBC, CNN and two channels of NPR, also exclusive to us.

Q. Not to be critical, but XM seems to have garnered more recognition in the marketplace.

A. Yes, there is a higher awareness for XM, but in the retail market where we launched a year after they did, they have a 56% share and we're at 44%. We have no doubt that we will shortly be head-to-head in share, if not the market leader.