With Stern on Board, Satellite Radio Is Approaching a Secure Orbit

2005.12.18

Howard Stern marked the final day of his syndicated radio program last Friday; his Sirius programming is to begin Jan. 9.

In the year since the Stern deal was announced in October 2004, XM, the industry leader, doubled its subscribers to five million. Meanwhile, Sirius subscribers increased to 2.2 million by the third quarter of this year, up from about a million at the end of 2004.

The growth has, in part, been attributed to the "Stern effect," according to company officials and analysts. "Howard Stern has raised the awareness of the entire satellite radio category," said Hugh Panero, XM's president.

Sirius expects to have more than three million paying customers by the end of this holiday season - though that is still only about half as many customers as XM expects. Both companies have also recently introduced service in Canada.

The mainstreaming of satellite radio, the companies hope, is just around the corner.

A new generation of portable satellite radio receivers - many being heavily marketed this holiday season - has helped to raise consumer interest. The smaller devices make it possible for subscribers to listen in the house and even while walking down the street.

Both XM and Sirius subsidize the cost of many of their portable units, which can be used at home as well as in cars. Some sell for as little as $30.

Sirius is also marketing a small device that combines radio with an MP3 digital music player.

Later in 2006, new devices are to enable XM to be played through a wide variety of home entertainment systems, company officials said.

As they try to lure users with smaller, handier receivers, the two companies also face the tough challenge of differentiating their brands in the minds of consumers, who may well consider them interchangeable.

Each service charges a $12.95 monthly subscription fee (XM raised its price last March from $9.95), and each offers scores of commercial-free music channels. The Sirius service has 120 channels and XM has 160.

"The music on both is pretty much the same," said Michael Goodman, an analyst with the Yankee Group. "It's the N.F.L. and Ellen DeGeneres that builds a brand in the market, not 30 channels of rock music."

The competition for exclusive programs is heating up as the market grows, with the expensive bet on Mr. Stern being only one well-publicized move.

Sirius holds the exclusive satellite radio transmission rights to N.B.A. and N.F.L. games, as well as English League soccer, and it is to broadcast Nascar races in 2007, once XM's rights to those events expire.

Martha Stewart has her own Sirius channel - Martha Stewart Living Radio - and Bill Bradley is featured on a Sirius program. The company has also moved to reach specific audiences; it rebroadcasts the Catholic TV network, EWTN, and it offers a channel for gay, lesbian and transgender listeners, called OutQ.

Sirius executives say they need to attract and keep an additional one million subscribers over the length of Mr. Stern's five-year contract, which industry experts say should not be difficult given recent growth.

Sirius "will clearly hit that million and do better than that," said Jason Helfstein, an equity analyst with CIBC World Markets, who has outperform-speculative ratings on both Sirius and XM stock. For its part, XM said last week that Bob Dylan would be host of a weekly music program. It has signed Snoop Dogg to produce shows on a rap channel. In October, it began rebroadcasting Ellen DeGeneres's syndicated TV show.

Starting in January, XM listeners are to receive custom news reports from the hosts of "Good Morning America" on ABC. In addition, XM is broadcasting 2,400 Major League Baseball games each year, paying $650 million for 11 years.

For now, satellite radio's most important market remains the automobile. Typically, customers ordering a new car with a satellite radio receiver also get several months of free service.

XM, which holds the advantage in the auto market, has exclusive distribution agreements with GM, Honda and Hyundai. Toyota is to offer factory-installed XM radios beginning next year. And by 2007, XM is to be the exclusive provider to Nissan.

Sirius has exclusive agreements with BMW, DaimlerChrysler, Ford and some Ford-owned manufacturers, as well as Mazda and Mitsubishi. Some automakers offer both satellite services as options.

Whether the Stern deal will help make Sirius the top satellite radio service remains unknown. But company officials are playing down that question. "We do not need to have greater subscriber numbers to be profitable," Mr. Collins said. "We're like Pepsi compared to Coke."