Sirius XM should dump satellites for the Web.

Innovation, the Internet, gadgets, and more.
Feb. 12 2009 5:08 PM

Satellite Diss

Sirius XM bet on a losing technology. Here's how the company can save itself.

Howard Stern. Click image to expand.
Howard Stern 

Satellite radio is falling out of orbit. Sirius XM, the product of a merger between America's founding satellite radio companies, is reportedly unable to meet a $175 million debt payment due at the end of the month. It has hired bankruptcy advisers and has been talking to satellite TV companies about a possible takeover.

None of this is surprising. Though many of Sirius XM's problems have been exacerbated by the economy—the company loaded up more than $3 billion in debt with the expectation that cheap credit would remain plentiful—satellite radio has always been an idea out of step with the times. Like print newspapers, travel agencies, and record shops, Sirius XM offers what seems like a pretty great service—the world's best radio programming for just a small monthly fee—that has, in practice, been eclipsed by something far cheaper and more convenient: the Internet.

Go online and you can find just about any music or talk show that you want. It's pretty much all free, and it's computationally personalized to suit your tastes. You can get these services on the go, too. Apple's iPhone, Google's Android platform, and other smartphones can stream a huge lineup of radio content through cellular networks. There are still many hiccups—3G wireless networks don't yet blanket the nation nearly as well as Sirius XM's seven geosynchronous satellites—but Internet radio's reach is sure to expand. Indeed, it's already mesmerizing: Load up a program like Pandora or the Public Radio Tuner on your iPhone, plug it into your car's audio-in jack, and you've got access to a wider stream of music than you'll ever get through satellite.

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It's hard to blame entrenched industries for failing to see how new technologies might upend their operations. But unlike other business models that were killed off by the digital transition, satellite radio isn't ancient. The dream began in the late 1980s, when Martin Rothblatt, a lawyer, entrepreneur, and satellite enthusiast, began to lobby the Federal Communications Commission to devote a part of the spectrum to radio beamed from the sky. (Rothblatt, who later underwent a sex-change operation and became Martine, now runs the Terasem Movement, an organization that aims to educate the public on "creating consciousness in self-replicating machines.") In 1992, two companies—Rothblatt's, which later became Sirius, and XM—bought licenses to the spectrum, and over the next decade they set about starting extra-planetary radio stations. They launched satellites, developed portable receivers, and built up huge programming facilities. By the time they began operations—XM in 2001, and Sirius in 2002—they were already outdated.

Remember, this was after the advent of Napster—people were already used to getting every song on demand. Sirius and XM found that the only way to convince customers to pay $10 or more a month for radio was to offer exclusive acts. This proved expensive. In 2004, Sirius signed Howard Stern to a $500 million, 5-year contract; in a bombastic press release, Stern called Sirius "the future of radio," and the company declared the move "the most important deal in radio history." Soon after, Oprah signed with XM. Martha Stewart went to Sirius. Besides talent, the companies also spent a bundle on subsidies to automakers to get satellite receivers pre-installed in cars. And, of course, they had to keep running those satellites.

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