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

By Farhad ManjooPosted Thursday, Feb. 12, 2009, at 5:08 PM ET

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In 2006, Daniel Gross argued that both Sirius and XM could lose the satellite radio wars. Doree Shafrir explained how you too can get your own satellite radio show. In 2004, Robert Weintraub explained why Sirius is a sports radio fan's paradise. You can find all of Slate's podcasts here.

Altogether, the economics of satellite radio are ugly: Sirius XM—after a long regulatory review, the companies merged last summer—now pays about $100 million a year to maintain its satellites; about $1 billion on programming and royalties; and about $600 million on various "customer acquisition costs," including discounts and subsidies. For a while, these huge outlays worked—the company has about 19 million subscribers—but dampening car sales have cut its growth rate. Sirius and XM never made a profit, and last fall, the merged company predicted that it wouldn't see its first positive cash flows until 2012.

In retrospect, the most important announcement in the recent history of radio had nothing to do with Howard Stern. Instead, it was Apple's unveiling of the iPod in the fall of 2001. The device didn't look like a radio killer—after all, it couldn't receive any signals. But the iPod could connect to your computer, and your computer was connected to the Internet—so, really, the iPod could get everything. In addition to carrying all the music you could get through your favorite file-sharing app, digital music players spawned podcasts—essentially time-shifted radio—which attracted both talented amateurs and established stars.

Then, with the introduction of the iPhone, the iPod went live. How could satellite possibly compete? Music is the nichiest of all popular arts; the more people a radio station reaches, the more people it's got to satisfy, and the more likely you are to hear stuff you hate. Even with its plethora of channels, satellite is still a one-way, mass-media technology, while the portable Internet allows endless interactivity. Don't like a song? Skip to the next one. Like something? Press thumbs up. That's how Pandora works—over time, the station learns about your tastes, and eventually begins to serve up old songs and new stuff that you can't resist. The Internet allows all kinds of other neat tricks: FlyCast, a radio app for the iPhone that features tens of thousands of both terrestrial and Internet stations, lets you skip back to the start of a talk show if you joined late. You can't do that on satellite.

Despite all of this gloom and doom, the Internet doesn't have to be the death of Sirius XM. If the company can get its debt in order, it might find that the network can be its savior. My advice: Forget the satellites, the special radios, and the huge customer acquisition costs. Instead, focus on your content—and figure out a way to get it to the largest possible audience at very low prices. Sirius XM should make sure that Howard Stern and Oprah and Bob Dylan's Theme Time Radio Hour and the NFL and Major League Baseball are available on every Internet-connected device on the market.

At the moment, the company charges $13 per month for Web access to non-satellite-radio subscribers. (Satellite customers used to get online access for free, but Sirius XM recently started charging $3 a month.) If Sirius XM slashed that price dramatically—which it could afford if it stopped paying off automakers—it would see a huge rise in online subscribers. These people would pay to get Sirius not only on the Web but on their phones. There have long been rumors that Sirius is building an iPhone app; the company ought to make those rumors a reality, plus get its service on Android and the BlackBerry. And be sure to make it the cellular radio app, packed with features that allow for personalization—great enough that people will pay $5 a month for it. Also, start doing podcasts! The Stern show is one of the most pilfered programs online. I'm sure that lots of people trade MP3s of his program because they just don't want to pay for it. But I'm guessing that lots of people would pay $1 for an ad-free version of yesterday's show that they could listen to on the train or at the gym. And I'm sure Sirius XM can come up with a bunch more ideas—once you realize that your potential audience is everyone with a Web connection, the possibilities abound.

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Farhad Manjoo is Slate's technology columnist and the author of True Enough: Learning To Live in a Post-Fact Society. You can e-mail him at and follow him on Twitter.

Photograph of Howard Stern by Neilson Barnard/Getty Images.

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