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The New Wave in Radio Will Come at a Price

* Will listeners pay to get 50-channel satellite service in their cars? Two new companies are placing sky-high bets that they will.

October 26, 2000|DAVID COLKER | david.colker@latimes.com

Imagine driving from L.A. to New York without changing the channel on your radio. And imagine pushing a button on the dash to deliver the song you just heard straight to your door. Or choosing from more than 100 specialized channels--from around-the-clock rap to 24-7 adult contemporary.

Two companies are each placing a $1-billion bet that radioheads--from music lovers to talk fanatics--will pay for programming that's been free for 80 years. Think of it as the audio version of satellite TV, complete with a huge variety of niche programming, high technical standards and, yes, a monthly fee.

"People will pay for more choice, quality and convenience," said Hugh Panero, chief executive of XM Satellite Radio (http://www.xmradio.com), a Washington-based company scheduled to begin pay-radio service next summer.

Both XM and its competitor, New York-based Sirius Satellite Radio (http://www.sirius.com), plan to deliver 50 channels of music, plus an almost equal number of news and talk offerings. And each plans to charge subscribers $9.95 a month. On both satellite services, many of the channels--especially those devoted to music--will be commercial-free.

For the Record
Los Angeles Times Thursday November 2, 2000 Home Edition Tech Times Part T Page 2 Financial Desk 1 inches; 21 words Type of Material: Correction
A story in the Oct. 26 issue of Tech Times listed an incorrect Web address for Sirius Satellite Radio.
The correct URL is http://www.siriusradio.com.

"We don't have just a classical channel," said Sirius CEO David Margolese. "We have three separate channels: symphonic, chamber and opera."

And although neither Sirius nor XM will provide local news, weather or traffic, their signals will not fade in foul weather or on the open road.

"You could drive across the country and never change channels," Panero said.

But is satellite radio different enough from traditional broadcasting to attract the large number of subscribers--about 4 million for each company, according to analyst John Coats of Salomon Smith Barney--needed to break even? Not surprisingly, the National Assn. of Broadcasters--the biggest radio station trade group--doesn't think so.

"Why would someone pay for something they already get for free?" said NAB spokesman Dennis Wharton. In many major markets, he said, a variety of radio programming is already available.

"The ideal audience for [satellite] service is someone who loves classical music and lives in a holler in West Virginia," Wharton said. "Will it destroy radio as we know it? Not a chance."

Analyst P.J. McNealy of Gartner Group agrees that the cost to the consumer is a major hurdle. "The price could be prohibitive. It's $120 bucks a year, plus the cost of the device," he said.

In new cars, that device will be a three-band radio capable of getting AM/FM/Satellite. The satellite band, which can be controlled by each company through electronic signals, will work only if the subscription fee is paid. (The fact that the band is individually "addressable" by the company could eventually lead to a consumer being able to push a button to order the CD being played).

Ford and GM have both announced that they will be making the three-band radios available for some new models next year, but they've not announced how they will be priced. Discussions have ranged from making them standard equipment on some higher-end models--with perhaps even a one-year satellite subscription thrown in--to the units being an option costing about $150 to $300.

Several manufacturers are also making add-on satellite adapters for car radios, just as they did in the early days of CD players. Pricing for those also has not been announced.

Home units that can receive the satellite services are on the back burner for the most part. Car use is expected to determine whether pay-radio is successful.

Analyst Riyad Said of Friedman, Billings, Ramsey names the pricing of the equipment as just one of the unknowns in this new world of pay-radio. "I think there will be a market for it, but having good programming, good service and good reception--until the services are actually launched, we won't know for sure."

Still, Coats is generally optimistic that there will be enough consumers willing to pay for an alternative to broadcast radio. "We like the concept," he said. "It's for people that like to listen to the radio and are unhappy with the existing service."

That perceived unhappiness among a significant group of listeners is what Sirius and XM are counting on. They are particularly going after niche listeners who want far more specific programming than is generally offered by broadcast radio.

"Some of the hottest-selling music is rap and metal, but you can't find it on the radio in a lot of places in this country," Panero said.

"I grew up in New York listening to Jonathan Schwartz play Sinatra. That station knocked off his format and later turned to talk. Right now, there is no station in the city where you can hear Sinatra sing, 'New York, New York.' "

Pop hits will get eight channels on Sirius, including one for each decade from the 1950s through the 1990s. In addition, the service will transmit several rock-related channels.

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