WASHINGTON — With a bluster reminiscent of high-tech boom years, Hugh Panero, president of XM Satellite Radio Holdings Inc., boasted recently that his pioneering radio service had signed up 30,000 subscribers since launching Nov. 12.
That's 30,000 down and at least 4,970,000 more to go.
Although XM is seeing early success, analysts believe that the Washington-based company and its main competitor, Sirius Satellite Radio Inc., each will need 5 million to 6 million subscribers to break even.
That's a long road for any new technology to travel--and it's one fraught with daunting obstacles.
"We are in a time of huge transition in the radio industry," said Tom Taylor, editor of M Street Journal, a radio industry publication. "The next year in radio is going to feel like the late '90s did with the Internet."
The problems facing the satellite companies are many, with the most obvious hurdle being cost. At about $10 a month, subscription fees for the mostly in-car service have some analysts wondering what would motivate consumers to pay for radio when they already get so much of it free.
"The paid-content [media] market is for stuff you can't get free, like movies or boxing," said Michael Tracey, director of the University of Colorado's Center for Mass Media Research. "Maybe there's a niche music market for truck drivers and people who are real music junkies, but there clearly is no mass market."
The satellite radio services also are facing competition from new car entertainment options--from digital radio to in-dash MP3 players, fancier mobile phones and wireless data ventures such as General Motors Corp.'s OnStar vehicle security and travel advisory service.
XM and New York-based Sirius are unfazed by the concerns. "Radio hasn't had a technological innovation in 40 years--since the invention of FM," Panero said. "We want to do what cable television and satellite TV did to the TV world."
Firms See Opportunity in Program Offerings
Executives at both companies believe that consumers--fed up with spotty reception and limited programming--will pay for satellite alternatives that can transmit 100 channels of content such as jazz, country, classical, comedy and talk radio.
Both companies say they may need only 500,000 to 600,000 subscribers to break even. Panero said XM could have 350,000 subscribers by year's end.
"Will people pay for radio? The answer is a resounding yes," Panero said.
The technology that paved the way for XM and Sirius got off the ground a decade ago when the Federal Communications Commission set aside airwaves in the 2.3-gigahertz band for satellite-based radio services. XM and Sirius eventually won FCC licenses to use the spectrum to broadcast dozens of static-free digital radio channels from coast to coast.
XM beams its programming from two Boeing Co. satellites 22,000 miles above Earth. The signals are received by a short, stubby antenna attached to a dashboard-mounted unit capable of tuning regular AM and FM as well as XM broadcasts.
A few models are portable and can be taken out of the car and used indoors.
In addition to airing programming that is mostly free of commercials (Sirius says it will air no ads), both companies said they expect to lure customers by offering CD-quality sound, exclusive interviews with music stars and programming for every conceivable taste.
Sirius, for instance, will offer channels dedicated to bicycling, motor sports and health when it launches its service this month; XM has a Hindu channel and 15 channels of rock and Latin music.
"It's a terrific product proposition for the American public: At the push of a button you have 100 radio stations--most of which you can't get anywhere else," said Joe Capobianco, senior vice president for content at Sirius.
The companies' strategy is to first win the battle for the dashboard, where consumers spend more than $2 billion each year to install about 11 million aftermarket car radios. An additional 17 million radios are installed annually by auto makers.
General Motors, which owns a 6% stake in XM, is offering an XM radio and up to one year of subsidized service as an option in selected car models. That means XM will get a check for about $100 for each vehicle sold under the promotional offer.
Sirius is in partnership with Ford Motor Co., DaimlerChrysler and BMW, among others.
The two companies have worked to trim operating costs by engineering smaller radio chips, encouraging subscribers to pay in advance and sign up for radio service on the Web or directly through car makers.
Utilizing a strategy that made subscription satellite video service DirecTV a success, Sirius President Joe Clayton said his company may try varying the price of its proposed $12.95 monthly service fee regionally to reflect variations in the cost of living.
Still, it is taking mountains of cash to keep the services afloat.
Sirius previously announced that it raised $148 million to help finance operations through the second quarter of 2003.