More listeners are tuned to digital satellite radio



One format is available through more than 110 stations nationwide.
KNIGHT RIDDER NEWSPAPERS
ORLANDO, Fla. -- Sofyan Alif fiddled with the buttons of a colorful car stereo at Circuit City last month, doing research for his next big purchase.
The recent high school graduate wants a radio packed with features. He's flexible, with one exception: It must be ready to receive digital satellite radio.
"About 75 percent of my friends have satellite sets," Alif said. "No matter what you want to listen to, you can find it. And there aren't any of those stupid commercials to interrupt the music."
Satellite radio's audience is mushrooming. In less than three years, XM Satellite Radio Holdings has signed more than 2.1 million customers, who pay $9.99 a month to listen to 120 channels of music and talk. Its smaller competitor, Sirius Satellite Radio, has about 400,000 subscribers at $12.95 a month.
Digital format
Yet just as the two companies see hope for a profitable future, new earthbound competition is taking shape. HD radio, a digital format that brings compact-disc sound to FM broadcasts and allows AM stations to offer stereo programming, is now available through more than 110 radio stations nationwide.
The company behind the technology -- iBiquity Digital Corp. -- says another 300 stations are licensed to add digital. Still, that's just a tiny fraction of the 13,000 radio stations in the United States.
The move by satellite and terrestrial radio into the digital era promises to change the oldest broadcast medium. Digital broadcasts allow stations to offer more than sound -- radios equipped with small displays can identify songs and give listeners a visual glimpse at traffic conditions. Analysts expect the applications to increase as the formats go mainstream.
The cost for conventional radio stations to add a digital format is paltry compared with the hundreds of millions of dollars that the satellite companies have invested in their systems. A terrestrial station can install digital equipment for less than $100,000 in most cases. Stations are able to use the same frequencies for digital that they have always used to broadcast, and they can continue to transmit analog signals for years to come.
Nevertheless, industry watchers say satellite radio still has a strong chance for success. For satellite, the key to growth is content. Both XM and Sirius offer rich arrays of commercial-free music -- every major genre has a channel, and songs that are never heard on commercial stations are standard fare.
"Even in major metropolitan markets where you have 30 or 40 [broadcast] stations, there aren't many genres," said Michelle Abraham, senior analyst with In-Stat/MDR, a technology research firm. "You might have one local jazz station, but with satellite, you have several channels that each offer a different kind of jazz."
Subscription fee
Since satellite radio isn't regulated by the Federal Communications Commission, XM and Sirius don't have to adhere to government decency standards. Faced with those standards and worried about FCC fines, Clear Channel Communications decided last winter to drop radio talk show host Howard Stern from stations. Speculation flew that Stern might move his act to satellite, where his show's sexually explicit content wouldn't face FCC scrutiny.
But for its rich array of music and talk, satellite radio has a distinct drawback -- the monthly subscription fee. Terrestrial digital radio will remain free, albeit laden with commercials.
"Not everyone wants to pay for a subscription," said Jeff Jury, chief operating officer of iBiquity, which developed the technology for terrestrial digital. "The difference between terrestrial digital and satellite is very much like the difference between basic and premium cable-television channels."
Satellite offers a wide and growing range of programming that can be heard everywhere at once. XM and Sirius like to remind potential customers that they can drive from coast to coast without ever changing the station.
The transition to HD radio will likely take many years -- iBiquity expects a complete conversion to take 12 years. Analog radios will still work even after stations install digital equipment, and it might be a long time before enough stations have added digital broadcasts for the consumer market to covet the replacement equipment.
"It's going to be like the moving from black-and-white TV to color," Jury said. "Black-and-white sets still work, but today the market demands color."
April Horace, emerging-technologies analyst with Janco Partners in Denver, doesn't expect a rush to HD radio. But she said it will gradually proliferate, and is certain to become the standard -- eventually.
"It's a chicken-and-egg issue," she said. "Will someone want to pay $300 for a radio to listen to one station?" Conversely, will radio stations race to add digital broadcasts if few listeners have compatible receivers?
Making the switch
For both satellite and terrestrial broadcasters, the challenge is persuading listeners to take a leap. XM, which preceded Sirius into the satellite-radio market, has made the greatest strides. XM has deals with Honda and General Motors to install satellite-ready radios in some of their new cars.
GM expects to install 1.1 million of the radios in its 2005 models, while Honda plans to deploy 400,000. Sirius, which offers more than 120 channels, also has agreements with an assortment of automakers, giving buyers the option of having Sirius radios installed in their vehicles.
Both companies are scrambling to find new distribution channels. Later this year, low-cost carriers AirTran Airways and JetBlue will offer XM broadcasts to their passengers. In May, Sirius and EchoStar's DISH Network announced that Sirius' programming would be pumped to 9.7 million DISH customers at no extra cost.
Ultimately, the companies are looking for paying customers, the majority of whom listen to radio while driving. To that end, Sirius said in July that Advance Auto Parts, the nation's second-largest car-parts chain, would begin selling one of its receiver models at more than 2,500 stores nationwide.

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