The biggest development in radio since the popularization of the FM band will begin next month, putting to the test a multibillion-dollar bet that millions of consumers will gladly spend $9.95 a month to hear what they want when they want to hear it without a barrage of commercials.
After years of anticipation and long technical delays, satellite radio will make its debut. Its proponents hope to build an in-the-car radio business on the same sort of consumer demands and frustrations that have made cable television a potent competitor to broadcast TV. Sirius Satellite Radio Inc. of New York is beginning quality tests this month, broadcasting 100 channels of music, entertainment, sports and news, 50 of them commercial-free. If all goes as planned, the fledgling satellite radio industry could present a potent challenge to the nation's 12,000 local radio stations.
"Our objective is to have every car equipped with a satellite radio," David Margoles, the company's chief executive said recently. "When you get used to commercial-free programming, you won't go back."
About two-thirds of the nation's households have cable television.
Satellite radio operators say they will need subscriptions from a small fraction of the nation's 200 million motor vehicles to make a successful business. That won't be easy. The car is not the home, and the dynamic of selling an entertainment subscription service in cars and trucks is unproven.
Furthermore, to make this work, a consumer will have to spend about $200 for a satellite receiver, which dealers would probably install, plus $9.95 a month for the service.
To get consumers hooked, Sirius and a second satellite company, XM Satellite Radio Inc. of Washington, will have to prove that the technology is all they say it is, a nationwide link to high-quality sound that will be clearly reliable in rain, snow, sleet, hail and tunnels.
Then they'll have to get exposure to consumers, which is why they have signed agreements with all major automakers to have satellite radios installed in new cars and sold in major electronics outlets such as Best Buy and Circuit City.
As an inducement, they plan to offer consumers one year of free service much as computer manufacturers offer a year of free Internet service.
Sirius has launched three satellites and is preparing to begin broadcasts of 17 rock and hit music stations, five country, six rhythm and blues, six jazz, five Latin and three classical stations.
In addition, it will offer stations devoted to reggae, blues, New Age and dance music and Christian hits, all commercial-free. Information channels will include Bloomberg News Radio, CNBC, C-SPAN, BBC WorldService, NPR Talk and Public Radio International. The company will broadcast from studios in Rockefeller Center.
A wave of consolidations in the radio industry has raised debt levels of the biggest radio station owners, resulting in a big increase in the number of commercial minutes to pay off the debt. Some industry executives say the ads are angering listeners and creating a potential market for satellite radio.
"The clutter thing is an issue," said Paula Hambrick, president of Hambrick & Associates, a media buyer in Orland Park, Ill. "As advertisers, we have told stations we are less eager to do business with them because of clutter."
At the same time, radio has lost some of its format individuality, as proven popular formats designed to attract a broad audience replace less popular formats.
Detroit and Philadelphia, for instance, have lost their classical music stations.
The threat to broadcast radio is an issue of considerable debate. Radio's clear advantage is that it is free and receivers are cheap. But the overall audience for radio has flattened out.
Compact disc and tape players in cars have stymied radio growth, and satellite radio has the potential of drawing from listeners who have grown tired of commercial clutter and the lack of variety and originality in radio formats.
If satellite radio could attract 10 million subscribers (5 percent of the nation's motor vehicles), it could hurt stations that draw small audiences and heighten the intense ratings competition among broadcast stations.
Jimmy de Castro, a former Chicago radio executive and former chief executive officer of radio giant AMFM Inc. (now Clear Channel Communications Inc.), said satellite radio "will be a nice little business but not a big threat to broadcast radio. It'll be a nit, much like satellite television is to broadcast TV."
De Castro said commercial clutter will not be enough to make satellite radio "compelling." To do that, he said, Sirius or XM would have to hire talent that would make them distinctive, "like paying [radio talk show host] Howard Stern $25 million. Commercial clutter is not enough of a foundation," he said.