Move over, AM and FM

Innovation: A satellite radio company has brought to Baltimore its pay-radio concept, offering 100 stations. A third are commercial-free.

November 20, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

No one's going to pay for cable as long as TV is available for free. The only people with cell phones will be doctors and lawyers. Who would ever buy anything over the Internet? It's too insecure.

XM Satellite Radio Holdings Inc. hopes its epitaph is as precise.

Representatives of the Washington-based company were in Baltimore yesterday to unveil their new pay-radio subscription in Maryland. After launching its service in San Diego and Dallas in September, the company has embarked on a 25-city "Power of X" tour, which will culminate in New York and Seattle next month.

XM's service works like this: A consumer buys a satellite radio, which can run $300 or more, then subscribes to XM's lineup of 100 stations for about $10 a month. One-third of the stations are without commercials, the rest carry about one-quarter as many ads as a regular radio station.

"The technical risk is gone. The product works," said John Stone, an investment analyst with Ladenburg Thalman & Co., who tried it on a car trip this month from Los Angeles to New York.

"What's not resolved yet is whether people are really going to buy this. Even if they do, XM does not have enough cash to get them to break even, so they'll have to go back to the financial markets and raise more."

XM reported a loss of $65 million for the quarter that ended Sept. 30, three times more than for the comparable period in 2000.

Its only direct competitor on the horizon is Sirius Satellite Radio Inc. of New York, which announced last week plans to begin service in February. Sirius' subscription will cost a few dollars more per month than XM, but will be commercial-free.

Several big names in corporate America are betting that the technology will be a hit. General Motors Corp., American Honda Motor Co. Inc., Clear Channel Communications and satellite television provider DirecTV all have investments in XM.

Well-known makers of audio equipment - Pioneer, Sony and Alpine - are manufacturing its satellite radios, including a portable version that can be moved between vehicle and home. Mass media as varied as Popular Science and Time magazines have declared the product among the top innovations of 2001. And major retail chains, including Best Buy, Circuit City, Radio Shack and Tweeter Home Entertainment, have begun devoting sizable chunks of showroom space to the product.

"There has definitely been a lot of consumer interest," said Jennifer Mullen, a Circuit City spokeswoman in Richmond, Va. "We've been pleased with the reception."

What remains to be seen is whether enough people want to shell out several hundred dollars to get a broader selection, digital-sound quality and fewer commercials - can XM convince enough people they need a newer radio format than the one they've listened to for a half-century? The marketing challenge was made more difficult by the Sept. 11 terrorist attacks, which hurt the economy and caused XM to halt its introductory ads which showed, unfortunately, musicians falling from the sky.

At a demonstration yesterday at the Radisson Hotel at Cross Keys in Baltimore, company executives provided "test drives" of the service. The 100 stations include everything from BBC World News to Mandarin Chinese music to an all-NASCAR format to a station that plays only soundtracks and sound bites from movies. Pat DiNizio, leader of The Smithereens rock group, helped XM create a station that plays nothing but selections from unsigned artists.

XM boasted what it called the first nationwide, uninterrupted broadcast of a World Series several weeks ago.

The company hired about 200 engineers and disc jockeys in Washington to provide round-the-clock content for its service.

"Eric Clapton recorded something like 300 songs, but all you ever hear is `Layla.' We have 1.5 million songs downloaded, and I don't know if anyone has 1.5 million songs in their CD collection," spokesman Charles T. Robbins said in Baltimore yesterday. "These are 100 living, breathing radio stations."

Stone, the investment analyst, predicts that the company will have 75,000 subscribers by the end of this year and 250,000 by spring. The company declined to provide subscriber estimates beyond saying more than 100,000 satellite-compatible radios will be in stores by the end of this year.

But XM is burning through about $1 million a day and will be out of money by spring if it can't raise more, perhaps through a bond or stock offering, Stone said.

XM's shares closed up 75 cents to $9.55 on the Nasdaq stock market yesterday. It has rebounded the past month after dropping below $5 earlier this fall, although the stock has not come near its 52-week peak of $28 about a year ago.

The history of satellite radio has parallels in the rise of the Internet, a one-time government research tool that became a commercial phenomenon.

Satellite radio technology was developed in Africa years ago to communicate health education across a vast area, Robbins said, but it, too, may be on the verge of an entrepreneurial rebirth.

"People used to ask, `Do you remember when there were only three TV stations?'" Robbins said.

"We hope someday people will say, `Do you remember when there was just AM and FM?'"

Pay radio

XM Satellite Radio's service offers 100 stations, one-third without commercials, the rest with about one-quarter as many ads as a regular radio station.

Content - Music and news for specific audiences, from BBC World News to a station that plays only soundtracks from movies.

Availability - Most electronic retail stores, including Best Buy, Circuit City and Radio Shack.

Cost - Hardware: $300; subscription: $10 per month.

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