Radio's Race to Space (2024)

They are XM Radio and Sirius, two satellite radio companies locked in a space race to get into your car. Touchdown should be early next year.

In 1997, the Federal Communications Commission granted licenses to XM, based in Northeast Washington, and Sirius, in midtown Manhattan, to provide national satellite radio service. The technology works like this: Each company's headquarters will beam radio programs up to satellites locked in orbit over the United States. These will bounce the signals down to your car, where they will be captured by a dish the size of your palm, suction-cupped to your car's rear window. A special radio--standard equipment in many 2001 autos--will convert the digital signal into 100 channels of music, talk, sports and entertainment.

In theory, you could listen to the same station, uninterrupted, driving from New York to Los Angeles. And because both companies transmit digital signals, as opposed to radio's current analog signals, satellite radio should sound better than what you have in your car now, closer in clarity and brightness to a CD.

Both companies plan roughly 50 music and 50 talk stations. Both are well-financed Wall Street darlings, smiled on by analysts and investors. Both have assembled an array of broadcast talent.

And most important, both are laying the same bet: that folks will ignore a century's worth of habit and cough up $10 a month to pay for something that has always been free.

Is it a sucker's bet?

"We believe people will pay for their passions," says XM's chief executive, Hugh Panero, 44, a cable TV pioneer.

Hey--paying for TV seemed like a crazy idea 25 years ago, right?

Renewal in Northeast Washington

XM Radio spent $62 million to renovate and outfit a three-story, 150,000-square-foot former printing plant at Florida and New York avenues NE, across from the FedEx depot at Eckington Place. The roof of the handsome brick building bristles with satellite dishes and antennas, which will beam the XM programs into space. Inside--wedged between missile-size concrete columns and hunkering beneath lofty ceilings--82 prefab studios are being carefully mounted on sound-damping platforms, a light load on concrete floors built to hold printing presses.

"We can have classical music in one studio next to a chainsaw rock-and-roll show and they can't bleed into each other," says Tony Masiello, XM's vice president of broadcast operations, shouting over nearby hammering and sawing.

On Wednesday, XM will throw a party to celebrate the opening of its headquarters, featuring a Union Station concert by Aretha Franklin.

XM is a key tenant in Mayor Anthony Williams's plan to convert New York Avenue from a low-rent blacktop luge into a sleek tech corridor. The city offered tax breaks and changed laws to entice XM to the location, Panero says. Across Florida Avenue, developer Doug Jemal skeletonized a former People's Drug warehouse and is converting it into an office building. On the other side of New York Avenue, the Bureau of Alcohol, Tobacco and Firearms will raise a new headquarters. Anchoring the intersection will be a Red Line Metro station--assuming it gets over federal funding bumps.

Cooking the music at XM is Lee Abrams, generally regarded as the father of the FM album-rock sound, the pioneering '70s format that introduced Top 40 AM listeners to the static-free sounds of Yes, Tom Petty, Steely Dan and the Eagles. Abrams, who has watched once-diverse radio playlists shrink to market-tested hit lists over the past 30 years, says XM's 50 music formats will be a "sonic playground."

For instance: Washington's classic-rock station, WARW-FM (94.7), does well by playing only hits from the '60s to the '80s. On it, you'll hear the Clash hit "Rock the Casbah" but you won't hear the band's lesser-known single, "Lost in the Supermarket."

By contrast, XM will have at least three classic-rock formats, Abrams says, which will burrow deep into the genre's catalogue. One format will play folky rockers, such as Bob Dylan; another will feature heavy rockers, such as Led Zeppelin; the third will spin recent classic rockers, such as U2. Such niches would not be profitable enough for over-the-air stations, because local audiences are too small to support advertising. But because XM and Sirius will broadcast nationally, they will aggregate communities of niche fans.

XM will give channels to Quincy Jones, the famed producer and composer, as well as Yes front man John Anderson. Both will play their own music as well as tunes by other artists. And rocker-hunter-NRA booster Ted Nugent will get his own talk--or perhaps rant--channel, alongside NASCAR, BBC and Radio One channels.

Each of XM's 50 music channels will operate as its own radio station, with its own deejays, music directors, jingles, promotions and, XM hopes, that extra something that rounds out successful radio stations--a characteristic feel. When you tune to XM's traditional country channel, called "Hank's Place," Abrams says: "If you put your nose next to the speaker, it [will] smell like stale beer and Lucky Strike cigarettes."

The Yanni Factor

Both XM and Sirius follow essentially the same business plan, based on a concept that might be called the Unheard Third, or the Yanni Factor. About 27 percent of all music sales comes from musicians--such as new-age keyboardist Yanni--who pack concert halls, rack up CD sales and yet "can't get arrested on radio," says David Margolese, 42, Sirius's CEO. Like Panero, Margolese was an early cable-TV executive. He sank $25 million of his own money into Sirius, formerly called CD Radio.

Because commercial radio is so tightly programmed--limited essentially to the moneymaking talk, rock, country and urban formats--there's little room on the dial for the likes of Yanni. Which is why neither satellite service will duplicate over-the-air radio by broadcasting existing music stations. In other words, you won't be able to drive the Beltway while listening to San Francisco's KFOG. Further--and this is satellite radio's biggest disadvantage compared with what's on the radio now--there will be nothing local about either Sirius or XM. No local traffic, no local weather, no local news or sports--the staples of drive-time radio.

So not only are Sirius and XM betting that disgruntled radio listeners will pay for radio, they're betting listeners will pay for extra radio.

And Yanni alone won't pay the bills. Like commercial radio, both satellite companies will need a goodly number of listeners, not just niche fans, analysts say.

Wall Street satellite analyst John Coates, of Salomon Smith Barney, points to the failure of Washington's Iridium satellite telephone service as a cautionary tale. Iridium, which filed for bankruptcy in August 1999, promised a mobile phone you could use anywhere in the world. Problem was, the phones weighed as much as a brick, cost $3,000 apiece and racked up charges as high as $7 a minute. Soon the company's 88 satellites will descend into "fatal orbits" and spectacularly burn on reentry, providing a vivid night-sky show and a ham-fisted metaphor.

XM and Sirius, on the other hand, offer fairly inexpensive technology that will fit in your dashboard. But, like Iridium, both radio services need numbers: Analysts estimate each company will require about 4 million subscribers to break even in five years.

"This project will be successful based on mass acceptance by the average American," says Coates.

Satellite radio technology is new but not unproven. Britain's Worldspace has beamed satellite radio programming to Africa and the Middle East for nearly a year and plans Asian service soon. Wall Street analysts seem satisfied that early concerns about XM and Sirius technology--specifically, the "terrestrial repeaters" that boost the signals in hard-to-reach areas--have been answered.

The stock performance of one company has mirrored the other over the past several months. Sirius closed Friday at $51 a share, XM at $43. (Sirius stock took a brief dive in late August when factory workers dropped and damaged one of the company's satellites.) XM's Panero attributes the price gap to "the fact that [Sirius] has been public longer and is a little more well known." Sirius has raised a total of about $1.5 billion, XM about $1.1 billion.

Sirius launched its first satellite, built by Space Systems/Loral, from Kazakhstan in late June; a second followed early this month. Two more will follow in the fall. XM's Hughes-built birds, one named Rock and the other Roll, are scheduled for an equatorial barge launch in the Pacific Ocean toward the end of this year.

Sirius successfully tested transmission to its first satellite in late July and hopes to begin service around Jan. 1. XM, which has been hustling to finish its D.C. headquarters, plans to commence service next summer.

Even though Sirius is likely to beat XM to broadcast by half a year, its programs will be largely unheard until the widespread distribution of receivers, which will be standard equipment in some of next year's General Motors, Ford and Chrysler vehicles. (XM radios will be in GMs and Hondas, Sirius's in models by Ford, Chrysler and five other automakers.) Because XM plans to begin broadcasting next summer, both services will effectively hit the air next fall, when the automakers roll out their 2001 models.

And when you buy certain new Fords next year, says Margolese, you'll get a satellite radio and a multi-year subscription to Sirius--whether you want it or not.

"It will come with the car just like power brakes and air conditioning," he says. XM will consider a similar deal. Initially, if you buy a GM vehicle, you'll have to take XM's service; Ford buyers will have to take Sirius's.

To jumpstart widespread distribution of satellite radio, both companies have struck revenue-sharing deals with stereo manufacturers as well as carmakers.

XM has deals with Sony, Alpine, Pioneer, Clarion and other stereo companies; Sirius has allied with many of the same firms. That's no accident: In 1999, Sirius sued XM for potential patent violation. In March of this year, the companies settled the suit by agreeing to build radios that would carry both Sirius and XM signals.

Invoking the lingo of the MBA programs, Panero calls the arrangement between the two companies "coopetition."

Sirius's Stars

In New York, Sirius occupies 30 studios on floors 35 to 37 of a skyscraper in fabled Rockefeller Center. The company's transmission equipment aims spaceward from the building's roof.

In TV commercials for ESPN's "SportsCenter," the company's Connecticut headquarters is depicted as a place where star athletes just happen to hang out--ESPN employees may have to wait for the copier behind, say, New York Yankees pitcher Roger Clemens.

At Sirius, such celebrity sightings are no whimsy of some adman's imagination.

"Steve Earle was here to do a live concert just the other day," says Joe Capobianco, Sirius's vice president for content. "We've had Billy Bragg and Sinead O'Connor" come in to record.

Apparently, Sirius's show-biz-centric location makes it convenient for stars to stop by, Capobianco says. TV and movie actors, such as Steve Buscemi, Tim Curry, Andre Braugher and Stanley Tucci, have been in to voice parts for science-fiction dramas to be broadcast on Sirius.

And then there's Sting: The former Police front man, owner of a medieval English estate and an elder statesman of rock, will do a daily show for Sirius. "Live in our studio, from his castle or virtually from anywhere around the country," says Capobianco. Like Quincy Jones over at XM, Sting will play his own music and spin his favorite tunes at Sirius.

The chief difference Margolese draws between his company and XM Radio is commercials: Some of XM's music channels will have up to six minutes of them per hour; Sirius promises none.

In that vein, Sirius has signed up National Public Radio as one of the content providers for its 50 talk, news and entertainment channels. NPR will occupy two channels and do an original morning show from its Massachusetts Avenue headquarters, helmed by recent hire Melinda Wittstock, an ABC and BBC veteran. The rest of the day's NPR satellite programming will consist of shows produced by member stations from around the country.

Sirius already is broadcasting some programs from its studio--MLB Radio, big-league baseball's talk show, broadcasts from Rockefeller Center to the Internet. It will join the satellite lineup when Sirius begins service.

Sirius changed its name from CD Radio several months ago after market research indicated consumer confusion with CD Now, the online compact-disc retailer. Also, says Margolese, "because CDs are getting long in the tooth, and we didn't want to be associated with an obsolete technology."

Neck and Neck

In the space race between two such similar companies, who has the edge?

It may be, in Vegas terms, a push.

XM shows an advantage because one of its major investors is radio giant Clear Channel Communications, says Coates. XM's partnership with Sony means that XM's signal can be pumped into boom boxes as well as car radios, he adds.

On the other side, Sirius's presence in Fords, Chryslers, BMWs, Mercedes-Benzes, Mazdas, Jaguars and Volvos gives it a larger chunk of the auto market, providing an early edge in satellite radio's first battleground, Coates says.

Because Americans exhibit a seemingly bottomless appetite for new media--TV did not kill radio, nor did the Internet kill TV--both satellite services may coexist fruitfully. Instead, it may be over-the-air radio stations that will feel the impact of satellite radio.

Even though commercial radio is enjoying boom times--billing a record $17 billion last year, with ad sales continuing to rise around the country--a growing minority of radio listeners are increasingly weary of the commercial-rich, repetitive playlists offered up on their car and home radios.

Internet use continues to rise, and with it Internet radio listenership. Still difficult, Internet radio will become an easier proposition over the next few years: Several companies promise products that will let you listen to Internet radio as easily as you switch on your clock-radio.

Further, wireless transmission systems may soon carry faraway radio stations to your combo cell phone, radio and MP3 player.

How will the big radio companies respond?

At classic-rock station WARW in Rockville, Program Director Phil LoCascio says he's not certain that satellite radio will put his station in jeopardy but adds that he doesn't take the potential threat lightly. The fact that satellite radio will come in some 2001 cars is "a scary proposition," LoCascio says.

"I think there is certainly competition there, and we have to refocus on what sets us apart," he says, meaning listener contests and deejays who come out to the shopping mall. The fact that over-the-air stations are losing employees to satellite radio companies--WARW lost its advertising scheduler to XM--only enhances their credibility, LoCascio says. Further, he says, he may get a satellite radio--"to see what these guys are doing."

It is worth noting that the National Association of Broadcasters, radio's powerful lobby, threw up roadblocks to satellite radio's licensing. And that Clear Channel--the nation's largest radio corporation, with nearly 1,000 stations--eventually made a sizable investment in XM Radio. Viacom/Infinity, the radio industry's other giant, has not invested in either satellite company.

The space-race metaphor is apt: Satellite radio will turn out to be either Sputnik or Apollo 13. If it flies, the big radio companies will have to ask themselves: Are we on the rocket or off the rocket?

Uninterrupted Radio

Satellite radio companies will allow customers to receive the same radio channels anywhere in the United States. Here's how it works:

1. A ground station transmits a digital signal to a satellite.

2. The satellite signal is picked up by antennas in cars and homes across the country and converted into radio channels.

3. Repeater antennas amplify the signal in urban areas, where the signal may be blocked by buildings.