Numbers don't lie. Do they?

Monday, January 22, 2007 at 3:07 PM
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Look ma, a satellite!Eric Savitz at Barron's hits the nail on the head:
"I think the Street might be making too much of the weak satellite radio sales at retail. The satellite services will live or die on their ability to become standard equipment on most new cars; after-market radios is always going to be secondary."
The 'softening' of the retail market isn't spelling the doom of the satellite radio industry (and therefore the necessity of a merger in order for either/both to survive). It's simply the result of the recovering from an event ("The Stern Effect") that caused a massive number of people to subscribe in late-2005.

Michael Gartenberg at JupiterResearch puts it perfectly:
"People often say numbers don't lie. That's not true, numbers lie all the time."
Analysts have been predicting 20-30 million total subscribers by 2010 for a while now. Nothing's changed. At 14 million right now, it doesn't seem like an impossible target to hit in three years.

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Comments

Ryan - There is real competition out there by all sorts of audio entertainment- from Ipods to internet to Terrestrial/HD Radio to cellphones. There is no doubt about that and Eric points out the real competition in the article.

That being said there are 230 million cars on the road in this country. Close to 70% of all radio listening is done in the car. That has been pointed in numerous studies for decades. Satellite radio has a bright future because of that fact. Perfect for the car. But the competition is real, in and outside of the car, and a merger makes all the sense in the world.

"It's simply the result of the recovering from an event ("The Stern Effect") that caused a massive number of people to subscribe in late-2005"

XM and Sirius have effectively STOPPED marketing retail on TV, to reach CFBE. If they start pushing TV ADS again, or better yet can think of some cool-ass way to get some FREE advertising like the IPHONE, retail will rebound again, IMO. Oprah just needs to start mentioning how cool these radios are and they would begin flying off the shelves. She has NOT done that. She's too busy pumping IPODs.

Another point

Content - Thats where all media lives or dies. There are close to a million internet radio stations out there right now. How many tens of millions of ipods have been sold? I lost count. The one area that satellite radio has that will separate it from the pack and keep the demand up is CONTENT. When Sirius announced the signing of Howard a couple years ago they had about 600,000 subs. Today they have over 6 million subs and everybody can argue about it but anybody who follows media closely knows that Howard is the main reason for Sirius' growth. Content is KING. Thats Media.

Fortunately Sirius has maintained the market share in retail and hopefully will continue. The OEM channel has more of a churn rate as you are seeing in Xm's numbers. Everyone likes comparing todays numbers with the announcement of Stern comming to Satrad like it was going to continue. Now what you will hopefully get is a lower but steady stream of subscribers to Satrad. Stay the course. Some will refuse to pay another bill just to listen to radio. Some will refuse just because they cant afford 43 cents a day??? For those of us that have more than a 2 minute drive to work or travel farther than our old favorite local fm channel can be received Satrad is a god send! I'll never go back to free radio even if Stern retires in 2011!

"Content is KING. Thats Media."

I respectfully disagree.

Content USED to be king, but now convenience is king. Look how hard it is to get satellite radio in cars now. Nobody wants FM transmission and tons of wires anymore. Unless satellite comes with the car, it won't matter what kind of content is on it. If it's hard to install or sounds like crap, then people will put their OWN content in their cars (iPod). Heck they're doing it already, and car manufacturers are scrambling to put aux-in jacks in their vehicles.

From my point of view though, I wouldn't be interested in my sat radio (and the monthly fee) if I only got it in the car. Look at how you listen to regular radio. You wake up to it, you then resume listening to it in the kitchen. You listen again while working in your garage. You take it to the beach. If sat radio is content to be a car only device then it will never make a huge inroad into our lives.

Portability must be stressed to ensure the future of satrad.

vbprog (just my opinion...)

I really don't understand all this talk of doom to the industry. One thing that makes SatRad significant is the fact that in most locations in the US (and Canada) there are very few terrestrial channels. And the ones that are on the air, well, Clear-Channel and all... need I say more? These people aren't turning back.. Just because the numbers aren't increasing at some expected level doesn't mean its doomed. It's growing and will continue to grow. There is still alot of potential. As pointed out, 70% of all radio listening is done in the car. The churn rate for OEMs is about 50% (or was it 25%). In the near future when every car comes with SatRad, this percentage will translate into larger and larger numbers... The rate at which each company adds new subscribers really only affects the market share (its called competition).. Sure, its great when companies grow fast, they make more money faster. Both Sirius and XM are growing and they are now cash flow positive. So it sounds to me like the industry is pretty strong. Exactly what rate should they have?

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