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Satellite radio orbits for profit

LOS ANGELES (The Hollywood Reporter) --- The dueling satellite radio companies need to rein in previous expectations, but they are still poised to create thriving new businesses that will challenge terrestrial radio, a new report suggests.

In a research paper titled "Satellite Radio: Get Outta My Dreams, Get Into My Car," Webnoize Inc. estimates that 19.1 million Americans will subscribe to either the XM Satellite Radio or the Sirius Satellite Radio service by 2005, representing 9.3% of the adult population in the United States.

The study contradicts earlier estimates touted by the satellite radio industry. Various sources had predicted such lofty numbers as 42 million subscribers by 2005, 43 million by 2007 or 49 million by 2012.

But report author Ric Dube said even the diminished numbers represent $2.3 billion in subscriber revenue -- more than enough to ensure the success of both companies.

Sirius and XM each intend to provide 100 channels of satellite radio, mostly to American motorists who pay a $9.95 subscription fee.

Sirius and XM have, in their own ways, been lowering expectations for this year. For example, Sirius said it will line up no more than 20,000 subscribers by year's end, down from a previously expected 100,000.

Delays have been mostly attributed to problems getting working radios into stores, a delayed launch of an XM satellite and slow negotiations with automakers, who are balking at turning satellite radios into standard equipment.

Webnoize, a news and research firm focusing on digital media, also predicts $570 million in ad revenue generated annually by the two satellite radio companies by 2005. Sirius and XM will offer some commercial-free channels and some with about six minutes of commercials per hour. Traditional, terrestrial radio features about 22 minutes of ads per hour.

Dube said he derived the $570 million figure by comparing satellite radio subscriber estimates with terrestrial radio listenership. About 82% of adult Americans listened to terrestrial radio in 1999, and the industry generated $3.2 billion in ad revenue, he said.

Dube suggests that the slower consumer adoption predicted for satellite radio might encourage content suppliers to strike better deals with the two satellite radio companies, such as receiving a bigger share of ad revenue or even a cut of subscription fees. Advertisers wishing to reach a nationwide, affluent audience are especially suited for satellite radio, Dube said

In the final analysis, Dube and the report are upbeat about satellite radio's prospects.

"It's terrific for consumers," he said. "They get CD-quality sound, the signal ignores geography, the amount of choice is unprecedented, and it's affordable. For anyone who spends a lot of time in cars, it's a worthwhile proposition."

Investors in Sirius include Ford Motor Co., DaimlerChrysler and venture capital firms. Investors in XM include Clear Channel Communications, Honda, General Motors, DirecTV and venture capital firms.

"Satellite radio is too often lumped in with the dot-bomb phenomenon," Dube said. "It is new media, but it has far more in common with cable TV than the Internet. There's a lot of major investors who expect a return on their money."




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