Growing pains fading, satellite radio is ready to blast off

NEW YORK -- Satellite radio comes from space bearing gifts: 100 digital channels with eclectic music options and few or no commercials, beamed directly to cars and home stereos throughout the continental United States.

Less than a year ago, potential subscribers and investors were treating it like an unwelcome visitor from another planet. Its dueling providers, XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc., were warning they might run out of cash.

Finally, though, the mini-industry seems primed to take off. Automakers are showing more enthusiasm for putting receivers in cars. Design advances are shrinking the tuners and their prices, to as low as $70, from around $300.

Subscriber numbers are jumping for XM's $10 monthly service and Sirius' $13 offering. Both companies have abated their cash crunches though financial maneuvers. XM expects to begin breaking even by the end of 2004, and Sirius by mid-2005. XM's stock price has quintupled this year; Sirius' has doubled.

Ready for the fun part

Some analysts expect satellite radio to grow the way satellite TV did. If so, XM and Sirius radios won't be standard in cars and homes anytime soon, but both companies still could be budding media giants.

"I'm glad to have most of the trying-to-get-everything-set-up behind us, so we can just compete in the marketplace with not only with XM but traditional radio," Sirius chief Joseph Clayton said in a recent interview. "And that's the fun part."

When Clayton headed RCA's television sales a decade ago, he once dressed like Gen. George Patton, borrowed a tank from a military museum and drove it over a pile of Japanese TVs. Cameras captured it for an in-house motivational video.

These days, it won't be so easy for the hefty Kentuckian to crush his competition.

Although Sirius launched its three satellites before XM got its two, "Rock" and "Roll," into space, New York-based Sirius began offering service second, in July 2002, because of delays in getting chip sets from Agere Systems Inc. and what Clayton describes as missteps by Sirius' original management team.

Sirius has just 68,000 subscribers and is gunning for 300,000 by December. It has been about a year behind XM's products, such as portable receivers that can be plugged into cars, home stereos or boom boxes. Sirius is catching up this summer with $100 models, prompting XM to drop its price to that level from $129.

Washington, D.C.-based XM had its own problems. Original plans to launch service on Sept. 12, 2001, had to be delayed several weeks. Still, XM has used its head start to sign up more than 500,000 subscribers, with 1.2 million expected by December.

"It's pretty clear that we're the ice breaker that's breaking the new ground and they are following behind us," said XM chairman Gary Parsons.

Big enough for both of them

But Sirius seems to be getting its act together at just the right time, with so much growth potential still ahead. After all, Parsons believes satellite radio could snare 50 million subscribers.

"This marketplace is definitely big enough to have two players," said April Horace, an analyst with Janco Partners. "I think the competition is good to raise awareness for both companies."

In a sign of their potential mass appeal, XM radios are now available in 2,100 Wal-Mart stores. XM and Sirius also believe that within a few years, they can drop subsidies to car and boat makers for installing their equipment.

XM will be optional in at least 70 car models this fall, including General Motors and Honda autos as part of exclusive deals. GM owns 11 percent of XM; Honda has 8 percent. XM also has ties to traditional radio: Station-owning behemoth Clear Channel Communications owns 3 percent.

Sirius radios will be optional in 65 auto models, including those of exclusive partners BMW, DaimlerChrysler and Ford. DaimlerChrysler has a small stake in Sirius; it and Ford each have options to buy 4 million shares.

Ford technology spokeswoman Emily Foley said the automaker no longer has doubts satellite radio will take off. Ten of Ford's 2004 models will have Sirius as a dealer-installed option and more will follow.

XM and Sirius hope the auto partnerships help lure frequent road-trippers and everyday commuters unhappy with the diminishing diversity of commercial radio.

"I have very eclectic tastes in music, and a lot of it is not the stuff you can hear on regular radio," said Mel Harkrader Pine, 57, an XM customer since January 2002. "It's like having almost an unlimited CD library and you just hit a button for whatever mood you happen to be in at a particular time."

Many channels automated

Sirius has 60 commercial-free music channels and 44 news, talk and sports channels with some ads. XM has ads on half its 70 music channels and most of its 31 news, talk and information channels, helping to keep the subscription price lower.

Both companies automate many channels, though XM has some live programming anchored by disc jockeys who can field requests, and Sirius airs live in-studio performances and interviews.

Sirius carries National Public Radio, an arrangement pooh-poohed by XM because it doesn't include popular shows like "All Things Considered" and "Morning Edition." XM broadcasts audio feeds from CNN and Fox News and has a Playboy adult talk channel that costs an extra $3 a month. Sirius has NBA games and a new station for gays and lesbians.

Although Sirius is the challenger, Clayton and his team talk more expansively about the future, like the possibility of Walkman-sized satellite radios. Improved compression technology could add perhaps 20 channels to XM's and Sirius' menus, and Clayton envisions some sending data and video -- perhaps even backseat movies for cars.

"Just because you're No. 1 out of the gate doesn't guarantee you success," Clayton said. "The satellite radio industry has just begun."

On the Net

www.sirius.com

www.xmsr.com