Monday, March 13, 2006

Satellite Radio is Killing Terrestrial Radio

I recently took a flight on United Airlines and noted that they had XM Radio. This put a whole new spin on traveling, because I usually don’t even check what the airline has to offer in terms of music because I just assume that it won't be worth my time. With XM Radio, however, I know that there will be a variety of channels, carefully segmented, and a lot of good music to listen to.

Dan has XM Radio and I have Sirius. I don’t know too much about the differences between the two services, and I know Dan likes XM and I like Sirius. I am confident that either one of them blows away “terrestrial” or free radio.

Once you listen to satellite radio for a little while it is extremely difficult to go back to terrestrial radio. The first thing you notice is the commercials. The commercials are the same, over and over again, and extremely annoying. Now that I have satellite radio, I find them intolerable when I am stuck somewhere with regular radio.

I don’t know the exact ratio but let’s assume that regular radio is 2/3 music and 1/3 talk (DJ) and commercials (there are DJ’s on satellite radio but they usually keep their banter mercifully short, unless you specifically choose to go to a talk station). Thus if you are going to work every day and commuting plus listening to the radio around the house a bit for a couple of hours each day you could easily spend 40 minutes / day listening to commercials and uninteresting banter. Depending on what you do on the weekend, that means you’d be exposed to somewhere between 12 and 15 hours / month of stupid commercials for products you don’t want plus idiotic chat. Assuming that Satellite radio is about $10 / month (if you buy a year at a time), that means you are spending less than $1 / hr to avoid all that crap and just get the music. A pretty good deal, I’d say.

It goes beyond just getting rid of commercials and long winded banter. The music on satellite radio is much better, because it is concentrated in different stations and there is a huge variety of stations (over 100 for each of the services). Want punk rock, heavy metal, hardcore hip hop, bluegrass, new wave, alternative rock, etc… - there is a specific channel for it. In Chicago we have the on air station Q101 which is alternative rock – I listen to “21” (“Alternative Nation”) on Sirius and it is far superior to Q101. New artists come out first on 21 and they do a much better and more interesting job of programming while Q101 seems to be playing the same songs over and over. Q101 recently moved to “shuffle” (more of a response to Jack FM where they play anything) but they don’t really break new songs, they just go further into their back catalog. This makes Q101 marginally less annoying (and still the best thing when you are stuck listening to terrestrial radio) but it is still a far cry from "21".

The signal quality (for me, at least) is also far better for satellite radio than terrestrial radio. There is a new HD radio for over the air which should improve things in the future (once you purchase a new device) but for now satellite radio sounds much clearer. The satellite station comes in crysal clear where I live, and you can buy an extension antenna if your reception is poor (i.e. you live in a basement).

There is a huge analogy to the web and blogs vs. paid content (newspapers) because the commercials support terrestrial radio as it exists today. Without the commercials, they can’t support their enterprise, but once you have a choice of no commercials, it is extremely difficult if not impossible to go back to the radio. Terrestrial radio COULD compete by offering intelligent commentary, great playlists, and a far smaller amount of commercials per hour (spend more, be more creative, and earn less revenue). Instead, terrestrial radio consolidated (pretty much) all the stations in each market into one company so they could cut down on overhead between the stations and sell better to local advertisers, while using the same playlists across the whole country in a pre-programmed fashion. Ever wonder why the crappy stations sound alike in every city? Because they are all out of the same company with the same playlist and formats / formula. Newspapers face the same choice, either come up with unique and interesting content or die, and we will see how it ends up.

Back to satellite radio – another item to ponder is that it is EXPENSIVE to set up a satellite radio network, while it is CHEAP to set up a land-based terrestrial radio station. They have to launch satellites to cover the earth, pay for content and DJ’s, and market their service everywhere. They (probably) subsidize the equipment in order to get the recurring revenue stream. There are two competing services, so they can’t gouge customers and need to keep their fees reasonable, while innovating new services to better the competition.

I am always amazed when something that costs money displaces something that is available for free. People don’t naturally go out, buy new equipment, and sign up for a monthly service fee, especially when there are free alternatives out there for the taking. The free service really has to “screw the pooch” to let things get so bad that a pay service can get funding, find equipment manufacturers, line up talent, launch satellites, and market their services to beat them. At any step along the way the free radio stations could have done something to make the situation that much harder for the satellite stations – they could have reduced the # of commercials, come up with better formats, replaced their DJ’s, market their services, etc…. Instead, they just sat back and allowed the satellite services to grow strong and eat their lunch. Most cars come with XM and / or Sirius pre-installed – why didn’t the radio stations band together to offer the car makers more money to NOT install these radios, or at least compete to make it even more expensive for those satellite competitors to “lock in” all of these future customers? Because the stations aren’t organized that way, and they don’t look out for their collective future, they only want to keep their margins high and ride the business for as long as possible for as little money as possible.


Anonymous said...

The content was quit accurate regarding satellite radio. However, you failed to mention anything regarding the relationship between content and the local community. The one thing salellite radio will never be able to do is offer local weather, news, personal relations, sports and a wealth of various other topics which make up the life-blood of a community. We are being nickel and dimed with everything that impacts our radio. I believe we will continue to see terrestrial radio resurge and become strong again with more and more local content and less commercials. Let's not give up too soon.

Carl from Chicago said...

I agree that there are a lot of ways that terrestrial radio can compete with satellite radio. One of the ways is by improving the quality of their content and having less commercials. Unfortunately, to date, mostly the terrestrial stations have been concentrating on consolidation and reducing expenses by imposing uniform playlists and gathering all the advertisers in a single city through a virtual monopoly.

I am happy to go back to terrestrial radio but they need a competitive product and it doesn't seem to be happening now.