satellite radio reviewed

Filed in archive Global Economy on October 21, 2004

Knowledge@Wharton has a nice backgrounder on satellite radio business models by XM and Sirius. Worth to read through!

"f XM and Sirius are successful signing up consumers - and so far, that is still a big if - their businesses could be highly profitable. "I think the technology and the model will be profitable," says Fader. "Down the road, subscriptions will be common in radio."

Werbach says the network effect - where the costs of serving an additional customer are low once infrastructure has been built - is likely to work in favor of satellite radio. Both Sirius and XM have already launched their satellites, built networks and signed deals with leading content providers. In addition, satellite radio will gain subscribers as consumers buy new cars. "By installing the receivers in automobiles, it takes much of the decision out of the consumer's hands," says Werbach. "All the consumer has to do is decide whether to subscribe or not."

The automobile strategy should give satellite radio a captive audience and grab new customers. According to Peck, XM has projected that it could reach 20 million subscribers by 2010, largely because of its deals with GM and Honda, which churn out 6 million cars a year. Sirius has deals with Ford and Chrysler, which account for 6 million to 7 million cars a year.

But ultimately, Faber says XM and Sirius will have to get by without depending on automakers to market their receivers. "Right now the model depends on people buying new cars, but ultimately the businesses will have to stand on their own," says Fader. "In a couple of years, I see satellite radio growth divorced from the auto market."