Satellite Radio Eager to Receive Howard Stern Fans

Talk-show host Howard Stern has been threatening lately to go where the FCC can’t touch him: satellite radio.

That’s also where not a whole lot of people would hear his famously foul mouth, which got him kicked off six conventional radio stations last month and over the years has persuaded the Federal Communications Commission to fine his show a total of $2 million.

The two satellite radio services in the U.S., both of which are losing money, together have fewer than 2 million subscribers, a fraction of Stern’s 15 million listeners.

On the other hand, XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. are growing. And Stern’s chatter about ditching the public airwaves has no doubt raised the public’s awareness of the relatively new method of delivering commercial radio signals.

Neither XM nor Sirius would disclose whether they’ve had discussions with Stern. He began talking about switching to satellite after a bill was introduced in Congress to dramatically raise FCC fines for “obscene” or “indecent” material heard or seen on broadcast radio stations or television networks; federal indecency rules don’t apply to satellite or cable television networks or satellite radio.

Hugh Panero, XM Satellite’s chief executive, pooh-poohed the possibility, saying he doubted whether XM or Sirius could afford the reported $20 million Stern pulls down a year through his contract with Viacom Inc.’s Infinity Broadcasting.

They might be able to come up with that kind of dough soon, though: XM’s and Sirius’ stocks are trading near 52-week highs as the number of subscribers and satellite-capable radios keeps increasing.

“They are still very new, and already almost 2 million people have been willing to pay for what they offer: better content, national reach and better quality than terrestrial radio,” said April Horace, an analyst with Janco Partners Inc., a Denver-based investment banking firm. “The market is big enough for both to succeed.”

For many people, the attraction of satellite is the chance to hear music that goes beyond the homogenized playlists put together by most corporate-owned radio stations. XM and Sirius each offer more than 100 channels.

Scott Tokar, a Foothill Ranch resident, is a satellite radio convert who listens to XM eight to 10 hours a day. He began subscribing two years ago and now has four separate XM subscriptions so he can keep receivers in both of his cars as well as his office and family room at home.

“It had better survive,” Tokar said. “It’s the best thing out there.”

Washington-based XM began broadcasting in November 2001. Its smaller rival, Sirius, headquartered in New York, hit the air nationally in July 2002. Both companies have piled up big losses: XM a total of $1.4 billion in the last four years and Sirius a total of $1 billion.

XM has 1.5 million subscribers, about five times as many as Sirius. XM charges $9.99 a month; Sirius charges its nearly 300,000 subscribers $12.95. Car receivers cost $150 and up, and there are several adaptors available that can work with portable speakers or in existing home stereo systems.

At XM, so-called stream jocks -- the disc jockeys who “stream” digital music to listeners -- spin songs on seven country channels and about 20 rock stations. Some specialize in obscure tracks from albums of well-known artists who almost never make it onto conventional radio stations. Beyond rock ‘n’ roll, there are 10 pop music offerings, seven hip-hop stations, nine channels with jazz and blues, four with electronic, dance and “club” music, three classical music channels and eight with disco, Christian music, show tunes and a variety of world music programming.

Sirius has 61 music channels and has branched into sports. Sirius already broadcasts NBA and NHL games, and recently signed a seven-year, $220-million pact to become the satellite radio broadcaster for all NFL games.

Both satellite radio companies are heavily reliant on automakers to draw new customers.

General Motors Corp. offers XM in all of its new cars and recently celebrated the production of its 1 millionth XM-equipped vehicle. Honda Motor Corp. has produced about 200,000 XM radio-equipped cars and is XM’s largest shareholder with 8.7%; GM holds an 8% interest.

DaimlerChrysler, with a $100-million equity stake in Sirius, is that provider’s only automaker investor. Sirius also has exclusive deals with Ford Motor Co. and BMW. Volkswagen and Nissan Motor Co. install XM and Sirius radios, while Toyota Motor Corp. installs XM receivers upon request.

GM research shows that 70% of its XM subscribers want to make sure that their next new car is equipped with a receiver. Satellite radio “is helping get people into our vehicles,” said Gary Cowger, president of GM’s North American operations.

Although the number of subscribers has been climbing steadily, XM and Sirius still spend more to lure each one than a year’s subscription brings in.

Panero said XM would need 3 million to 4 million subscribers to break even, adding that he expected the company would reach that goal by the middle of 2005. Profitability “will follow soon after,” he said.

Joseph Clayton, Sirius’ chief executive, said it should score 1 million subscribers by the end of this year and break even with 2 million customers by the end of 2005.

Sirius lost $226.2 million last year on revenue of $12.9 million -- an improvement from its 2002 loss of $422.5 million with just $800,000 in revenue. XM reported a 2003 loss of $584.5 million with sales of $91.8 million, versus a 2002 loss of $495 million with sales of $20.2 million.

Peter Friedland, an industry analyst for W.R. Hambrecht & Co. in San Francisco, said the losses were part of a start-up industry’s normal growing pains. He added that the FCC had limited the satellite radio arena to just two licenses, guaranteeing XM and Sirius a clear field.

“We think they will have a combined 30 million subscribers by 2010,” Friedland said. “That’s just 15% of the cars on the road.”

One drawback is that each company has a proprietary digital signal. Consumers choose radios that can receive either XM or Sirius -- but not both. A receiver that can decode signals for both is being developed, although it won’t hit the market for several years.

Meanwhile, both companies have huge initial costs to recover. Each spent about $2 billion setting up production studios, satellites and scores of repeater stations to send their signals.

XM has more than $500 million in cash on hand and has whittled its debt to about $600 million. Sirius went through a restructuring last year and cut its debt 91%, to less than $450 million, by swapping debt for equity. It has about $750 million in cash.

XM, which went public in 1999 at $12 a share, closed Tuesday at $26.86, down 26 cents, up from a low of $5.13 a year ago. As for Sirius, which went public at $10 in 1994, it closed at $3.10, up 5 cents. That’s up considerably from a low of 41 cents last March. Both trade on Nasdaq.

The recent stock run-up doesn’t make everyone a fan of satellite radio. “The amount of marketing spending these two have to do to build their customer base is tremendous,” said analyst Sam Whitmore, who writes a monthly column on tech media for Forbes.com.

XM and Sirius ultimately will have to raise their subscription rates, Whitmore predicted. Will listeners go along? “The public already has shown with Internet downloading that it isn’t all that willing to pay for music,” he said.

Clayton and Panero insist there are no plans to boost subscription prices.

If they’re wrong, it probably won’t bother Aaron Sandler, a TV producer in Beverly Hills. He installed an expensive aftermarket stereo system in his Lexus to receive XM’s signal. Then, when Sirius started up, he spent $150 for an adapter that plugs into his car so he could receive Sirius’ signal too.

“Satellite radio is so great,” he said. “I almost never listen to regular radio anymore.”

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The companies at a glance

XM Satellite Radio Holdings Headquarters: Washington Subscribers: About 1.5 million Channels: 68 music channels; 32 for sports, news, talk and entertainment; 21 for traffic and weather Nationwide service launched: November 2001 Revenue 2003: $91.8 million 2002: $20.2 million Net loss 2003: Ð$584.5 million 2002: Ð$495.0 million Chief executive: Hugh Panero

Sirius Satellite Radio Headquarters: New York Subscribers: About 300,000 Channels: 61 music; 43 for sports, news and entertainment; 10 for traffic and weather Nationwide service launched: July 2002 Revenue 2003: $12.9 million 2002: $0.8 million Net loss 2003: Ð$226.2 million 2002: Ð$422.5 million Chief executive: Joseph Clayton

Sources: XM Satellite Radio, Sirius Satellite Radio, Times research