Stern’s move to Sirius a hard act to follow

John W. Schoen Senior Producer • Profile • E-mail

The self-crowned “King of All Media,” Howard Stern, started his Sirius Satellite Radio show Monday, the culmination of a massive promotional blitz that has given the fledgling medium a major boost.

Spurred by high-profile programming like Stern’s show, along with deep price cuts in satellite radio receivers, Sirius and rival XM Satellite Radio are writing a new chapter in the history of radio. The two rapidly growing companies have a combined customer base approaching 10 million subscribers, each paying $150 a year to hear hundreds of commercial-free channels.

But it’s not clear how this chapter will end. Each company has lost more than $2 billion over the past four years, and neither is expected to turn a profit for at least several more years. Losses widened at both companies in the third quarter, with XM shedding $134 million and Sirius more than $180 million as they spent heavily to add programming, promote the services and subsidize the cost of the receivers sold to new customers.

Meanwhile, new competitors are coming down the pike, as wireless broadband Internet service begins to take hold. Meanwhile cellphones, MP3 players and Web-based radio may soon converge on cheaper, more powerful portable handsets.

By any standard, satellite radio’s growth so far has been meteoric. From a modest base of a few hundred thousands subscribers three years ago, XM now boasts about 6 million customers, about twice as many as rival Sirius. Spurred by steep cuts in the price of receivers — now selling for as little as $30 to $50 — subscriber growth exploded last year. Some analysts predict the market will hit 40 million in four years.

“This is a razors-and-blades business,” said Craig Moffett, an analyst with Sanford C. Bernstein. “Discounting of radios is one of the obvious levels they've got to stimulate subscription demand, because over the long term that's where they make their money.”

Because so much radio listening takes place in cars, both Sirius and XM have made exclusive deals with automakers to offer their receivers in new cars. XM has locked up General Motors, which plans to install 1.5 million XM radios in new cars this year. XM has made similar deals with Toyota, Nissan, and Hyundai. Sirius, will have its receivers installed in new Ford and DaimlerChrysler vehicles.

But the big draw is programming, and both XM and Sirius have invested heavily to give subscribers plenty of choice. Each service offers subscribers more than 60 music channels, without interruptions from commercials (or, in some cases, from DJs) and dozens more channels of talk, news, sports, traffic and weather.  Sirius has signed a $220 million deal to carry National Football League games; XM paid $650 million for Major League Baseball.

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