BOB GARFIELD: Three years before the FCC tried to open up the broadcast spectrum to low-power radio, it divvied up the rights to a new media frontier: a portion of the spectrum that could, in theory, be used to deliver radio via satellite. Only four companies applied to enter the satellite radio race in 1997, and only two got licenses to do so. The companies that would become Sirius and XM paid 90 million dollars each for the right to one half of the satellite radio pie. It took four years before this new form of paid radio was actually available to consumers. Up and running since 2001, neither has seen a penny of profit. Which company will see it first? Sirius was quick to raise money and launch a satellite, but now XM has three times as many subscribers. In the February issue of Fast Company magazine, Bill Breen set out to learn how Sirius blew its lead. For one thing, he says, it outsourced its technology and XM didn't.
BILL BREEN: XM hired a crack team from Motorola, and they did the development of their chip set in house, and they were able to get that out much faster, so it was ready to then form a second leg of XM's strategy, which was to have it pre-installed in cars, and cars were absolutely critical for XM and Sirius, because after all, cars are the prime radio-listening environment.
BOB GARFIELD: XM cut its deal with General Motors, which sells a lot of cars.
BILL BREEN: They sure do.
BOB GARFIELD: The Sirius that you describe in your piece is kind of a guy in a 4,000 dollar suit, flashing a big bank roll, [LAUGHTER] while XM is a guy, you know, with rolled up sleeves of his work shirt and construction boots, building a company in the bad part of town. Does that hold more than kind of superficial interest to us?
BILL BREEN: Well, I think it signals a little bit about how both companies handle the cash. Both companies have had to go through an enormous burn rate - 250 million dollars just to get a satellite up into orbit. XM has two of them up there; Sirius has three. XM is said to have the largest concentration of IBM servers of any company in the country. You've got to go out and hire big-name talent. They have to spend furiously, and Sirius lived a little bit like a fat cat. They have very expensive quarters in midtown Manhattan, which is not to say that XM doesn't have its own nice digs, but they're in a northeastern part of Washington, DC, a rather gritty neighborhood, so it looks like they spend recklessly, but then they try and conserve recklessly as well, when they can.
BOB GARFIELD: Let's talk about content, on air style. XM's big-name hire was Bob Edwards, late of Morning Edition on NPR. And Sirius's big hire was Howard Stern, whom they're paying something on the order of a hundred million dollars a year for him and his staff to produce his show.
BILL BREEN: Sirius has been trying to attract big-name talent - everyone from Eminem to Tony Hawk. On the XM side, they too have, of course, as you mentioned, Bob Edwards; they have gone for names as well. But it's a lot of homegrown talent, and what I found when I went down there - a lot of them are refugees from the early days of FM who just got tired of playing set play lists and sitting back through long, long chunks of advertising. And in XM, they found a new home, because what the programmers there told them is you go and tell us what music you're going to play, and that was absolutely revolutionary for them.
BOB GARFIELD: How do either of these companies defeat the basic problem of satellite radio? People turn on the radio to find out what the traffic is on their commute.
BILL BREEN: They're not going to beat the local folks playing the local game. That's going to be very difficult for them to do. XM and Sirius do not have to actually defeat Clear Channel and Infinity and make FM and radio go away to win. But what they will do, and most radio analysts agree, is that they will take some market share, and it's going to be interesting to see how much, in fact, they do actually take in the next few years.
BOB GARFIELD: There have been a lot of rumors swirling in the last, say, 10 days or so that these companies are headed for a merger, so that there would be no duopoly; there would only be a monopoly. Any reason to believe those rumors?
BILL BREEN: Of course, officially they'll say they have no interest. They're interested in, in growing the company. But I think just the way the media landscape has consolidated over the past few years would lead me to suspect that you're probably going to see the same thing happen in satellite radio as well.
BOB GARFIELD: If they do not end up as one entity, which one do you think is going to come out dominant in this race in space?
BILL BREEN: Well, during the research for the article, I talked to a lot of radio analysts, and they said that the pie is big enough for both of them to do well, but when I talked to people who follow business at large, they said, you know, listen - starting a company is not a marathon. It's really a hundred meter hurdle, and as anyone has ever known from watching a hundred meter hurdle, if you trip at the first hurdle, it's very, very hard to win the race. And Sirius tripped in two areas. One, it tripped over the technology barrier when it took them so long to get the chip sets for the receivers developed, and then it tripped again when it missed that GM deal, and it's still struggling to catch up in the car market. I would have to say that XM right now, it's up to them to lose this sprint for the stars.
BOB GARFIELD: Bill Breen, thanks very much.
BILL BREEN: Thanks for having me.
BOB GARFIELD: Bill Breen is the senior project editor of Fast Company magazine. [MUSIC]
BROOKE GLADSTONE: Coming up, fact-checking some bipartisan whoppers on Social Security, and why the kids prefer their papers free.