BROOKE GLADSTONE: This week yet another new technology comes to market. It's satellite radio, beamed to specially-equipped cars and homes across the country. The first company out of the gate is XM Satellite Radio which begins its rollout in Dallas-Fort Worth and San Diego. XM's 100 channels of programming will reach most people directly from satellites. The rest will get it from a thousand repeater towers if the FCC gives its approval. From Washington On the Media's Neal Carruth reports.
NEAL CARRUTH: Lee Abrams [sp?] is XM's chief programming officer. He sees a striking similarity between the FM radio of 2001 and the AM of the early 1970s. Abrams says FM stations which were once a hip, youth-oriented departure from AM have lost their edge.
LEE ABRAMS: FMs aren't part of the audio standard, which is digital. FMs are running a lot of commercials. FMs really have only a handful of formats. FM's not part of the whole oh, cell phone-palm pilot-internet-digital revolution and it's kind of an older technology. And finally FM is tired. The playbook hasn't been rewritten in years.
NEAL CARRUTH: According to Abrams, FM is creatively vulnerable, and that's where satellite radio comes in.
LEE ABRAMS: In the medium and long run it's definitely going to be a, a content game. So-- we want to come out of the box not only with great technical sound but phenomenal programming.
NEAL CARRUTH: XM's subscribers who pay 9.99 per month can listen to 71 music channels and 29 talk channels. Channels on the music side include heavy metal, bluegrass, modern jazz, tejano [sp?], opera, reggae -- all of them providing 24 hours of programming, 7 days a week. Abrams says one of his favorites is XMU. [MUSIC]
MAN: ...Corner Shop - last time you'll ever hear us say Corner Shop unless Corner Shop comes out with a new song cause Corner Shop doesn't have anything new and we're all about new, so Corner Shop room full of ascia [sp?] is done. We've killed it.
LEE ABRAMS: XMU is an alternative format. It's really college radio, but it's professionally done. A lot of college stations, you know, really are a couple of guys bringing their girlfriends, getting drunk and screwing around, playing records. [LAUGHS] You know. But this is college radio like it should be.
NEAL CARRUTH: Many of the talk channels are joint ventures with broadcasters like CNN, Bloomberg and Disney. Most will feature audio feeds of existing programs. XM does have two partnerships to produce original talk programming, one with USA Today and one with auto racing giant Nascar.
ANNOUNCER: Nascar Today is produced by MRN Radio!
ANNOUNCER:Dale Jarrett [sp?] now inching even closer. He thought about helping give Skinner a little shove through the corner, but this is not the time to make those kind of moves.
NEAL CARRUTH: The big question for XM is whether anyone will pay for all these choices when radio currently offers consumers some choice at no cost. Hugh Pinero [sp?], XM's president and CEO remembers the nay-sayers in the early days of pay television.
HUGH PINERO: I was there helping to build the pay per view industry where somebody said well nobody's going to want to pay for a movie for the convenience and the kind of presentation that that would give when they can go to the video store or go watch a movie or-- watch it on HBO. But you know what? People buy movies, and they buy wrestling and boxing.
NEAL CARRUTH: Don't expect satellite radio to reach the subscription levels of pay TV any time soon. Pinero says XM will break even if it has 4 million subscribers by 2004. But radio is different says Michael Kelly [sp?], a telecommunications professor at George Mason University in Fairfax, Virginia. Kelly spent years in local radio and says a national service like XM violates one of the medium's basic principles -- radio works best when it's local. MICHAEL KELLY: What people look for when they listen to radio is local traffic, local weather, local news which even the syndicated stations provide some of and the, the big chains in the major cities still have their local weather and their local traffic. These guys won't be able to provide that from the satellite. They won't have a clue!
NEAL CARRUTH: XM programming chief Lee Abrams.
LEE ABRAMS: We're local too since our market is all of America. I think the best radio talks to the listener and is always relating to people and places and good radio station if it's in Chicago should talk to Chicagoans, and for us it's critically important to talk to America.
NEAL CARRUTH: Abrams says XM is designed to serve the under-served in every market. For example the salsa fan, isolated in Duluth. In order to get the service you'll need to upgrade or replace your car's audio system or buy a car already outfitted with an XM-capable radio. Each car will need a tuner, a receiver and an antenna at a cost of several hundred dollars. But even after spending all that money, you'll still have to sit through commercials. XM's Lee Abrams.
LEE ABRAMS: Nothing wrong with commercials. We love commercials. Enough already. You've got to know when to stop.
NEAL CARRUTH: XM will draw the line at about 4 to 6 minutes of commercials per hour on about half of the 71 music channels. That's much lower than most broadcast stations. The rest of the music channels will be commercial-free. But all of the talk channels will have commercials. George Mason's Michael Kelly says channels with ads could be a potential turnoff. MICHAEL KELLY: You know in cable, you get the box free! But my goodness! To pay 3 to 500 dollars for a radio and pay 10 to 13 dollars a month and then have to listen to ads -- I'm not sure anybody's going to go for that.
NEAL CARRUTH: XM's corporate ties extend beyond advertising. It's signed agreements with manufacturers and retailers, and most important of all a distribution deal with the world's largest auto maker, General Motors. 2002 Cadillac DeVilles and Sevilles will carry XM radios as a factory-installed option. Chip Lindsay [sp?] is president of Lindsay Cadillac in Alexandria, Virginia. CHIP LINDSAY: We're all about selling cars. I mean I'm not here to sell radio, but if you're selling a radio-- and XM is a fine match for Cadillac, and if that can enhance, you know, our customer's buying experience, then that's what we're all about.
NEAL CARRUTH: Cadillac customers at Lindsay this week aren't sold yet.
MAN: That would be-- something I'd probably be interested in after checking into it a little bit. WO
MAN: You know I don't listen to radio that much, so I don't think it would be anything that would be beneficial to me.
MAN: I could get in my car and drive to work and all I have is commercials all the way to the office -- without hearing any music, so that bothers me. WO
MAN: Pay for radio?! Are you serious?! [LAUGHS] I don't think so.
NEAL CARRUTH: XM will spend 45 million dollars on advertising later this year, but it may not be enough to overcome the public's financial jitters says Jeffrey York [sp?] of trade publication Radio & Records. JEFFREY YORK: They're going to need to get an immediate hit from the American public, and they're battling with the timing of the economy! If the downtrend in the U.S. economy continues, I think it's going to be harder for them to bring in-- subscribers and to make it work.
NEAL CARRUTH: But York also says that Americans are all too willing to add yet one more gadget to their lives and pay one more bill each month. JEFFREY YORK: If you take a look at your household budget in America in 2001 and compare it to what was being spent in the average household budget in 1945, I think you'll be stunned at the number of categories that we today spend money on! The things that we find that we-- "need."
NEAL CARRUTH: In December XM will have competition when Serious Satellite Radio becomes commercially available with another 100 channels. The challenge will be to convince Americans to pay for a service they don't yet think they need. For On the Media, I'm Neal Carruth in Washington.