Stars head for the satellites

The fledgling industry may be the most revolutionary development in radio since the rise of FM in the 1970s.

Satellite radio is sending out a clear signal: Its time has come. The medium, which comprises two stations that each offer listeners more than 100 channels for a monthly fee, has recently received several boosts that could keep it firmly in orbit for years to come.

• Sirius, the smaller of the two services, announced last week that rap behemoth Eminem will launch a music channel on its network. The 600,000-subscriber company made waves earlier in the month by signing a five-year contract with shock jock Howard Stern. Not to be outdone, competitor XM Radio debuted shows by radio stars Opie & Anthony and former NPR host Bob Edwards.

• In addition to a deal that will pipe XM into 4,000 Starbucks cafes across the US, the station is trying to expand its base of 2.5 million listeners by also making it available online.

• Ford Motor Co. announced Monday that it will install Sirius satellite radios in up to 20 vehicle lines over the next two years.

In all, the momentum leads observers to predict that satellite radio will soon replace the iPod as the latest "must have" technology. As such, the fledgling industry stands to become the most revolutionary development in radio since the rise of FM in the 1970s. With its nationwide reach, variety of mostly commercial-free programming, and freedom from government regulations aboutindecent content, satellite radio is sending a chill through the nation's traditional radio broadcasters.

"This was really the year satellite radio came into its own," says Michael Copeland, a senior writer at Business 2.0, who notes that people are prepared to pay for radio just as they are for cable TV. "If you talk to consumer electronics retailers like Best Buy and some other large chains ..., all the excitement in their business has been about satellite radio."

Just a few years ago, the buzz was quite different.

Since 1997, when the Federal Communications Commission (FCC) auctioned off licenses that allowed broadcasters to bounce signals off satellites, many have speculated that XM and Sirius would come crashing down to Earth without recouping their astronomical startup costs.

And for good reason: Listeners were initially cautious about buying the necessary hardware, despite both satellite services boasting CD-quality sound for content ranging from news and weather to channels dedicated to music genres as diverse as Caribbean dance music or '80s hair-metal. Each company requires its subscribers to invest in a radio receiver that isn't compatible with the competitor's service. That led many prospective buyers to wait and see whether the satellite-radio format would go the way of the laserdisc, or whether one service would win out over the other in the way that VHS overtook Betamax.

"Next year, or in 2006, you're going to have a dual chip that goes in every car and so it doesn't really matter whether you're Sirius or XM," predicts Tobin Smith, founder of ChangeWave research, a market- research group. "You ultimately [will be able to] flick over your service if you want."

At the FCC's prodding, both companies are jointly working on developing a common platform.

If anything, the ease of switching between the two stations will put pressure on the programmers to make their content unique. To that end, Sirius offered Mr. Stern a multimillion-dollar contract.

"Howard's fans are very, very faithful," says Jay Clark executive vice president of programming for Sirius. "Howard's fans are going to follow Howard."

Similarly, XM has signed Opie & Anthony, an infamous pair of shock jocks who were fired for crossing the line between the sacred and profane when they aired a live account of a couple having sex in a church in 2002.

DJs will have free rein to engage in those sorts of antics on satellite radio, which, as a subscription service, is outside FCC regulations. (Both services' radios do allow parents to block channels.)

At least one commercial broadcaster is citing profanity as one reason listeners should avoid XM and Sirius. The Entercom network is running a series of ads in which unidentified men and women complain about everything from the cost of satellite radio to its reception.

"The ad makes it clear that satellite has arrived," says Chance Patterson, spokesman for XM. "It's also ironic because one of the main reasons people are turning to satellite radio is because of excessive advertising on local radio. So how does local radio fight back? They insert more ads about satellite radio."

ChangeWave predicts that satellite radio may have an audience of 10 million people before 2010. If that figure is correct, it may force terrestrial radio to focus on local strengths and diversify playlists.

"Commercial broadcast radio - terrestrial radio - has gotten so homogenous that people are looking for alternatives," says Mr. Copeland of Business 2.0. "I'm sure you'll see it start to show up in programming if ratings start falling because of satellite. Or if they lose their most lucrative demographic - drive-time men have abandoned broadcast radio - advertisers are going to know what's going on."

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