Satellite radio and the internet: a new combination

Citation

Pitta, D.A. (2009), "Satellite radio and the internet: a new combination", Journal of Consumer Marketing, Vol. 26 No. 4. https://doi.org/10.1108/jcm.2009.07726dag.002

Satellite radio and the internet: a new combination

Article Type: Internet currency From: Journal of Consumer Marketing, Volume 26, Issue 4

Edited by Dennis A. Pitta, University of Baltimore

From the early days of the worldwide web, bricks-and-mortar radio stations replicated their broadcast operations online. The move took little effort; it seems like they simply split their broadcast output and connected to an antenna and the internet. Some of the online radio stations were intended to replicate not only the programming but also the advertising exposure. Media specialists set about trying to quantify the reach of the internet stations and some of the results were a bit surprising. Local radio is a local medium. That is no surprise. The surprising thing was that some listeners listened from afar, from across the country or across the ocean. Actually, that should not have been a surprise. After all, the worldwide web has global reach. The issue was that the local grocery chain, advertising its weekly specials, suffered much wasted exposure. Arguably, quantifying advertising effects from the online stations was problematic.

Contemporaneously with the online efforts, satellite delivery became feasible. Advocates of satellite radio note that the distance from a given satellite to any point on the earth’s surface is about the same and reception is great. Satellite delivery represents a quantum leap in reception quality and program variety. In the USA, traditional medium wave radio has a relatively short range. Unlike short-wave transmission that can span the globe, medium-wave transmission offers reliable coverage over a few hundred miles during the day. At night, depending on atmospheric conditions, they have a longer range.

Listeners traveling on long automobile trips have endured the annoyance of radio stations fading out as they pass through their reception area. Satellite radio remedies the uneven coverage. The consumer benefit of uninterrupted coverage is significant enough to change the business model. Instead of traditional advertiser-funded programming, the consumer pays directly through satellite subscriber fees.

The two main satellite radio providers in the USA are Sirius Satellite Radio (see www.sirius.com) and XM Radio (see www.xm.com). Both use the subscriber model and have enjoyed a healthy competition. Recognizing the ease of porting their programming to the internet, both have offered their subscribers the option of accessing programming from their desktops. Currently, subscribers can log into the providers’ home pages, enter their user IDs and passwords and select programming much like they can in their automobiles.

The satellite competitors have taken a solid marketing approach toward satisfying their audience. After all, they charge $100-200 per year in subscriber fees and compete with free broadcast radio. That price differential is a significant obstacle toward adoption.

The first prong in their competitive attack is to work with automobile manufacturers to build satellite receivers into new cars. Add-on receiver units are available to install in any automobile. Typical subscribers simply buy a radio and a subscription, and then install the unit themselves. Some installations can be charitably described as amateurish. In contrast, the car manufacturers’ installations are professional, neat and reliable. The result is that new cars and now some used cars already have a receiver installed, which removes one barrier to subscribing.

The second element is to provide significant value added. Admittedly, the availability of continuous reception on long-distance trips is valuable. However, for many, the majority of driving is commuting from home to work. The trips are short and local reception is usually good. Thus the need for satellite entertainment for this segment is low. There are some needs that may be more important than entertainment to all drivers. One annoyance that all drivers may face is a problem on the road: congestion or traffic jams caused by unpredictable accidents or planned road maintenance. That annoyance may morph into danger if an accident involves multiple cars. Since many drivers now use global positioning satellite (GPS) receivers to navigate from place to place, XM has found a way to marry their service to those units. XM NavTraffic is the nation’s first satellite-delivered traffic information service. XM states that it uses the vehicle’s navigation system to display constantly refreshing and current traffic conditions for a given route. Currently the service covers 80 markets in North America and provides critical and customized information such as traffic congestion, accidents, incidents, road construction, average speed and estimated driving time. The information is based on verified national and local traffic data. It is delivered by XM’s network for user-friendly display on the vehicle’s NAV (GPS) screen. It seems to be the most accurate and reliable way to get up-to-the-minute information on road and traffic conditions. Since weather affects traffic conditions, XM aids subscribers by providing dedicated weather channels for numerous cities.

Pricing

As mentioned above, satellite radio subscriptions are significant. However, consumers may choose different bundles of services to fit their budgets. Each vendor lists the following subscription fees:

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  XM Radio only – $12.95 per month;

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  XM Radio & XM NavTraffic – $16.94 per month;

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  XM NavTraffic Only – $9.94 per month;

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  Sirius Everything plus the Best of XM – $16.99 per month;

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  Sirius Everything – $12.95 per month; and

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  A la carte – starting at $6.99 per month.

With today’s elevated fuel prices, even the premium packages’ monthly fees are cheaper than a tank of gas, reducing the apparent size of the barrier that price represents.

As this column was being reviewed, XM and Sirius announced what is tantamount to a merger. Both will provide common programming. In a co-marketing arrangement, Sirius subscribers can listen in to “The Best of XM on Sirius”. Subscribers can add XM channels to their Sirius subscription. Doing so will provide programming like “Oprah & Friends, MLB Home Plate, Opie & Anthony, NHL and NBA games, the 24/7 NHL Home Ice Channel, The PGA TOUR Network, college sports, every IndyCar^® Series race and XM Public Radio”. The line-up offers some interesting alternatives.

All of the features from each vendor are available on subscribers’ desktops. Having access to customized, commercial free programming in the car, at home, and at the workplace offers added value. The idea that XM users might tune into the XM NavTraffic channel before leaving work for home seems to be an intelligent survival strategy for navigating through the “big city”.

The providers recognize the value of desktop access. Recently, Sirius announced the end to free desktop access of its programming to ordinary Sirius subscribers. In a message Sirius noted, “On March 11, 2009, we will upgrade the online listening experience to near CD-quality digital audio. Satellite radio subscriptions will no longer include internet radio at no charge”. The company used the trusty marketing “limited time offer” tactic and promised, “If you renew your subscription now, you will continue to get online listening for FREE for the length of your subscription”. After March 11, Sirius will charge $2.99 per month for online listening. The competitors are learning to customize their pay-to-play business model.

It seems likely that commercial free satellite and online radio will grow in importance. That development will put further pressure on the traditional advertising-supported free entertainment model. In the future, advertisers will have to seek other means of getting their messages to target audiences.

Reader requests

Please forward all requests to review innovative internet sites to: Dr Dennis Pitta, University of Baltimore, 1420 North Charles Street, Baltimore, MD 21201-5779, USA. Alternatively, please send e-mail to: dpitta@ubalt.edu for prompt attention.