Early one morning in June, executives from Sirius Satellite Radio waited expectantly at a former Soviet space complex in the central Kazakhstan desert.
They had traveled to the Baikonur Cosmodrome, which launches commercial satellites, to watch the first Sirius satellite take flight. Their high hopes contrasted with the surrounding terrain, which one executive later described as 'one of the most desolate places on Earth, to be honest.' Empty silos that once housed missiles aimed at the United States added to the gloom.
But the landscape brightened when the rocket blasted off at 4 a.m. 'It was quite spectacular - a lot of force, a lot of light, a lot of sound,' says Tracey Stanyer, a Sirius vice president. As the rocket's first stage fell away, he recalls, 'It was like an aurora borealis. It lit up the whole sky.'
Sirius and its competitor, XM Satellite Radio, hope to have an equally spectacular launch next year. They will introduce a new form of radio - satellite radio - with competing subscription services offering 100 channels each.
Unlike traditional radio, the services will use satellites to beam digital sound that can be heard clearly throughout the United States. Original programming will include talk and virtually any imaginable musical format. Consumers would pay about $10 a month for the service, which requires special receivers.
Automakers are major players in the new venture. Their involvement, in fact, far exceeds their relationship with any other medium. General Motors, Ford Motor Co., DaimlerChrysler and American Honda Motor Co. are partial owners of satellite radio services (See box at right). Future benefits could be enormous:
1. Automakers will get a percentage of subscription fees and incentives for putting the radios into their cars. According to the XM annual report, XM will pay GM at least $400 million by 2009.
2. Some will bundle it with their telematics services.
3. They will use it as a marketing medium, too, in ways that go beyond traditional radio advertising, particularly for relationship building.
Susan Curran, assistant media director for Starcom, sister company to the new General Motors Planworks media planning agency, says that if satellite radio succeeds, its national niche stations would make appealing ad buys.
GM, the nation's No. 1 advertiser, spent $17.5 million on national network and spot radio in the first six months of this year, according to Competitive Media Reporting. GM dealer associations spent an additional $14.3 million in the same period. Curran says that some of the money could go to Sirius and XM if satellite radio succeeds in winning subscribers.
'The targetability is exceptional because you do have such niche programming,' Curran says. 'Radio is targetable; they're just making it more targetable.'
But Curran also admits that building a critical mass of listeners may take time.
'I think it will be adopted over the long term, but I think it will be a very long adoption curve,' Curran says. 'We're in a wait-and-see mode, but it definitely has some potential.'
Ready to roll out
The experiment starts in earnest next year, when the first new cars with satellite radios appear in dealer showrooms. The service likely will debut on luxury models - GM, for instance, has said it will first appear on Cadillac models - but also should spread quickly to less-expensive cars bought by young music lovers.
'You'll start to see quite a lot of activity next year,' says Richard Lee, executive director of satellite radio services for GM's OnStar unit. 'We're gearing our first salable products into the start of the 2002 model year. We plan to have a very aggressive ramp-up from there.'
How quickly consumers might subscribe - or whether they will sign up at all - is a matter of debate. Charles Chapman, senior vice president for original equipment manufacturers for Sirius, says satellite radio could equal the 75 percent market penetration of cable TV.
'We think we could approach the same kind of numbers in five to six years,' Chapman says.
Gary Fries, president of the Radio Advertising Bureau in New York, is more skeptical. Satellite radio faces a major hurdle in getting consumers to pay for a medium that has traditionally been free, he says.
'Radio is free, and ... subscription services and nontraditional things have not had success,' Fries says.
Satellite-radio executives counter that they will eliminate many irritating features of radio, such as fading signals, limited formats and long ad blocks. Music channels will be commercial-free, they say, while talk and news channels will have limited advertising. And satellite broadcasters are studying ways to provide local traffic and weather reports.
Home listeners, long-distance truckers and boaters are all possible subscribers. But the car-radio listener is the essential segment to snare.
'New-car manufacturing is central to our overall business plan,' says Daniel Murphy, XM's vice president for retail marketing and distribution. 'That has always been a primary focus for our company to develop.'
Why the auto interest?
Sirius' Chapman says 75 percent of radio listening happens in cars. That explains why both services have signed automakers that will equip cars with radios that can receive satellite radio as well as AM and FM. Car buyers will then decide whether or not to subscribe.
Automakers will get revenue from the services, although they see satellite radio as more than that. They're eager to bundle it with their telematics offerings - those wireless brands such as OnStar that provide navigation, roadside assistance, the Internet and other services. OnStar's Lee said GM, for instance, likely will offer a combined subscription rate for the two services.
And satellite receivers could be combined with global positioning systems. This would allow a satellite to broadcast individualized traffic advice or travel directions based on a vehicle's precise location. Another option: a single push-button function to buy music being played over satellite channels.
Some automakers will go further. Ford gets several channels on Sirius and GM gets several on XM for their own use. Phil Wright, finance director for Ford telematics, says that creates a unique opportunity to build customer relationships by offering exclusive entertainment and information services to their new-car buyers.
Still, awareness of satellite radio is only beginning to percolate out to the auto companies and their ad agencies, not to mention the public. One executive at a major automaker's agency drew a blank when asked about satellite radio. Another thought the service would be like online radio, offering existing AM and FM channels rather than original programming.
Sirius and XM are starting their own advertising campaigns to build awareness. Initially, they are targeting a tricky mix of high-end gadget lovers and young music fans attracted by channels dedicated to such genres as hip-hop, alternative rock, reggae, blues and salsa.
Despite its low profile, satellite radio will be a reality soon. Both Sirius, which is in New York, and XM have gone public, with their stocks listed on Nasdaq. Satellites are going up. And XM hosted the media in September at its new headquarters in Washington, where it has 82 broadcast studios and two 7-meter uplink dishes.
Consumers may not know it, but the countdown has begun.