Wednesday, February 21, 2007

XM and SIRI Fiasco

This last Monday Mel Karmazin and Gary Parsons admitted that satellite radio would fail. The proposed $11.4 billion merger of struggling satellite-radio operators XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. is an admission their failure in the media space. Sure, there are immense economies of scale in the business, and they can achieve a lower long-run average total cost, but the FCC granted them an outright monopoly in the satellite radio space. Come on guys, get your act together. First they can’t attract enough subscribers to make any money, so they throw a Hail Mary and decide to merge. Remember Mel, if all else fails, just merge. Play around with some corporate finance, hire some bankers, and declare massive restructuring costs to make it look like the decrepit XM SIRI juggernaut isn’t losing as much money as it really is. Time to throw in the towel and sell the only real asset they have—Howard and Oprah.

Why did satellite radio fail?

1. Their business did not address a valid customer pain-point. Satellite radio isn’t that much of a technological advancement compared to terrestrial radio. It is an incremental advancement. You still have the ads, and the sound quality isn’t even that great. You couldn’t pay me to put it in my car. The demand isn’t there.

2. XM and Sirius are battling the era of individual choice. People want to choose, what they hear, and have content that is tailored to their tastes. The iPod has nothing to do with force-fed content like XM and everything to do with choice. We are in an era of user driven content, and people want to hear what they choose. That's why they have chosen the iPod.


Firefly said...

I would not agree that satellite radio is a waste of time and money. My subscription has about two months to go and I plan to re-up. I love getting several public radio stations, BBC, and financial reporting including Jim Cramer. But, satellite radio's greatest drawback is the interrupted reception (I have SIRI). On the freeway or out in the open it works commendably, but passing under bridges or in urban areas near trees or buildings or underpasses, it is a total annoying disaster. Until they perfect the technology so that programs are not interrupted, it is doomed to failure.