Sirius Could Raise Rates, Trigger New Localization Debate
XM Satellite Radio’s 30% price hike is great news for Sirius, CEO Mel Karmazin told analysts Weed. at the Bear Stearns conference in Palm Beach, Fla. “I couldn’t think of anything that could be better for us,” he said, adding that XM’s decision to raise the basic service package charge to $12.95 “opens up all kinds of options” for Sirius’s next move -- including boosting its own subscription price.
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Even before signing radio shock jock Howard Stern and the NFL, Sirius was charging more than XM: “The fact that we have superior content and the fact that customers are very satisfied gives us the opportunity to raise our prices.” He was quick to note, however, that no decisions have been made on that front, and if prices stay relatively stable, it gives Sirius a “huge competitive advantage.”
Karmazin also took the opportunity to downplay terrestrial radio’s recent campaigns to win back listeners. He said even if stations reduced their ad load 15-20%, they still couldn’t match satellite radio’s commercial-free programming: “I don’t think that in any way, shape or form they can compete with us.”
On Sirius’s nonmusic channels that air commercials, Karmazin said the company is embracing a business model that does not constrain clients to 30 sec. spots. “We want to give the advertiser the opportunity to run advertising any way the advertiser wants to run it.” If a pharmaceutical company wants to run a 2 min. ad during a medical programming block, “we'd be happy to sell you a 2 minute commercial. We'd be happy to sell you a 30 second commercial. We'd be happy to sell you a minute.”
Another possible way for Sirius to please advertisers could whip traditional broadcasters into a frenzy over localization. “If we wanted to tap advertisers in New York for Howard Stern, we could have a New York feed. We could have a California feed. We may choose to have a regional feed,” Karmazin said hypothetically. The local advertising feeds could even be enhanced with local traffic reports and local listener contests to deepen Sirius’s penetration in specific markets.
This is “yet another example of the satellite industry attempting to violate some promises they made to the FCC” since Sirius and XM are supposed to be national in scope, a spokesman for the NAB told us. He said Sirius and XM are “struggling to remain a viable business… and to some degree, are desperate to stay afloat.” If a local advertising initiative did emerge, NAB would no doubt complain to the FCC and Congress, officials said.
Meanwhile, XM’s technology lead over Sirius could evaporate in the next year and a half, Karmazin told analysts. The company expects to launch its first wearable product this year with “all kinds of new devices” in the works: “There’s not a whole lot of more advances that they're going to be able to do that we're not going to be right on their backs.” He also discussed the reasoning behind Sirius’s new deal with NASCAR: “We had compelling content that was very strong in the blue states. NASCAR will bring us into red states.”