Satellite radio duo tunes up for ad duel
BenStern
By Paul Bond
Reuters
Monday, October 24, 2005
LOS ANGELES (Hollywood Reporter) - As Howard Stern has geared up for his
January arrival at Sirius Satellite Radio, so have efforts to woo
advertisers to his show.
One published report has Sirius charging $20,000 for a live read by Stern,
the same price he currently commands for his terrestrial radio show that
attracts 7 million listeners a week.
However, if every Sirius subscriber tunes to Stern in January, he'll have
less than half that many listeners.
Stern's impending arrival at Sirius is putting a spotlight not only on the
competition with rival XM Satellite Radio for subscribers but also on the
still-nascent initiatives by both players to attract advertisers.
ChangeWave Research founder Tobin Smith estimates that five years from now,
8%-12% of Sirius' revenue will come from ad sales, while at XM it will be
about 5%. Stern and Sirius CEO Mel Karmazin, a legendary radio ad man, will
account for the disparity, according to Smith.
Not figured in Smith's advertising analysis is electronic commerce, whereby
listeners to the commercial-free music channels on XM and Sirius will be
able to purchase songs and CDs they hear at the push of a button. "That's
sort of an ad, and that will be tens of millions in (additional) revenue for
each of them," he said.
Currently, XM is ahead of Sirius in terms of total ad sales and the
percentage they contribute to total revenue.
For all of 2004, for example, XM reported $8.49 million in ad revenue
compared with Sirius' $906,000 in ad sales net of agency fees.
However, Sirius already has topped that figure with $1.59 million in ad
revenue for the first half of this year2005. While still less than 1.7% of
total revenue, this was up from only $150,000 for the first six months of
2004.
Karmazin has said publicly that advertising eventually will represent 10% of
overall revenue at the company. He did not offer a time frame for that goal,
and neither Sirius nor XM would comment on their ad targets and strategies
for this article.
Part of the reason might be that both have worked hard to promote the
ad-free aspect of their businesses. Each sell commercials on their talk,
sports, news and comedy channels but not on their music channels.
"My presumption is that that is not well understood by the consumer," said
Peter Winkler, director in the entertainment and media practice at
PricewaterhouseCoopers, suggesting that many potential subscribers assume
that commercials don't exist at all on satellite radio.
PwC predicts that Sirius and XM together will boast 20.5 million subscribers
in 2009 and between the two will garner $3.2 billion in revenue just from
subscriptions. Sirius now has 2.17 million subs to XM's 5.03 million. PwC
never has published ad revenue expectations for the industry, though Winkler
said that this will come as early as next year.
Winkler calls satellite radio advertising "a hotbed of experimentation" that
might include some sponsorship opportunities on the "commercial-free" music
channels in the future.
One experiment recently discussed by Sirius senior vp advertising sales Sam
Benrubi at an industry breakfast is for a 2 1/2-minute commercial spot that
Sirius sold to a liquor maker. Some say this is an ironic concept when one
considers that Clear Channel Communications, the biggest terrestrial radio
company, has been touting shorter commercials in its efforts to compete with
celestial radio.
"Satellite radio won't go from zero advertising to an abundance of
advertising," Winkler predicted, "but with content acquisition and other
costs associated with getting profitable, they'll need that additional
revenue."
Cody Willard, a hedge fund manager specializing in new media, agrees that
sponsorship might be headed to commercial-free channels and predicts that
satellite radio will help to reshape the ad industry in unknown ways.
"The interstitial radio commercial as we now know it is dying and won't
survive into the new-media revolution," Willard said. "All old-school media
are facing secular declining revenue streams, as the Internet, sat radio and
other new forms of delivery supplant the long-dominating media outlets."
Willard said satellite radio, with its 7.2-million user reach, already has
got the attention of advertisers but predicted that the ad money won't start
flowing in earnest for another three years or so. By then, though, the
demographic of Sirius and XM's listeners might not be quite as appealing to
certain advertisers.
"Currently, sat radio's primary subscriber base is very high net worth,
young, early-adopting consumers and businesses," he said. "That will change
as it becomes increasingly mainstream."
Reuters/Hollywood Reporter
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