A Satellite Radio “Mole” speaks out

One of the fun things about this blog is the fact that it attracts whistle-blowers from every corner of the mediasphere.

Recently I got an unsigned snail-mail letter in an envelope with no return address. And inside was a typed note by “a former satellite radio executive” whose settlement precludes him (or her) from public debate.

Now whether or not this person actually was a satellite exec is anybody’s guess. But the comments have the ring of authenticity, that I can tell you.

On the issue of pricing, the writer referenced the recent post I made on this topic:

Yes, pricing itself will resemble the tiered approach that cable exploits so well. But have you ever paid less and settled for basic cable? Then you know you get a lot less. It’s simple – lower subscriber fees will come with less programming choices attached. Ironically, part of the promise (and premise) initially of each service was that your monthly subscription gave you everything the service had to offer.

And what will the “entry level tier” consist of?

A basic and limited representation of satellite radio programming: news, talk, music, and some public service. The number of channels will be significantly less than the eventual aggregate whole of the merged companies. Probably no high profile programming like Major League Baseball, NASCAR, the NFL, etc. That content will eventually be attached a la carte to a premium tier. So far, premium tier pricing hasn’t worked for XM and Sirius has yet to dip their toe in those waters. Their best bet is Howard but they’ve already promised he will remain part of the basic tier. Of course, they could renege. What’s also been lost is the fact that once an aspect of the service goes to a premium teir, eventually payments to that service provider also rise.

The writer goes on to challenge the notion that subs will pay premium rates for premium content. And even if they do, says the writer, the content providers will have their hands out for a bigger slice of the pie. True or false? Hard to say. I do NOT think subscribers will “run the numbers” for a year in order to determine whether or not the content is worth the money. They will make their decisions in the shortest possible window: One month at a time. God knows, if I tally up the amount of money I spend on cable for an entire year I would pass out right now.

The writer continues:

Consider what the music structure might look like in a merged company: XM has 69 commercial-free channels. Sirius has 69. Does that mean a merged company will have 138 music channels? Of course not. A combined company would need only 70-75 music channels to cover most of the audience’s appetites. And even if you plead that a merger should create more choices and end up adding another 25 channels you’d have to tack on a big number to cover the rights fees.

And finally, the clincher:

Assuming each music channel averages 40kb bandwidth, the approximate net gain from the channel consolidation is 1520kb of bandwidth. Most of that would go toward premium services. So what’s the true killer app for premium services? Video, of course. Once satellite radio starts pumping video into the backseat of OEM vehicles, the real gravy will start to flow. Their automotive partners already know this is the new frontier. Satellite radio will need to come along if they plan to be part of the brave new dashboard because OEM is the future of satellite radio.

Great phrase: The “brave new dashboard.”

This assessment is correct, in my view.

OEM, in one form at least, is the future of satellite radio.

As it is, in one form, the future of ALL radio.

And what a merger really buys Sirius and XM are not more choices for consumers, but more bandwidth for video which consumers will invariably demand.

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