Satellite Radio

In the beginning, there was AM radio.  Then came FM radio.  The differences between these two technologies are explained in this article (AM & FM Radio Preferences).  The bottom line is that at any location, there is a reasonable but limited number of radio station choices and that AM stations have wide coverage while FM stations have better quality.  Into the fray now comes a new technology: satellite radio.

In the United States, there are presently two major satellite radio services: XM Satellite Radio and Sirius Satellite Radio.  The business model for satellite radio follows that of cable/satellite television: it is a subscription service that requires special equipment to receive a large number of channels with high quality signals.  According to the press, XM has 1.7 million subscribers who pay US$9.95 a month while Sirius has 261,000 subscribers who pay US$12.95 a month.

We will now refer to some data from the recently released MARS study.  This is a survey of 21,054 adults in the United States conducted during the first quarter of this year.  This sample is weighted to the total US population of 214 million adults.  Within this survey, a weighted total of 3,275,000 (or 1.53%) of the respondents said that their households subscribe to satellite radio.  The chart below shows some demographic characteristics for satellite radio subscribers.  Just like the infancy of cable television, the early adopters of satellite radio, being a subscription service for high-quality products, tend to be more affluent and better educated.


(source: 2004 MARS study)

In the next chart, we see a couple of odd facts about satellite radio.  County size is a standard way of characterizing the urban nature of geographical areas.  The United States is divided into more than 3,000 geographical areas known as counties of various physical sizes and population counts.  At one end of the scale, the "A" counties are those in the largest metropolitan areas such as New York City, Los Angeles, Chicago, Philadelphia, Washington DC, etc.  At the other end of the scale, the "D" counties are those have small populations and away from large metropolitan areas.  In the large metropolitan areas, many people live in large apartment buildings so that individual satellite equipment may be hard to install.  Besides, large metropolitan areas are served by large numbers of radio stations.  That is why the "A" counties have the lowest incidences.  By contrast, the "D" county residents have very few radio stations to listen to, especially if they live in small towns or on isolated homesteads.  Thus, satellite radio is an easy way of accessing radio media.

The MARS survey also includes questions about radio listening.  Based upon their total daily listening hours, the respondents were sorted into five quintiles (each being 20% of the population, by definition).  Obviously, people who listen to little or no radio are least likely to subscribe to satellite radio.  The highest subscription occurred in the middle quintile, and not the highest quintile.  Why?  Very typically, the highest quintile might be someone who is driving a taxicab or a semi-trailer truck for hours on end.


(source: 2004 MARS study)

To some people, the most appealing part of satellite radio is not the superior technology in so far as coverage and audio technology are concerned.  In the United States, AM and FM radio are regulated by the Federal Communications Commission, which have issued large fines for improper content and behavior (e.g. the US$75,000 fine imposed on Clear Channel Communications for comments made by "Bubba the Love Sponge" and the US$475,000 fine imposed on Clear Channel Communications for indecency on Howard Stern's program) with the constant threat of the ultimate sanction of license withdrawal.  Unlike broadcast radio, satellite radio is not under the jurisdiction of the Federal Communications Commission because it is a subscription service.  Thus, if you find the content on satellite radio objectionable, you don't have to subscribe to that service and you won't be offended.  The same situation exists in the United States for cable/satellite television vis--vis VHF/UHF broadcast television.  So satellite radio may become the safe harbor for racy, raunchy and unregulated content as on cable television.

From the MARS study, 23% of the respondents say that regularly listen to news talk radio programs.  Among satellite radio subscribers, the incidences goes up to 31%.  If the "shock jocks" such as the very popular Howard Stern decide to move from broadcast radio to satellite radio in order to escape the yoke of the FCC, this may become a great opportunity for satellite radio to obtain new subscribers quickly.

(posted by Roland Soong on 4/27/2004)


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