• by Frank Saxe , October 22, 2002

Despite all its formats, radio is not always the most targeted of media. You buy a 30 on a Top 40 radio station’s morning show for your pimple cream client because it has killer ratings. Who hears it? A 14-year-old girl with a looming zit crisis. But your spot was also heard by her little brother, her 37-year-old bus driver, and countless other listeners who are more worried about wrinkles than pimples. Yes, you did hit the targeted 14-year-old, but you got a lot of others, and you are paying for them. Whatever radio can do to make itself more targeted, and therefore more efficient, can only be a plus for advertisers. Enter satellite radio.

Starting this summer two competing satellite radio companies, XM Satellite Radio and Sirius Satellite Radio, are beaming radio broadcasts to subscribers nationwide (excluding Alaska and Hawaii). Both offer dozens of highly targeted channels that, because of their sharply defined formats, traditional broadcasters could never afford to program. Because of their newness, both are largely selling their psychographic, not demographic, assets. However, as they build to critical mass they will be in a better position to tap the reams of data that they know about each user.

To ad buyers’ chagrin, the two differentiate themselves in how many of their channels will not air commercials. XM Radio is counting on more advertiser support, with 60 of its 100 channels carrying a commercial load. Sirius touts "100% commercial-free music," so only 40 of its 100 channels have ad opportunities. The key difference between satellite radio and traditional FM or AM radio is spot load. The typical XM or Sirius channel carries two or three minutes of commercials per hour, compared to 12 to 20 minute per hour on over-the-air radio. That creates a less cluttered environment.

For a planner or buyer, satellite radio’s myriad channels can be compared to crafting a media plan for cable television. Both XM and Sirius have 100 channels apiece, with a number of musical genres, plus news and talk formats and specialty channels, such as one devoted to NASCAR. Some of the names are very recognizable. XM has stations programmed or branded by VH1, MTV, CNBC, Fox News Channel, and the Discovery Channel. Sirius has ABC, NPR, ESPN, and Radio Disney. For some advertisers, this could be a lower-cost opportunity to get a product into an environment that it would be priced out of on television.

Now, the drawback: Subscribers are few so far. XM, which has been available nationwide since late last year, has fewer than 150,000 subscribers. Sirius completed its national rollout only July 1, and it has fewer than 50,000. The numbers will grow, however. XM predicts it will have 350,000 by the end of 2002, and Sirius says it will have slightly less than that.

Advertisers won’t have any ratings-like numbers to buy against for some time, so at the moment satellite radio is still very much a qualitative, not quantitative, option. Statistical Research Inc. (SRI) has been commissioned by both companies to conduct audience research, while Arbitron will conduct a pair of studies this year — not to measure how many ears hear the service, but rather how many hours a day people spend with satellite radio compared to terrestrial radio, plus a variety of socioeconomic and demographic data. Researchers will also try to find out how much advertising consumers will tolerate from a subscription service.

"There are some advertisers that are very numbers-driven, and it makes it a tougher sell because there are no numbers yet," says Elana Sofko, director of talk sales for Sirius. With such a small audience to offer advertisers at this point, both Sirius and XM are focusing on creating value beyond the spots, something advertisers also crave. Of course, low rates are just as important. "The rates are commensurate with the audience size," adds Sokfo, noting that charter advertisers have been promised bargain-basement "grandfathered rates" once the service takes off.

Sirius has sold ad time to Pfizer, Office Max, Chrysler, Lexus, Procter & Gamble, and General Mills, among others. XM says its advertiser list already includes AT&T, Carfax, Sears, Kmart, Radio Shack, M&M/Mars, and Kraft. Prior to launching, XM Radio announced it had signed roughly $2 million worth of advertising from a dozen agencies and advertisers. Among those inking "charter" ad deals were Grey Advertising, J. Walter Thompson, Ogilvy & Mather, and Zenith Media, as well as Turner Broadcasting and Discovery Channel’s cable networks. Sirius also sold "charter" deals to The Richards Group, Ogilvy & Mather, and Zenith Media.

"We’re viewing it as cable comes to radio," says OMD director of national radio services Natalie Swed Stone, whose agency has bought time for clients including State Farm, Wrigley, and Infiniti.

Zenith Media SVP of national radio Matt Feinberg agrees. "Satellite radio is not going to replace radio as we know it, but like cable, it will become part of the media landscape." Zenith has been bullish on the format since becoming a charter advertiser with both companies three years ago. Now that it is on the air, Zenith has bought satellite radio spots for Red Lobster, Lexus, and Schering-Plough, among others.

The "dot-bomb" is making others wary, says Sofko. "The demise of the dot-coms has left some advertisers that would have been more proactive a little bit more gun-shy in investing in a new technology."

In an effort to bring in sponsors, both Sirius and XM are being considerably more flexible in their offerings by allowing advertisers to customize their ads. On XM, for instance, spots can be 30, 60, 90, or 120 seconds long — and XM will also create "pro-mercials," produced infomercials that sound like features. XM also allows advertisers to become an exclusive channel sponsor, and although Sirius’s music channels are commercial-free, it will cut deals with advertisers for product category exclusivity on its non-music stations as long as the client gives a "large and long-term commitment." Swed Stone says one client, JC Penney, has become the exclusive sponsor of XM channel 23, a female-skewing adult contemporary channel featuring music by artists like Celine Dion and Michael Bolton. "We love that the clutter is minimal," she says. That small amount of clutter again points Feinberg to a cable TV analogy. In the early days of cable there were few commercials, and any spot that did run certainly stood out. Feinberg says that lack of clutter will put his clients in "good seats."

For the moment, satellite radio is being used by a handful of advertisers that are betting it will become something a lot bigger in the future. "We’re not yet shifting major dollars into it," says Feinberg. "As an agency, we’re only trying to stay aware of what’s happening."