• by Larry Dobrow , Featured Columnist, April 25, 2005

If you believe everything you read, satellite radio is well on its way to ending the decades-long reign of terrestrial radio. Consumers have abandoned their local drive-time standbys in favor of satellite's commercial-free music and edgy chat. Marketers too, have jumped on the bandwagon, fleeing terrestrial's time-tested commercial pods to ally themselves with the flashy new kid on the block.

In reality, however, satellite radio isn't yet draining more than an infinitesimal fraction of listeners and revenue away from terrestrial stations. And while its diverse content and cachet as the exclusive radio home of Howard Stern virtually ensures continued growth, single radio stations in New York City often boast an audience as large as satellite's entire subscriber base.

Consider the following numbers: According to the Radio Advertising Bureau, terrestrial radio generated $20 billion in revenues in 2004. Weekly listenership is estimated between 200 and 250 million adults. xm and Sirius, on the other hand, currently boast anywhere between 4 and 5 million subscribers. Even with wildly optimistic growth projections, they probably won't hit the 8 million mark by the end of 2005. Too, neither company projects to turn a profit anytime soon.

Terrestrial radio executives praise xm and Sirius as savvy marketers, but most of their comments about satellite radio lean toward the dismissive. They stress that recent changes  such as Clear Channel's mandate to scale back the number and duration of radio commercials  have been motivated by a range of factors, rather than a tidal wave of positive press for satellite radio. Not surprisingly, then, they group satellite radio with iPods, online radio, tv, and other entities competing for consumer mindshare.

"The improvements radio is making are not a reaction to satellite radio," says John Hogan, Clear Channel Radio's ceo. "If anything, it's more in response to changing lifestyles and technologies and competition from television than from other radio options."

Hogan's Infinity Broadcasting counterpart, chairman and ceo Joel Hollander, points to the disparity in listening audiences. He says that satellite should be focusing on newer technologies that could leapfrog it, rather than terrestrial stations with a far greater reach.

"I don't concentrate one minute a day on what satellite radio is doing," Hollander shrugs. "They're not competition to me. There has not been one nickel that this company has lost to satellite radio."

Of course, it's not like satellite radio boosters are lining up to tout the virtues of terrestrial radio. Asked if he thinks terrestrial stations have shifted strategy in response to the threat posed by satellite, xm director of corporate affairs David Butler responds, "It's been amusing to watch. At first, they generally dismissed satellite radio. Then, last year, the radio conglomerate Entercom started running radio ads with actors pretending to be dissatisfied satellite radio customers. It was wonderfully ironic, when you consider that one of the reasons people like satellite radio is the commercial-free music, and a terrestrial radio conglomerate tries to attack us with commercials."

Adds Sirius Executive Vice President of Marketing Mary Pat Ryan: "Consumers are smart. They've been fans of radio for years and they're comfortable with the medium, but they see no innovation whatsoever." Media planners are taking a decidedly different approach towards the burgeoning competition. The question isn't whether they love what satellite has to offer  to a person, they do  but few believe that it's a viable option for marketers at this point. Their main problem with satellite isn't the comparatively small number of advertising and promotional opportunities; ads are by and large limited to xm and Sirius' talk stations. Rather, they cite a lack of precise measurement metrics as the predominant reason they won't be recommending satellite to clients anytime soon.

"There's no way of documenting their listenership on an average-quarter-hour basis," says Carat North America vice president, regional spot director, Dennis McGuire. "They can tell you how many subscribers you have, but they can't quantify it yet on a specific demographic basis."

"We live in accountable times," adds Maribeth Papuga, senior vice president, director of local broadcast at MediaVest. "It isn't like [terrestrial radio measurement] is that much better  it's still diary-based. But on satellite, we have no idea who's listening or when they're listening. That's a problem for us." Sirius has tried to address this, hiring a pair of measurement-minded ad execs, Infinity veteran Sam Benrubi and former wfan manager Stephen Smith.

xm, however, gets the nod from the media community in another important area  education. While the media blitz would lead one to presume that everybody is entirely familiar with everything satellite radio has to offer, radio buyers and planners want more  more information about marketing opportunities, more hints about future plans, more compelling reasons why they should shift dollars towards a medium they still perceive to be in its infancy.

"xm has been better than Sirius in terms of getting out to planning groups and buying agencies," says Irene Katsnelson, Universal Mc-Cann's vice president, director of national radio. "What we all need is for them to come in and say, 'This is what we represent.'"

Asked whether the threat of satellite radio to terrestrial stations has truly been overstated, pundits are split. They scoff at the possibility that terrestrial radio should be shaking in its boots, but at the same time, note that terrestrial has numerous problems that have little to do with satellite's perceived competitive nuisance. Mercury Radio Research Presi-dent Mark Ramsey, who has worked for terrestrial-radio conglomerates and handled a research project for Sirius, believes that traditional radio stations could learn a thing or two from satellite's demonstrated ability to excite its audience. He mocks the industry's current $28 million trade campaign, which features artists like Avril Lavigne rhapsodizing about radio's role in kick-starting their careers.

"They're devoting millions to a campaign that runs on their own air and extols virtues that they don't have," he notes. "Radio has tons of powerful attributes  local information, relationships with the personalities  but 'hearing things first' isn't one of them in the peer-to-peer era. If this is the forward charge in radio's war for attention, maybe satellite has a shot."

Fritz Messere, professor and chair of the communication studies department at the State University of New York at Oswego, also hails satellite radio's ability to energize its audience. At the same time, he notes the borderline indifference of younger listeners to terrestrial stations, which could have implications for the medium's health down the road.

"They have to be excited again about radio," he stresses. "When we were getting my 19-year-old daughter ready for college, we asked her if she wanted a radio. She said no  and she's a music major."

As for the future, most observers view satellite radio as a medium unto itself, rather than a mere outgrowth of terrestrial radio. Growth projections are mixed: Messere anticipates 15 million satellite subscribers by the end of the decade. Butler says xm will surge to 5.5 million subscribers by the end of the year, while Sirius recently raised its 2005 outlook from 2.2 million to 2.5 million.

One of the few things satellite and terrestrial executives agree on is that there doesn't necessarily have to be a winner in the battle for radio supremacy. "We see satellite radio as a complement to local radio, in the same way that cable and satellite tv complement local tv stations," says Butler.

Hogan echoes this sentiment. "There is definitely room for both," he says, noting that Clear Channel was an early investor in xm. "We see all delivery options as business options, not threats." In other words: It should be an interesting next few years.