Saturday, September 23, 2006

4 Million Pieces of Crap

Why is broadcast radio terrified? They are attacking Howard in the press by saying the four million listeners who switched to Sirius in the last year is just a drop in the bucket of their 280 million listeners. But that's exactly why they're so scared. There's another 280 million potential new buyers who might also switch. Sirius has tremendous growth potential.

Sirius has sold four million radios so far. And there isn't any particular reason to think that eventually they might sell tens of millions every year. Apple has sold 50 million iPods since 2001.

One thing that has been holding back Sirius sales that there are shortages of their most popular players. They're selling them just about as fast as they can make them. But there is another thing that has been holding them back. Their radios are crap.

Don't get me wrong, satelite radio is great. It's digitial, you can get a signal anywhere in the United States. It has commerical free music and, most importantly, two channels of Howard Stern.

Unfortunately, the actual radios, the hardware being sold is pretty lousy. The radios are generally ugly, poorly designed and manufactured. I got a Starmate Replay and the LCD broke when I pushed my fingers too hard on it. I then bought the top of the line S50 and the buttons feel cheap and don't respond properly. Moreover, the S50 is suppose to be portable, but you can't listen to Sirius live, you have to have pre-recorded the content. Recording is for some reason limited to 2 hour blocks. Overall, Sirius radios feel like cheaply made electronics from a Chinese knockoff company. These are not slick iPods.

This isn't too surprising. Before Howard announced he was moving to Sirius, the company was in deep trouble. It was losing money like crazy and had less that 600,000 listeners. It makes sense they didn't have the kind of money that Apple has to throw into the research and design of iPods let alone Apple's experience in manufacturing.

But thanks to Howard that's all about to change. 4 million new subscribers represents $40 million in cash a month flowing into Sirius, more than enough to upgrade their products.

And new products are coming, in particular the Stiletto, which looks much slicker and solves a lot of the problems with the S50 including the recording limit. It offers true portability.

Another key development is that the Stiletto will be the first radio that will be able to pick up Sirius in WiFi zones. This will expand the coverage of listening to inside buildings where the need of an antenna prevented fans from getting Sirius. This will mean that people all over the world will finally be able to hear Howard.

And that's the problem for traditional broadcast radio. Their core technology is completely outdated however pretty, cheap and availible their hardware is. That's why they're scrambling for HD radio, but the whole notion of radio being broadcast by individual stations across the country is outdated regardless of any changes they might try. It simply makes more sense to get radio from satelite, and the technology for getting it is simply going to keep improving.

Right now, over 4 million people were willing to buy crappy radios with lots of problems just to listen to Howard. But as the radios improve, people might actually start buying them because they are slick products. How long will it take before a large percentage of those 280 million traditional radio listeners switch over to satelite. It took Apple 5 years to get to 50 million iPod users. I think Sirius might get there a lot faster.

And that's another reason for Sirius to smile. They are not only in the cable television subscriber business (which is a very good business to be in) where they get monthy payments for the content they broadcast, but they are also in the hardware business like Apple. They come out with a cool new product like the Stiletto, and Howard's millions of fans would buy the new toy, AND keep subscribing. Heck, maybe they'll even give the old one to a friend who will then subscribe.

And Sirius has an advantage over Apple because of it's subscription model. When they come out with a new product, rather than discount the old hardware, they can simply give it away for free. As they already are doing with a lot of outdated crappy radios. But it's worth it in the long run for the subscription fees. And guess what, when those new listeners get hooked, they'll buy cooler new radios.

This also works for the retailers Sirius counts on for sales. They understand that this is a business where they can sell a new radio to an old customer anytime Sirius comes out with a cooler, sleeker, more fuctional product. It's a pretty neat trick to suddenly find yourself int the iPod and cable subscription business, to of the most profitable business to be in today.

No comments: