The Satellite Radio Blues

Why is XM Sirius on the verge of bankruptcy?

America's only mass-market satellite radio broadcaster nearly went bankrupt last week. Only a last-minute infusion of cash from the cable conglomerate Liberty Media saved XM Sirius from Chapter 11, and there's no guarantee the new investment will be enough for the enterprise to survive. Beloved by listeners and feared by its earthbound competitors, satellite radio offers far more variety than can be found on the AM and FM dials, with hundred of channels offering everything from bluegrass to C-Span to a 24-hour hair metal feed. But that might not be enough to keep the company alive.

Part of the problem, naturally, is the recession. XM Sirius isn't just trying to expand its audience at a time when consumers are spending less. It's bundling its product with new cars at a time when the auto industry is on the verge of collapse. So it's bound to be hurting right now no matter what the long-term radio trends might be.

But there are other factors in play as well, two of which deserve special attention.

The government. In 1997, when the Federal Communications Commission started taking bids for the right to run a satellite radio service, it auctioned off only two licenses. This wasn't because there were just two firms that wanted to try their hands at satellite broadcasting. In addition to the enterprises that eventually became known as XM and Sirius, two more businesses made bids: the Digital Satellite Broadcasting Corporation and Primosphere. But the FCC, playing its role as the zoning board of the ether, decided to allocate only enough space for two companies to compete. So only two groups of people with two business plans were able to try their hands at the medium.

Would another company have succeeded where XM and Sirius are failing? I don't know. The FCC didn't know either when it shut off the spectrum to other entrants. The only way we could know is if those additional broadcasters were allowed to try.

When it became clear that Sirius and XM weren't going to be able to make it on their own, the two firms decided to merge. That gave the government another chance to stand in the way: It took the Federal Trade Commission 13 months to approve the deal, and then the FCC dragged its feet for another four months before blessing the combination. By the time XM and Sirius had permission to marry, the country was seven months into the recession.

The Internet. The government intially approved the idea of licensing satellite radio companies in 1992, five years before it auctioned off the licenses and nine years before the broadcasts began. The technology existed to create such a service even earlier. The delay cost the medium dearly: Satellite radio is a Cable Age technology that didn't launch until the Internet era.

I don't mean it literally runs through cables, of course. I mean it resembles the revolution achieved by cable TV in the '80s much more than the current changes sweeping in via the Web. Satellite radio allows many more media options, but the number of channels it offers is still much smaller than the number of audio sites on the Net. While it increases the number of producers, it does little to break down the boundaries between producer and consumer. And it lets a company with a government franchise make the key editorial decisions. If anything, satellite radio marks a slight step back from cable. If pay TV followed the satellite model, your cable company would own virtually all the channels it offers—and there would be no public access stations in the lineup.

Compared to the broadcasting system that preceded the Cable Age, such a setup meant a sharp rise in consumer choices. Compared to the online world, it seems centralized, inflexible, and closed off to audience participation. The XM and Sirius lineups are wildly diverse when contrasted with the wares on the AM and FM bands, but there's even more available on all those webstreams and podcasts and audioblogs—everything from a Czech country station to an outlet devoted entirely to bellydancing music. Put together, those tiny operations are building a big audience: Internet radio listening has been growing steadily for the last few years, despite some crippling regulatory barriers imposed by the Copyright Office.

And that's not all the disenchanted radio fan can find on the Web. There's also Internet downloading, both legal and illegal, and the ability to play DJ by sharing playlists with your friends. (The iPod now occupies the social space once held by the portable transistor radio.) More than on any other electronic medium, experiences on the Web can be both personalized and shared. Internet access is increasingly portable as well, eroding the last substantial advantage held by traditional (and satellite) commercial broadcasters.

Listeners aren't failing to adopt satellite radio because they prefer AM and FM. After all, terrestrial radio has been suffering too. They're failing to adopt satellite radio because there's even more variety available on their computers. One revolution has outpaced the other.

Managing Editor Jesse Walker is the author of Rebels on the Air: An Alternative History of Radio in America (NYU Press).