Major labels and satellite companies are largely mum on their upcoming rates negotiations. But XM CEO Hugh Panero was happy to discuss the business and technological challenges and opportunities laying ahead for his company and satellite radio, in general.
Billboard.biz: Wall St. analysts talk about a five-year window of opportunity for satellite radio, before convergence technologies such as wimax or other wireless networks become major competitors. What do you think of this concept? And of the competing technologies currently in existence, which do you think has the greatest staying power and will likely be your longest-term competitor?
Panero: There are a lot of choices out there for consumers. Our competition is any entertainment platform/delivery system that distracts consumers. Certainly portable MP3 players have become a mainstream consumer product. Our strategy has focused on integrating with MP3 manufacturers to combine the passion and breadth of our vast programming lineup with the flexibility of MP3. This will become a major market for us in 2006.
Billboard.biz: We’ve heard a lot about how your content and programming could be a key way forward, with you licensing shows and programs, even to other, potentially competing platforms. But there’s also the idea that your infrastructure and networks could be shared by others. Is this happening to some extent today? What about deals with Honda Acura (Honda having its own dedicated traffic channel)? How do you envision this being a potential revenue generator moving forward?
Panero: Our satellite bandwidth gives us an opportunity to offer data services that complement our core radio service and creates new revenue opportunities. One example of a data service is XM NavTraffic which delivers real-time traffic information to vehicle navigation systems. This type of capability is appealing to car companies – it’s an easy way for them to offer a useful service and stay connected to the car buyer after they leave the dealership with their new car. It’s available on the Acura RL and Cadillac CTS today and will become a common offering in the next few years. We have other data services like real-time weather and in-vehicle messaging that will also become broadly adopted. Our partners Honda, GM, Toyota, Nissan and Hyundai have long-term plans to integrate XM’s radio and data services in millions of vehicles.
Billboard.biz: Satellite radio is a broadcast technology, and not a serving technology. How does this play to your advantage, moving forward?
Panero: Our system is unlimited in terms of the number of listeners it can serve. XM can accommodate an almost infinite number of listeners without the strain and incremental costs associated with server-based two-way technologies that have capacity limits. In fact one of the things that sets our business model apart is that, having already made the investment in our infrastructure, the more subscribers we have, the more efficient our service becomes financially. In essence, the marginal cost of adding each new subscriber decreases. That creates a very favorable business position for XM over the next few years as we reach 20 million subscribers by 2010. We will use our robust broadcast platform to partner with two-way communications platforms like cellular phones. XM will become a part of a wide array of products beyond what is offered today.
Billboard.biz: We hear from some in the music industry that satellite is placing obvious value on sports and talk, but seem less willing to pay up for music. With major label licensing set to expire next year, for XM, is music ultimately your most important content, or do the realities of your subscriber base dictate a greater interest in sports, talk and other non-music programming options?
Panero: XM has created one of the most important new revenue streams for the record industry as well as an important promotional platform. In fact, satellite radio is the single largest contributor of performance royalties to artists and record labels. So I have to say I disagree with the premise of your question. Obviously music is at the core of our offering to consumers. What we’ve been seeing lately is the usual saber rattling that precedes any renegotiation.
Billboard.biz: As a final point on new technology, could you shed some light on next year’s portable receiver developments? We understand there’s a satellite-enabled MP3 player in the works. What can you tell us about that?
Panero: XM is building on the success of our XM2go portable device line by offering an MP3-enabled device that will allow music fans to organize and sort what they record from XM. The new device updates the original cassette, home-taping experience with the addition of Tivo functionality, which consumers have come to expect. The taped content on these devices is not on demand, not transferable and, like cassette taping from from the radio, some of the songs are “stepped on” by DJs. If an XM subscriber wants a transferable, pristine copy of a song they hear, they can purchase that track from our integrated music service XM + Napster, which puts the music discovery aspect of our service “on steroids” by combining XM’s playlist with Napster’s vast library.