Sirius Needs To Address Internet Radio

Cheers to Sirius XM Radio for launching an aggressive ad campaign on Nov. 15. Retailers would have preferred to see it a year earlier, but few will blame CEO Mel Karmazin for trying to resolve some nagging problems (merger, near-bankruptcy, wallet-closing recession) before making a big ad spend.

But if Sirius XM wants to really show it’s back and firing on all cylinders, it needs to reveal a plan to compete with Internet radio, beyond the offering of an XM SkyDock.

Internet radio’s star is rising fast. Listenership for Internet radio was up almost 40 percent in 2008 over 2007, hitting 6.67 billion hours last year, according to AccuStream iMedia Research.

Pandora claimed more than 9 million downloads to the iPhone, and said half of those users listen to Pandora in a car. Then there’s another 4 million people who have downloaded Pandora to a BlackBerry, Android or Palm Pre. If you calculate that 12 percent of Pandora users also subscribe to satellite radio, as Pandora claimed, then fuzzy math might show this leaves 5.7 million Pandora car listeners who may have opted for Internet radio over satellite radio.

Sirius XM claimed 18.5 million listeners, and this figure is down from 19 million at the close of 2008.  Pandora has been adding a total of 2 million registered U.S. users (including PC users) per month, it said.

Internet radio is almost certain to gain more ground in the car.  More than one car maker has expressed interest in the technology as a selling feature.  Your next car might come with a touchscreen radio showing a Pandora widget. Such a system was shown in New York last week by a consortium of technology companies under the NG Connect program.  The demo system in a Toyota Prius ran over a 4G/LTE network and could be adopted in cars in 2012 at the earliest.

To be fair, there’s a lot that can be said for satellite radio over Internet radio.  I’ve been a fan of satellite radio from the start, and I love its programming. Plus there are no commercials. Another point: Cellular carriers are running out of bandwidth.

iSuppli analyst Egil Juliussen noted, “AT&T is already having trouble keeping up with iPhone bandwidth demand. I think Internet radio is a desirable service, but I think the bandwidth demand quickly becomes a major headache for the cellular operators when the number of users hit a certain range.” 4G might solve that problem, but 4G/LTE won’t be fully deployed until 2014 or later.

Also, satellite radio has the advantage of being offered in 55 percent of automobiles and light trucks, expected to climb to about 65 percent in the future.

Further, Internet radio on a smartphone requires a data plan (which is not free), but then again, smartphone penetration is at 19 percent according to Palm, and will double by 2013, so that’s a lot of people who will already have data plans.

So again, I was glad to hear that satellite radio, with its merger and liquidity issues behind it, will launch its biggest ad campaign to date.  But the company needs to do more than continually claim it has the best programming on radio, with free Internet radio nipping at its heels and at worst throwing up a roadblock.