Satellite Radio Turning Profits—But Is It Living On Borrowed Time?

August 5, 2010
Up to 50% of 2009-model U.S. vehicles could feature satellite radio

Up to 50% of 2009-model U.S. vehicles could feature satellite radio

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Satellite radio is just one of many entertainment options in our cars, but it's one that's proven surprisingly popular. And somehow, during a recession, and at a time when all sorts of alternatives are hitting the market, satellite radio is flourishing.

For the third quarter in a row—and after years of losses and a merger of necessity—Sirius XM turned a profit. In fact, there's now a record-high number of satellite-radio subscribers, with Sirius XM now citing 19.5 million subscribers.

Free trials could be paying off

Admittedly, the company's numbers might be a little bit misleading, as a big chunk of subscribers might not be paying monthly fees. So many vehicles are now coming with free trials (most often three months) of Sirius or XM. Even some used vehicles, such as those sold through GM and Ford certified pre-owned programs, come with a trial subscription.

Perhaps one of the reasons for its continued success is that the idea remains simple: Pay a monthly fee, as with cable TV, and you have access to hundreds of channels—including many niches that aren't touched by ordinary FM radio or streaming apps.

With hundreds of channels of programming, and more flexible subscription plans that now range from as little as $6.99, up to about $20, per month ($12.95 is still the standard subscription), Sirius XM [NASDAQ:SIRI] has succeeded in capturing people who want specialized programming (kid-friendly, for instance, or financial news) in their cars.

Obsolete or just finding its way?

And yet, it's a little surprising that satellite radio is doing so well, and in some respects, it's living on borrowed time. For years—even before XM and Sirius came to life, in fact—we've been hearing from infotainment and auto-tech experts that in-vehicle entertainment will become focused around mobile data connections, either through the vehicle or more likely through smartphones.

Ford has, in fact, begun to offer in-car wi-fi compatibility, through USB mobile internet transceivers. And Ford, with its new MyFord Touch interface that's making its debut in the new Ford Edge, you'll be able to have fully integrated, in-vehicle touch-screen apps, like Pandora and Stitcher, that borrow your own cell-network data connection.

Free music-streaming services like Pandora, no doubt, bear a threat for satellite radio as they also break programming down into niche appeal.
Consistency remains a satellite radio strength

But with data caps, overloaded networks, and clunky interfaces for some apps, the threat of data networks making satellite radio obsolete might not be so great yet. Satellite radio remains quite consistent no matter where you are; although it can be dodgy near tree cover and in mountainous areas, reception is especially good in wide-open rural spaces that aren't served by conventional radio.

However now there's also HD Radio, which just the past two model years has become a serious contender. HD Radio, in short, allows a second (or third, in some cases) channel to be added to a given frequency. Unlike satellite radio, it doesn't require additional subscription fees, but just as with Sirius XM the sound quality is heavily digitally compressed and in most cases leaves much to be desired.

Will in-vehicle connectivity options eventually make satellite radio obsolete? Probably by the end of your new vehicle's lifetime, it will indeed be a relic. But don't let that stop you from activating a subscription and being entertained and informed.

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