Podcasting Killed the Satellite Star.

When satellite radio was approved (spectrum allocated in 1992 and XM and Sirius applications approved in 1997), it was hailed as a big breakthrough for the industry. Markets with little diversity would have access to all sorts of music. Vertical markets that heretofore could not be supported through commercial radio and only got small slices (or none) of NPR became whole channels. The consumer would be served and all boats would rise. A little over ten years later, the two entities have merged into one and the market is waning. According to Business Week, Sirius XM will end 2008 with 19.1 million subscribers with a paltry 7.9% growth anticipated for 2009.

What happened? Digital music became portable. This all happened because of the MP3 format. First developed in 1987, it reached the market in a meaningful way in 1999 through SubPop, the first to distribute tracks through the MP3 format and a number of MP3 players. Later that same year, Shawn Fanning introduced a file sharing program called Napster. This blew the music industry away. It was all considered illegal until 2001 when Steve Jobs introduced the iPod which supported iTunes, the site put up by Apple to sell licensed music to the consumer. The rest as they say is history.

Today, Apple has sold 174 million iPods. The company is expected to sell 21.7 million in the fourth quarter alone, equivalent to or higher than the entire subscriber base of Sirius XM. While the market for podcasting is still tiny at about $250 million in 2008 according to eMarketer, the reality is that the availability of cheap or in many cases free (to the consumer as they often play music on their MP3 players that they have ripped from CDs they already own) music has replaced many other sources of music. Whether as a personal device, in the car or in the home, iPods and other MP3 players are the device of choice today for music listening.

As I was writing this, Sirius XM revised its forecast for 2009 downward to just 20.6 million. The Detroit bailout is good news and bad news for them. The hiatus in manufacturing also means a hiatus for Sirius XM as a big part of their volume is in new cars, including rentals. The bailout does help OEMs like Sirius XM to survive, however, through trickle-down economics.

Satellite will never be the shining star that investors once hoped for, however. The advent of personal portable music that is customizable plays to the same market that Sirius and once competitor XM had hoped for. The expansion of the iPod/MP3 player market into phones, plug in systems to play at home, cars with jacks built in, etc. means that iPods and generic MP3 players will be the hardware format for sound in the future. Music, news, features, etc. RIP, Sirius XM. It’s only a matter of time.

by David L. Smith
David L. Smith is CEO and founder of Mediasmith, an internationally recognized digital media agency with expertise in targeted media planning, execution and measurement.
Courtesy of http://www.mediapost.com