very vanilla age, radio-wise," says Abrams. "Except for talk radio, it's stay in the middle, don't upset anybody, and play the big hits everybody's comfortable with. We're 180 degrees from that. We want to challenge people."
If XM is going to be successful in taking on the radio establishment, it is going to have to overcome a number of challenges itself. One of the major challenges facing the company is getting consumers to pay anywhere from $300 to nearly $1,000 for satellite-radio-ready receivers, antennas, and installation charges and then pay an additional $10 per month for the XM service. The company's strategy is to first win the battle for the dashboard, where consumers spend more than $2 billion each year to install about 11 million after-market car radios. An additional 17 million radios are installed annually in new vehicles, and XM has been working the automakers to get them to make satellite radio an option for buyers when purchasing vehicles. XM officials claim that the company can make a profit with 4 million subscribers, which is less than 3 percent of the nation's 200 million registered vehicles.
In addition to competing with one other satellite company, Sirius Satellite Radio, XM will face a torrent of competition from traditional radio. In 2000, the Federal Communications Commission authorized low-powered radio—a service that could create up to 1,000 new stations. Although their signals will not travel very far, they will spawn a great deal of content. The FCC also plans to auction up to 350 now-dormant FM stations and set a standard for the AM and FM stations to switch to new digital technology, which will allow broadcasters to offer better-quality sound as well as new programs and services. Some experts argue that local broadcasters have an advantage over the new satellite technology since they can offer traffic reports, local sports information, and community talk shows that appeal to rush-hour motorists.
XM acknowledges that for people who don't spend a lot of time in their cars or local drivers who have a short commute, satellite radio may be more than they need. The natural audience for satellite radio will be the true car potatoes—salespeople, suburban-sprawl commuters, or long-haul drivers such as truckers (who have their own channel on XM, Open Road). Another market may be the real music junkies who want the listening options and superior sound quality offered by satellite radio.
It is too early to tell whether satellite radio will revolutionize our radio listening habits or become the CB-radio fad of the new millennium. Consumers may not want to be faced with another monthly bill for XM or Sirius when they are used to getting radio for free. However, remember that there was a time when many experts predicted that people would never pay for cable television. Stay tuned.
Sources: Jube Shiver, Jr.,"Satellite Radio Aiming High," Los Angeles Times, Feb. 4,2002, pp. Cl, 6; Chris Tucker, "Sky-High Fidelity," Southwest Airlines Spirit, Feb. 2002, pp. 76-85; "Product of the Year," Fortune, Dec.24,200l,p.l70.
listenership in their markets. Thus, media planners do not have as much audience information available to guide them in their purchase of radio time as they do with other media.
Limited Listener Attention Another problem that plagues radio is that it is difficult to retain listener attention to commercials. Radio programming, particularly music, is often the background to some other activity and may not receive the listeners' full attention. Thus they may miss all or some of the commercials. One environment where radio has a more captive audience is in cars. But getting listeners to pay attention to commercials can still be difficult. Most people preprogram their car radio and change stations during commercial breaks. A study by Avery Abernethy found large differences between exposure to radio programs versus advertising for listeners in cars. They were exposed to only half of the advertising broadcast and changed stations frequently to avoid commercials.44 Another factor that is detracting from radio listening in motor vehicles is the rapid growth of cellular phones. A recent study found that half of commuters surveyed who own a cell phone reported listening to less radio than they did a year earlier.45
Clutter Clutter is just as much a problem with radio as with other advertising media. Most radio stations carry an average of nearly 10 minutes of commercials every hour. During the popular morning and evening rush hours, the amount of commercial time may exceed 12 minutes. Also contributing to the clutter problem is the practice of some stations to offer "commercial-free" blocks of music to attract listeners. This practice results in more commercials being aired in a short time period and may also result in listeners switching to another station rather than listening through a long block of ads. Advertisers must create commercials that break through the clutter or use heavy repetition to make sure their messages reach consumers. In a study of radio listeners conducted by Edison Research, perceptions of increased ad clutter were cited by participants as a reason for spending less time listening to radio.46
Another factor that may contribute to the problem of commercial clutter on radio is a new technological system called Cash, developed by the Prime Image Company.47 The machine momentarily stores the broadcast of a live show, creating an imperceptible delay. When the rebroadcast airs seconds later, the Cash system has reduced the pauses between words and shortened long syllables in order to add more space for
commercials. This allows stations to add up to six minutes of extra airtime per hour, which may mean as many as 12 more 30-second commercials. Unlike the case with previous systems that compressed broadcasts and replayed them at a faster pace, listeners cannot recognize the effect. However, they are very likely to recognize the increased number of commercials, which will only compound the clutter problem.
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