Monday, July 18, 2005

 

Kagan: Satellite Radio Potential Is Sky High

By Chuck Taylor, Billboard Radio Monitor

Kagan Research forecasts that consumer interest in satellite radio is aiming for the sky. In a new report, the company forecast that low churn, new programming and exclusive agreements with auto manufacturers will boost subscriptions for XM Satellite Radio and Sirius Satellite Radio to 46.8 million, with revenues of $7.6 billion, by 2014.

In the short term, the two players will face increased competitive pressure from emerging technologies. "As wireless technology expands and access to free music Web sites and on-demand services increases, satellite radio will lose potential customers to alternative sources in the battle for consumers' attention," said Michael Buckley, a Kagan analyst.

Strong automotive partnerships offer some protection from competitive challenges, and by 2014, 75 percent of new subscribers will come from the OEM connection, the Kagan report estimated. (Roughly half of XM’s subscribers come from its automotive partners and 25 percent of Sirius’ subscribers.)

Among respective bright spots for satcasters: Ford's renewed commitment to Sirius; the impact of Hyundai's decision to factory-install XM radios in 100 percent of its new vehicles; and Toyota's split of the post-production market between XM and Sirius and its impact on new subscriptions.

Kagan also studied the companies' business models and how soon expensive content agreements will break even with cash flow. XM is estimated to achieve positive cash flow by third-quarter 2007. Sirius, with its second-mover disadvantage and higher programming expenses, is not expected to generate positive cash flow until 2008. (Other reports have predicted earlier dates for those milestones.) Once positive cash flow is achieved, Kagan forecasts a steady increase in EBITDA for both companies, with XM topping $2 billion and Sirius reaching $1.4 billion in 2014.

The researcher also believes that the sat radio industry will foster $27.9 million in total net ad revenue in 2005, rising to $854.4 million by 2014.

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