Sirius to Offer Free Web Streaming of Programs

Sirius Satellite Radio (Nasdaq: SIRI) said Monday it would launch a Web-only version of its subscription satellite service, a significant step for the company as it tries to generate enough revenue to earn back major investments in on-air talent.

Sirius will launch Sirius Internet Radio, which it described as a CD-quality, Internet-only version of its original service, with more than 75 channels of programming. The service will cost US$12.95 per month and can be received through any PC, without the need for a special satellite receiver.

Sirius said it would launch the service by offering two days of free Howard Stern programming later this week. Listeners must register in advance to get the free preview of Stern's shock-jock program, which moved from traditional radio to Sirius early this year after Stern signed a US$500 million deal with Sirius.

As on satellite, all of the Sirius programming will be free of commercials and include a range of musical styles, as well as political talk, self-help and sports.

While Sirius programming had been available to subscribers over the Internet in the past, only those who had both subscribed to the service and purchased a satellite receiver could tune in, noted Scott Greenstein, Sirius' president of Entertainment and Sports.

Star Wars

The move comes as the two major satellite services -- Sirius and XM (Nasdaq: XMSR) -- experience some slowing in subscriber growth, which has prompted some to question the significant investments each has made to sign high-profile talent. Other Sirius headliners include Martha Steward, while Oprah Winfrey signed on earlier this year to produce content on XM, which also carries a music show hosted and programmed by Bob Dylan.

With Stern in particular, Sirius apparently believes that many of the 12 million listeners he had at his peak on terrestrial radio will be willing to pony up to hear him on the Web, especially after a taste of his new, censor-free show. In recent months, Stern has denied reports that he was planning a return to regular radio after his move to Sirius did not provide the subscriber base boost some had predicted.

Sirius had about 5.12 million subscribers at the end of the third quarter, trailing XM by around 2 million users, though Sirius has been gaining on its larger rival more recently. In the third quarter, Sirius said it added 441,101 subscribers, while XM reported 285,000 new sign-ups.

Despite their growth trajectories, both companies continue to strive for consistent profitability, with the costs associated with acquiring new customers often cited as a drag on efforts to move into the black.

Internet Battleground

XM offers its own Web-only offering, priced at $7.95 per month. It also recently announced a deal that enables Alltel wireless users to pick up streams of its channels on their mobile handsets.

Streaming radio has been something Web entrepreneurs have been attempting to generate consumer excitement about from the earliest days of the modern Internet. Most earlier efforts have failed to gain more than an early-adopter audience, however, said JP Morgan analyst John Blackledge, who publishes the Internet Radio Scorecard. Traditional radio stations are also converging onto the Web again with better Web sites that enable them to expand their reach globally, he added.

One factor that may change past consumer behavior is the arrival of exclusive and sought-after content, such as the shows on the XM and Sirius channels, Blackledge noted. The evolution of the PC into a home-entertainment device that can beam content to other devices may also create more of a demand for streaming content, with the PC replacing the satellite or traditional receiver.

The Web may also be attractive for the companies because the cost of setting up the services is likely small and because it may be more economical to attract new customers using interactive marketing . Both companies rely heavily on partnerships with auto makers and device manufacturers as well as high-profile national TV and other advertising to get word out about their services.

Now in its fifth year, satellite radio is entering its adolescence, much like the Internet did several years ago, JupiterResearch analyst Barry Parr explained. Investors will start demanding more cost controls from the major players in order to prove it can be a long-term stable market.