| An
In-Depth Look at the Satellite Radio Industry |
Published: November 24, 2004
In 1948 a few hundred
television viewers watched the first-ever cable television broadcast.
The primary goal of cable TV back then: to bring programming to rural
and mountainous areas that were out of range of traditional broadcasts.
Many pundits at the time criticized the new technology, arguing that
cable TV would never survive as long as Americans could still tune into
broadcast television free of charge.
However,
as you can see in our chart of U.S. cable TV viewers over the last
several decades, the technology was by no means a flop. In fact, by the
end of the 1990s over 97% of U.S. households had access to cable and
over 64 million were signed up. Meanwhile, the traditional broadcast
networks -- ABC, NBC and CBS -- continued to lose viewers to cable
networks that offered a greater variety of programming, albeit for a
fee.
Given that growth, it should
come as little surprise that cable television providers performed very
well for investors. Consider Comcast (CMCSA), the first cable operator
to be publicly traded. The stock jumped +3,425% from 1984 through the
end of 2003 compared to a gain of just +1,020% for the S&P 500.
Looking at that another way, $10,000 invested in Comcast in 1984 would
have been worth well over $300,000 by the end of 2003. That compares
favorably to just over $100,000 for the same amount invested in the
S&P 500.
Cable television is now a
rapidly maturing industry with relatively modest growth prospects. But
satellite radio – much like cable TV in the late 1940s and early 1950s
-- is in the very early stages of what's likely to be a long, multi-year
growth curve. My staff and I believe that the industry promises similar,
an perhaps even superior, growth prospects for investors.
There are over 208 million
drivers in the United States, and most of those drivers listen to
traditional broadcast radio during their daily commutes or on the way to
their local convenience store. Last year, in fact, Americans purchased
over 28 million car radio systems -- 17 million installed into new
vehicles and 11 million sold for installation into used cars.
By contrast, the two satellite
radio companies in the U.S. -- Sirius Satellite Radio (SIRI) and XM
Satellite Radio (XMSR) -- boasted a combined subscriber base of only a
little over 3.1 million by the third quarter of 2004. That suggests that
satellite radio penetration in the U.S. stands at just a little less
than 1.5% of the car radio market; that leaves plenty of room for
growth.
And there are good reasons to
suspect that more consumers will want to sign up for satellite radio.
Much like cable, satellite radio offers a wider choice for consumers.
Even in large metropolitan areas like New York and Washington DC, there
are only 15 to 20 broadcast radio stations available. And outside the
major cities, the programming choices are even narrower. By comparison,
satellite radio offers 100-plus channels available literally anywhere in
the U.S.
Even better, satellite offers a
wider variety of content. Satellite subscribers can listen to almost any
imaginable genre of music, several different television channels or even
to weather and news stations. Such a wide variety of programming is
rarely available via broadcast radio.
It's
hardly surprising that the satellite providers are already seeing
accelerating growth momentum (as shown in our chart). The first
commercial satellite radio broadcast was conducted by XM Satellite Radio
in 2001. By the end of that year, the company sported a subscriber base
of around 28,000. Today, XM's subscriber base has swelled to over 2.5
million and the company has vastly expanded its programming from around
80 channels back in 2001 to 120 today. Meanwhile, competitor Sirius
entered the market back in late 2002 and has already signed up nearly
670,000 subscribers.
Some analysts are projecting
long-term subscriber growth in the +30% to +40% range annually for
satellite radio firms. At that rate, these two companies should have
close to 40 to 50 million subscribers within a decade.
A couple of additional factors
suggest that growth can remain very strong for both companies in this
industry. First, both are aggressively tackling the automobile market by
setting up deals with the major automakers. Back in 2001 no new cars
were equipped with satellite radios. By contrast, this year
manufacturers like Toyota, Honda and General Motors are offering
factory-installed satellite radios on many of their new vehicles.
Eventually, some models are likely to offer the radios as a standard
offering.
Both companies are also moving
outside the automobile, offering devices that receive satellite radio
transmissions in the home or even via portable radio devices. As a
result, consumers who don't drive regularly or don't own cars will still
be able to receive satellite broadcasts, giving these firms an even
larger potential market.
This industry is a duopoly in
the U.S., as only two firms have been awarded government licensing deals
to provide satellite radio service -- XM Satellite and Sirius. In
today's report my staff and I will take a closer look at both of these
competitors...
Important Note: To
view the remainder of this article, in which Paul Tracy and his staff
provide an in-depth analysis and investment opinion for each of the two
key players in this industry -- XM Satellite Radio (XMSR) and Sirius
Satellite Radio (SIRI) -- you'll need to subscribe to our premium Market Advisor
newsletter. Please visit one of the following links to continue...
|
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