[Satellite News – 07-15-08] After battling government red tape, hostile Congressmen and lobbying groups for more than a year, Sirius Satellite Radio and XM Satellite Radio seem on the cusp of closing their proposed merger.
    Now a more daunting challenge has appeared — a device popular with a younger market, a product that provides similar services for a fraction of the cost and third-party applications that slap a different name on the same service.
    Apple announced July 14 that it had sold 1 million new iPhone G3s during its first week on the market. While that may not mean anything to the satellite radio operators at first glance, a more revealing number is that iPhone and iPod Touch users already have downloaded more than 10 million applications from Apple’s new App Store 2.0. Among these new applications are AOL Radio and Pandora, two free programs that offer live radio from any location, much like portable satellite radio devices. If an average of 10 applications per phone are being downloaded, multiplying the projections creates menacing figures.
    In a market analysis report, Shaw Wu, an analyst for American Technology Research, calls the iPhone an “open-ended growth story,” projecting that 14.6 million iPhones will be shipped by the end of 2008 and 31.6 million units shipped by the end of 2009. Wu also expects the iPhone to see accelerated growth in the second half of 2008 with a broadened product portfolio, additional carrier relationships, native exchange support and more applications. According to Wu, iPhone will one day become just as big as the whole of Apple.
    “We [AOL radio and Apple] bring a great radio platform with a huge amount of content,” said Lisa Namerow, managing director of AOL radio in an interview with Satellite News. “We offer over 350 stations for free. That’s a pretty valuable and compelling offer for consumers to take advantage of.”
    Sirius and XM have argued that one of the reasons they should be allowed to merge is that they do not compete with each other as much as with other providers of music such as MP3 players and the Internet. If the iPhone provides the younger, savvier audience with a device that combines the best of both worlds, the satellite radio players will have a lot of work to do to attract younger listeners to their pay service.
    Apple also has transformed its iPhone from a competitor to a medium for competitors. In other words, they bought the mall and XM and Sirius will have to rent space if they want a portion of Apple’s audience.
    The merger may provide an opportunity for the companies to focus on service and product — they do have exclusivity on lucrative radio real estate such as Howard Stern and international and national professional sportscasts and could bring real value to a moderately priced, integrated application service. Unfortunately, both companies may have already been beaten to the market on this front.
    A third party software company, Millard Software, has created uXm and uSirius, applications for the iPhone G3 that effectively give listeners streaming access to XM and Sirius feeds. While uXm and uSirius listeners would not be connecting directly to the satellite feed, they would be listening through a provided data connection. Even though you need a valid subscription to obtain the feeds through these programs on the iPhone, using them allows you to skip out on buying new hardware. On top of it all, these listeners are not using XM, they’re using uXm, a completely different identity.
    Sirius and XM, even if they are competing in the market as a single company, have a lot of preparation and hard work ahead if they are to avoid stumbling.
    “In some shape or form, everyone is a competitor,” said Namerow. “We all want the biggest audience and we all want to attract the most listeners. I think that people are always going to look at the applications that are free first. They’re going to see if it meets their needs and if it does, that’s going to most likely be the service they’re going to go with.”