Heavenly Music (continued 4/4)

America's first terrestrial digital transmission equipment will be demonstrated in Las Vegas this April. Later this year, stations in Los Angeles, Miami, New York, San Francisco, Chicago and Seattle will start trials by adding digital streams to their analogue broadcasts. The first digital radio receivers will be unveiled to the American public in January 2003. No one expects motorists to replace their existing car radios with satellite receivers overnight. More likely, car radios will evolve over the years to include IBOC circuitry along with such features as navigation and mobile telephony.

Some audiophiles will not wait that long. They will tune in to the Internet instead. At present, there are some 4,000 radio stations offering together more than 100,000 streaming audio channels online. However, the only way to enjoy such programming today is with a PC and a broadband connection such as DSL (digital subscriber line) or cable modem. But what if there was a wireless device that could tune into thousands of Internet stations, but small enough to fit in a mobile receiver? This is what 3COM, a computer network company based in Santa Clara, California, had in mind when it paid $80m for Kerbango, a small company in Cupertino that marketed a portable Internet radio. However, faced with the need for drastic corporate restructuring, 3COM closed Kerbango last year.

For now, Internet radio—and, for that matter, iBiquity's and Eureka 147's terrestrial digital audio as well—are still years away from widespread use. Mr Fratrick at BIA predicts that it will be at least a decade before ground-based digital radio replaces analogue FM. By contrast, he expects XM Radio and Sirius—which have raised $3.5 billion between them from public offerings and private investors—to have little trouble luring gadget-mad consumers and high-mileage motorists to switch to satellite radio.

Tie-ups are the key
To that end, XM Radio has already signed agreements with General Motors (which has a 5.6% stake in the company), Saab, Suzuki and Isuzu. It has also been working with manufacturers of car stereo equipment, including Sony, Pioneer, Alpine and Panasonic. Deals have been concluded with such retailers as Best Buy, Circuit City and Sears. The 2002 Cadillac Seville is the first car to come equipped with an XM receiver. Meanwhile, Sirius is signing up a posse of retailers as well as such radio makers as Kenwood and Clarion, and motor manufacturers such as Ford, Chrysler, Mercedes and Volvo. WorldSpace has done the same with Hitachi, JVC and Sanyo, while Global Radio plans to secure similar relationships.

It is these strategic partnerships that will decide the success of satellite radio. The idea that millions of car owners will toss out a perfectly good radio and spend several hundred dollars for a new one that receives XM or Sirius broadcasts, no matter how pristine the signal, is hardly realistic. But tacking $250 for a satellite radio on to the price of a $30,000 new car is a different matter.

On average, some 14m new cars are bought annually in America, each with a radio installed. Add to that a chunk of the 22m Americans who live so far out in the countryside that they can get fewer than five radio stations, and the potential audience for satellite radio begins to look respectable. XM and Sirius say they need only 2% of that market to break even. Indeed, analysts expect both companies to be in the black by 2005.

But what if America makes the same mess of digital radio as it did with mobile telephones? The hotch- potch of standards for mobiles means consumers have to buy a new phone every time they want to switch contracts or travel abroad. Will motorists have to pull out the receiver in the family saloon when they tire of XM's content and want to switch to Sirius?

Maybe not. XM Radio's 10K filing with America's Securities and Exchange Commission mentions “development of a unified standard for satellite radios”. As part of a settlement to end litigation filed by Sirius in 1999, which charged XM with patent infringement, the two firms have decided to share various aspects of their technology—with the intention of developing a radio that will, one day, let listeners buy one receiver that can recognise either signal. Now, if the satellite-radio devotees could only start talking to their terrestrial counterparts, the future could hold the promise of all manner of “narrowcast” radio programming—from classroom exercises to minor league sports events, ethnic news and a million other things that never get the time of day on AM or FM radio. Wishful thinking? Perhaps, but worth the wait all the same.