XM Satellite Radio Inc., a Washington company that hopes to provide clear digital radio broadcasts via satellite to audiophiles nationwide, yesterday announced a big step toward its dream: $250 million in new capital and a deal ith General Motors Corp. to put the radio sets in its cars.
The investors include GM, radio station operator Clear Channel Communications Inc., GM-owned DirecTV Inc. satellite television system, and several investment companies. GM pledged to use XM exclusively for satellite radio service, perhaps starting in the 2002 model year. The service itself it set to be switched on late next year.
"Basically, today, XM Radio hit the trifecta," said Tim O'Neil, a technology analyst with SoundView Technology Group. DirecTV will help the company broadcast its planned 100 channels of radio programming, Clear Channel can provide the programming and GM will provide a direct line to consumers. "They gained distribution, content and customers," O'Neil said.
Some industry analysts see satellite radio as potentially a $2 billion-a-year market by 2005. Motorists would welcome clear signals that never fade; home listeners could get a broader lineup of programming.
The ability to send the signal nationwide could do for the radio market what cable and satellite broadcast have done for TV, Panero said.
Classical, jazz or alternative rock programming that's now available only in the largest cities could be found nationwide, and communities of listeners too small to support a local radio station could form a sufficiently large national market for channels that suit their tastes.
The GM deal is especially surprising because it bucks the usual Detroit system of watching early adopters buy new technologies such as CD players, and offering the new technology only after a groundswell of demand for an automotive version of the new medium has developed. In this case, GM could begin offering XM radios at about the same time the technology hits the broader consumer market.
"We have pulled together everyone you need in every sector of this industry to make this a success," said XM chief executive Hugh Panero.
The deal could be bad news for New York-based CD Radio Inc., the other major company vying for the automotive segment of the satellite radio market. "I think CD Radio could possibly explore a strategic agreement with the other two [U.S.] car manufacturers," said Vijay Jayant, a satellite industry analyst with Bear Stearns & Co., which advised XM.
Under the transaction announced yesterday, XM shareholder American Mobile Satellite Corp. of Reston bought out an XM stake that was held by WorldSpace Corp., a District company that has launched a satellite for radio service in Africa and the Middle East.
Simultaneously, the new partners provided $250 million in convertible debt to XM. Other members of the group include investment firms Columbia Capital, Telcom Ventures L.L.C and Madison Dearborn Partners.