Radio's Satellite Revolution

Janet Jackson's "oops!" during this year's Super Bowl halftime show certainly ruffled feathers at the Federal Communications Commission. The ensuing crackdown by the FCC has left broadcasters scrambling to clean up their shows and left some shock jocks shell-shocked.

Tougher broadcast standards could turn out to be a boon for satellite radio. Earlier this month, XM Radio (Nasdaq: XMSR) announced the return of the Opie and Anthony Show, which had been off the air for two years following a contest that required people to do -- ahem -- private things in public places. No need for details, but suffice it to say the suits at Viacom (NYSE: VIA) weren't pleased with the six-figure fine leveled by the FCC, and they canned the show. At the time, Opie and Anthony were No. 1 with male listeners between 18 and 49 in New York, Philadelphia, and other big cities.

We're seeing here a sign of things to come. In February, Howard Stern was taken off some of Clear Channel's (NYSE: CCU) stations as part of a zero-tolerance policy instituted in response to the FCC's moral crusade. The company also fired the lesser-known Bubba the Love Sponge after being fined $750,000 for indecency related to his show. Stern's public contemplation of moving his show to either XM or Sirius Satellite Radio (Nasdaq: SIRI) likely played a big part in the decision by Viacom's Infinity Broadcasting to put him back on air in five of the six markets he lost and four additional ones.

Satellite radio is just growing out of the early adopter stage and in many ways resembles the cable market of 20-25 years ago, with XM being called the HBO of radio. The cable television industry was small back then, but thanks to HBO's (now owned by Time Warner (NYSE: TWX)) pay-for-programming business model, it was able to steer clear of content restrictions, opening the door to a variety of edgy programming, including the original Dennis Miller Live, the cult comedy Dream On, and The Sopranos. In much the same way, satellite offers radio personalities, and producers, creative freedom without a finger poised over the dump button.

With fewer than three million subscribers between them, XM Radio and Sirius are tiny players in an industry dominated by heavyweights. It will take time before the satellite radio industry turns a reliable profit, but the relatively inexpensive services are seeing frantic subscriber growth, which coupled with creative freedom and nationwide broadcast ability make it an increasingly attractive option for frustrated radio talent.

Fool contributor Chris Mallon owns none of the companies mentioned in this article.