Rick Aristotle Munarriz recently asked whether Sirius Satellite Radio (NASDAQ:SIRI) is a Rule Breaker, and it's possible that both Sirius and XM Satellite Radio (NASDAQ:XMSR) are, but it hardly matters when they're going head to head against rule-making giants such as Clear Channel (NYSE:CCU) or Viacom's (NYSE:VIA) Infinity Broadcasting. Through their powerful lobbying arm, the National Association of Broadcasters (NAB), the entrenched radio giants have forced satellite providers to fight an uphill battle.
It's not surprising that traditional broadcasters view satellite radio as a serious threat. Satellite has better quality, greater selection, and fewer commercials. Yet thanks to the NAB, 12 years after satellite radio got the go-ahead from Congress, it still boasts only about 3 million combined customers.
When satellite radio debuted, the NAB went on an all-out smear campaign to discredit the new technology, using twisted economic logic to convince Congress that competition would produce inferior products and actually be harmful to the consumer. The NAB's clout with Congress resulted in laws that have kept the playing field anything but level for satellite.
Some of the inequities facing satellite radio: It's required to pay royalties for music while traditional broadcasters are exempt; by law, XM and Sirius have to sign up paying customers -- they can't offer their services for free, even if they wanted to; and it's illegal for either company to originate a local radio signal, meaning any local content (such as traffic or news) that Sirius or XM carry has to be broadcast nationwide in what amounts to an unnecessary waste of resources.
The tide appears to finally be turning for XM and Sirius. Major deals have been struck for content, and radio's most important distributors, the automakers, have embraced the technology in a big way, offering satellite as an option on many cars while simultaneously investing in the two providers. In a sign of their commitment, Daimler-Chrysler (NYSE:DCX) has invested $100 million in Sirius, while Honda (NYSE:HMC) and General Motors (NYSE:GM) both have money in XM.
With greater distribution and an array of new content, XM and Sirius may finally be ready to explode. Ironically, the Federal Communications Commission is helping things along by cracking the decency whip on traditional broadcasters, whose talent may consider following Howard Stern to the new medium. And if any of the Viacom-related rumors floating around the Stern deal are true, things could get very interesting. Suddenly, the uphill battle doesn't look quite as steep.
Satellite radio has been a hot topic lately among Fool columnists. Check out some of these articles for a sampling of their opinions:
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Fool contributor Chris Mallon owns shares of Honda through his private investment partnership.
