David and Tom Gardner recently interviewed XM Satellite Radio
TMF: Hugh, your company is doing something quite ambitious. In fact, you are asking people to pay for something that they always thought was free. What is the reason I would actually pay $10 a month for radio?
Panero: The bottom line is this: I think that there is a number of people who are simply dissatisfied with their musical choices on terrestrial radio, which is a very good, low-cost medium to package listeners for advertisers, but it is a mass-market medium. The people who love jazz and blues and rock and roll and other kinds of eclectic music like reggae or opera just can't find it. So, number one, people have those choices at home with CDs. They don't have it in their car and plus in the car it is analog and not digital.
My experience is from the cable television industry. I grew up with people saying that no one would pay for cable TV, and look what happened to that. By getting to a million subscribers, we have destroyed the "nobody will pay for radio" thinking and the "radio had to be local" thinking. It's a phenomenon that has just taken off and we think that we are part of the entertainment landscape now. We want to be wherever AM/FM is.
TMF: Let's have you rank the following threats to your business. Here they are, four of them: Sirius Satellite Radio
Panero: (Laughing.) Books on tape is the biggest threat... No, I'm just kidding. I don't know. It is tough to rank all those. Sirius really isn't that much in the game right now. I would say the biggest threat to our business is simply that we are competing for discretionary dollars and listening time against a variety of different products and services. It is really up to us to continue to deliver the kind of content that we have that will make us the choice instead of these other alternatives. At the end of the day, it is not the chip set or the satellites or the compression technology that really matters; it gets back to the content. That is where we really have to focus all of our attention.
TMF: Is there room for both Sirius and XM in the world of satellite radio and have you ever thought of buying Sirius out?
Panero: I think that there is probably room for the companies. I think that it is really an issue of execution. We have been executing really well. We have made very good decisions. Actually, our competitor was ahead of us in terms of its early development and didn't execute very well and we did. In addition to making good decisions, we avoided making big mistakes and the little mistakes we did make we learned from. So I think there is room, but at the end of the day, it is simply about executing.
We believe the market is very big because there are 200 million licensed vehicles. There are 16 million cars sold. There are 40 million used cars. We now have devices for the home. I believe that it is a huge marketplace and that is where the debate comes in. I think if you just look at the passion that people show for the service, you sense that something is happening. It is happening with us.
TMF: Do you have plans over the next three years or so for a serious foray into international expansion?
Panero: Yes, we have some. We have filed an application in Canada to pursue the opportunity of maybe going there. It is a logical place to go. It really can't support its own satellite radio infrastructure and we will see where that whole regulatory process goes. In Mexico, there are some regulatory issues associated with doing that and we have to work through that.
But what I have learned over time is that we really have to stick to our knitting. While I am really excited about hitting a million subscribers, what we really need to do is make the business work in the United States before we get distracted with exotic things in Thailand. So I would rather focus my attention here.
Tomorrow: Panero plays "Buy, Sell, or Hold."
