AOL, XM Satellite To Offer Web Radio Service

Looking to spark growth in what has proven to be a relatively difficult market niche to crack and to provide boosts to their respective bottom lines, America Online and XM Satellite said they would team to create a new online radio service.

The co-branded service, to be available this summer, will include a free Web-radio offering as well as an enhanced product available as a benefit for AOL members and for a fee for other Web users.

The two companies emphasized that the radio service will be exposed to a potentially huge audience, since AOL gets some 100 million visitors per month to its various Web properties and XM has a base of about 3.8 million subscribers.

Strong Partners

XM will also pull some AOL radio offerings into its satellite service, making the streams previously obtainable only online available in cars and on in-home and portable players. The deal — financial terms were not disclosed — also calls for the two companies to develop additional programming for both Web and satellite.

“The combination of our leadership in online programming and XM’s leadership in satellite programming represents a giant step in digital media,” America Online CEO Jon Miller said in a statement. He added that the partnership will enable AOL to provide “unique value for our large Web audience, enhanced programming for our existing and new AOL members, and the ability to introduce new premium services.”

XM CEO Hugh Panero said the move fit with XM’s strategy of finding “strong partners at every level: retail, automotive, and now online.”

New Battleground

Web radio is not a new development — streaming music has been a staple of the Internet since its earlier days. However, many of the radio feeds being heard online are not providing a direct revenue stream.

One fast-growing exception, according to Inside Digital Media analyst Phil Leigh, is the RadioPlus subscription service from RealNetworks’ Rhapsody. RealNetworks has seen steady growth in the amount of streaming audio it sells, including its monthly subscription service that offers unlimited access to some 90 radio stations. RealNetworks had around 700,000 subscribers to its streaming services by the end of 2004, Leigh said.

The service got a boost late last year when Real inked a deal to stream music to Comcast’s 6.5 million broadband Internet subscribers.

XM is not new to the Web, either. Last year, it launched its own Internet streaming service. That rollout was greeted with skepticism from analysts, who viewed it mainly as a way of boosting what it offered its satellite customers — those subscribers could get the Web version for a slight premium.

Enticement for Subscribers

Leigh told the E-Commerce Times that XM and similar services lack a level of “granularity” that some incumbent services, including RealNetworks and MusicMatch — which Yahoo bought last year — can offer. In other words, the streaming channels are pre-programmed in a manner that doesn’t allow consumers to pick and choose songs like they can with iTunes and similar offerings.

“There’s already a lot of choices for people who want this kind of service,” Leigh said.

For AOL, the partnership provides another example of its evolving strategy to be as much of a Web player as it is a walled-in Internet service.

Whether the opportunity to get XM online for free will be enough of an enticement for more subscribers to come on board remains to be seen. However, when viewed through the prism of other moves — most recently AOL launched its own Voice over Internet Protocol service that is likewise available at a discount to members — it’s clear how AOL is trying to position itself.

Burton Group senior analyst Peter O’Kelly told the E-Commerce Times that AOL, Yahoo, MSN and Google are engaged in a “war of attrition” by which each one tries to outdo the others in terms of services being offered through its Web portal.

Satellite Ramp Up

Consumers, he added, will be the eventual winners as more and more layers of services addressing everything from music and e-mail to instant messaging and search are added to what were once basic portals.

Meanwhile, the partnership comes as interest in satellite radio is seen ramping up, causing some analysts to become more bullish on XM and number-two provider Sirius. The medium has benefited as big-name radio stars such as Howard Stern have announced they would move to satellite and as more auto makers begin to install satellite radio receivers in their cars at the factories.

Meanwhile, XM recently increased the subscription fees for its service, a move analysts believe will help the company turn profitable, though it might mute subscriber growth as well over time.

Barrington Research analyst James C. Goss also noted that XM is preparing to invest heavily in beefing up its programming roster and continuing to reach out to auto makers and others to make satellite receivers ubiquitous.