Digital Media Growth Projections - Updated 02/19/2007

As part of Bridge Ratings' on-going study of audience attrition of traditional radio and subscriber and user growth of alternative digital media, we now publish quarterly insight comparing projected use and growth. Included here is an update to our findings published since March of 2005

While initial estimates showed solid growth for satellite radio for 2006, the reality proved less impressive than prognosticators originally thought with total actual subscribers reaching 13.6 million through 2006 compared to original satcaster estimates of near 15 million. XM finished 2006 with 7.6 million subscribers - up 27% over the company's 2005 year-end number.

Meanwhile, Sirius satellite radio made tremendous strides during 2006 due to significant leverage from the addition of Howard Stern, Martha Stewart and sports franchises along with strong marketing and word-of-mouth. At the start of 2005 Sirius registered 1 million subscribers and finished 2006 up 83% with 6.0 million. Bridge Ratings projects a sector increase of 3.9 million subscribers during 2007 with XM at 9.12 million and Sirius at 8.34 total subscribers.

Focus on: Satellite radio projected growth

Satellite radio growth projections in millions of subscribers.

Based on a satellite radio "what if" study fielded betweeen August 2006 and January 2007, Bridge Ratings learned some important facets of a potential merger of both satellite radio companies. This "what if" study in combination with the help of post-graduate economics students at the University of California at Los Angeles (UCLA) allowed Bridge Ratings to create projections based on economics models built for similar competitive industry mergers. The long-rumored merger of XM and Sirius was announced on February 19, 2007 with Sirius potentially acquiring XM creating a $13 billion dollar single entity. While this potential merger must be government approved and will likely take months for any final disposition to be announced, Bridge Ratings will be releasing various findings of this "what if" study.

The above chart displays the growth projections for the two individual companies as if they were going to co-exist. Our "what if" study found that the subscription growth rate of the combined, single satellite radio company would actually slip when compared to the growth of two competitive companies. The following chart compares Bridge Ratings' most current projections for subscriber growth for the combined two companies individually with new projections based on economics models for one merged entity:

Following compares user growth for terrestrial radio plus its digital competitors.

2005 2006 2007 2008 2009 2010 2015 2020
XM 4.30 6.00 7.60 9.12 10.76 12.48 15.60 17.94
Sirius 2.00 3.10 6.01 8.34 9.99 11.99 14.39 17.26
Satellite Radio Total 6.3 9.10 13.61 17.46 20.75 24.77 29.99 35.20
Satellite Radio Merged na na na 16.06 19.30 24.03 30.89 36.96
Internet Radio 45.00 56.70 72.01 91.45 116.14 147.50 187.33 196.69
Wireless Internet 5.67 10.10 19.19 28.79 51.81 93.26 104.46 120.12
Mobile phone Streaming 0.00 1.475 4.14 8.69 19.13 40.17 70.29 108.95
HD Radio (Terrestrial)
0.100
0.27 0.32 1.51 4.68 12.17 22.03 35.69
Terrestrial Radio Cume* 283.10 279.65 282.84 279.97 283.49 284.19 274.13 258.69
Internet Simulcast Terrestrial 6.8 11.3 16.6 24.7 34.8 48.7 69.3 78.7
Podcasting*
1.01
1.49 2.94 3.68 5.07 6.34 8.43 15.93
*Weekly Persons Using Medium in millions

How to read: Bridge Ratings estimates that by the start of 2008, HD radio sales will reach 1.51 million.
"Wireless Internet" in these projections is defined as “out-of-home” Internet users who surf from cell phones, personal digital assistants (PDA’s) or other portable devices.
“Mobile Phone Streaming” is defined as the number of people projected to use their mobile phones for streaming.

Estimates represent numbers on 1/01 of year indicated.
Estimates for Internet radio represent monthly users.

Because our predictive polling cannot foresee changes in technological and sociological change,, the figures shown cannot take these into consideration. Traditional analog radio, even with advances such as HD technology, may sustain popular use - especially among older listeners. The maintaining of mass usage numbers, of course, relies on quality of the programming. Even so, the above graph for terrestrial radio would seem to defy logic. Though we are projecting that weekly cume for analog radio will slide from its current 94% to 77% by 2020, population growth must also be considered as the U.S. population reaches 336 million* by 2020. The 77% population penetration number in this quarter's report has been adjusted up since our last report first published in September of 2006. These estimates are based on interviews with current listeners of traditional radio (AM/FM). Their perception of the medium and their outlook for future use improved during this quarter's interviews*.

Our compiled data indicates that at this point in time, projected subscribers to satellite radio should reach 24 million by 2010 (7.0% of Americans) and 35 million by 2020. These new projections based on full year 2006 analysis and interest in the medium sustaining at current levels are reduced from our previous (January 2006) estimates of 50 million satellite radio subscribers. These estimates also do not take into consideration the prospect of a merger of XM and Sirius.

Projections for HD Radio's growth is disappointing as our just-released study on HD awareness suggests at this point in time a slower growth curve for the new technology unless the industry can overcome significant consumer resistance due to issues related to the benefits of HD radio. We have lowered our previous estimate of 2.1 million HD units sold through the end of 2007 to 1.5 million and only 12 million by 2010 unless marketing, pricing and distribution efforts improve. Still, the combined effect of HD radio's roll-up and increasing growth of Internet radio together with a general market malaise are slowing original growth projections for satellite radio. Investment in and development of full-market WiMax systems during 2006 will continue during 2007 further accelerating out-of-home use of internet radio. Automotive companies are seeing demand for Internet-capable in-car systems and are moving forward with plans to install internet-capable boxes in 2007 and 2008 models sold this year. Though initial exposure to this technology will be focused on new cars coming out of Detroit and Japan, plans are unfolding rapidly for after-market installations. This out-of-home and office use coupled with already significant use numbers at home and office are exerting upward pressure on growth for Internet radio listening. For the purposes of this study "Internet radio" includes streaming internet-only audio sources as well as terrestrial radio simulcast.

Focus on: HD Radio Projected Growth

IMP3 player market penetration led by Apple's iPod now stands at 116 million with 72% market share for the iPod in its many forms. That amounts to 84 million iPods sold since 2000.

Ipod Sales 2001-2006
2001
2002
2003
2004
2005
2006
Annual Sales
125,000
875,000
1,12,5000
8,000,000
32,000,000
42,000,000
Cumulative Sales
125,000
1,000,000
2,125,000
10,125,000
42,125,000
84.125,000

Sales growth for 2007 and beyond will continue to be led by Apple. Prior to this year's MacWorld convention in San Francisco, Bridge Ratings was estimating a slight fall-off in MP3 player sales over the next 12 months due principally to market saturday. However, with the introduction of Apple's iPhone product, we estimate the market will continue to be stimulated through 2010.

Focus on: MP3 Player Growth

This chart shows the total number of MP3 players sold compared to the number of players in actual use over time. Based on interviews with major manufacturers of digital audio players, the attrition of units in use is generally related to the replacement of older or original models. We estimate that by 2009, nearly 341 million MP3 players will have ever been sold in the U.S., but that approximately 250 million will be in use.

While the wireless solution for in-car Internet radio still needs to be determined, its potential for use by the public at large is far greater than the current impressive growth projections for satellite radio. The question that begs to be answered is: "As Internet radio use accelerates both in and out of home, how will satellite radio's profitability model survive?"

Focus on: Internet Radio Listening Growth

Listening to internet radio streams will continue to have explosive growth. We are now projecting almost 150 million overall weekly listeners to this medium by 2010. As terrestrial radio continues to develop custom internet channels and successfully markets its main channel streams, our forecast is for these terrestrial radio simulcasts to become a larger part of all internet listening growing from about 20% of all internet listening in 2006 to 40% by 2020.

It is important to highlight the fact that while we are projecting that based on what we know today total weekly tune-in to terrestrial radio (AM/FM) will slowly fall. However, streams of content originated by terrestrial broadcasters will recapture much of this attrition. The above chart shows how much of the Internet radio audience we estimate will be listening to streamed simulcast content.

This combination of Terrestrial radio on AM or FM and content streams will continue to give the medium significant market penetration well into the future. Despite audience attrition due to known and unknown alternate media by 2020 we are projecting that at least 77% of the U.S. population (258 million) will continue to tune in at least once a week. Difficult to project with confidence at this time is terrestrial radio's time-spent-listening fifteen years hence.

According to this updated data, the entire spectrum of digital audio alternatives, and especially Internet radio and its wireless distribution continue to represent the biggest challenge to traditional radio. Based on what we know now, we do not see HD radio significantly boosting listening to terrestrial radio.

Sample size: 3101 persons 13+ Survey dates: 10/01/06 - 01/07/07

Markets included: Los Angeles, Portland OR, Dallas, Phoenix, New York, Boston, Washington DC, Miami-Ft. Lauderdale, Denver.

Methodology: Random digit phone dialing, mall intercepts

Population estimates courtesy of the U.S. Census Bureau

Disclaimer: Bridge Ratings makes no warranties, either expressed or implied, concerning: data gathered or obtained by Bridge Ratings from any source; the present or future methodology employed in producing Bridge Ratings statistics; or Bridge Ratings' data, estimates, or calculations contained herein. Bridge Ratings' data and estimates represent only the opinion of Bridge Ratings and reliance thereon and use thereof shall be at the user’s own risk.

Forward-looking statements give our expectations or forecasts of future events based on current consumer tastes, expections and behavior. Sometimes these statements will use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "outlook," "forecast," and other similar words. These statements are not absolute guarantees of future consumer behavior and are subject to risks, behavior variances, uncertainties and other important factors that could cause these estimates to be materially different from those we project at any given time.

 


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