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Why Is SiriusXM So Expensive? (Top 10 Reasons)

SiriusXM

 

SiriusXM is a subscription radio service that delivers news, music, and entertainment to listeners.

While it got its start as a premium radio service for cars, it’s since grown to support other devices.

SiriusXM has numerous subscription plans that start at about $4.99 a month.

Considering standard radio is free, you may wonder why SiriusXM is so expensive.

Here are 10 reasons why SiriusXM is expensive.

 

Why Is SiriusXM So Expensive? (Top 10 Reasons)

 

1. No Commercials

Beautiful woman in headphones listening

 

One of the main attractions of SiriusXM is also one of the reasons why it’s expensive in the first place.

SiriusXM doesn’t play commercials.

They don’t have sponsors who interrupt your music or podcasts.

While some news stations and podcasts might reference a sponsor, there aren’t any actual ad breaks that interrupt your SiriusXM listening.

This means that their main source of revenue comes from their subscribers.

Considering their operational costs, they need enough revenue to cover those costs and still earn a profit.

That results in high subscription prices.

Standard radio stations rely on ads for funding.

Sometimes they get a sponsor to donate money, or they’ll rely on public funding.

In most cases, they partner with businesses that purchase an ad spot.

Radio stations can charge anything from $200 to $5,000 a week to run a business’s ad.

SiriusXM doesn’t get this luxury.

It must support its operational costs through subscription services alone.

If fewer people subscribe to SiriusXM, then they may need to raise their prices even higher.

That’s because they still need to generate the same amount of revenue to remain operational.

While you get to enjoy music, news, and sports without any ad breaks through SiriusXM, you also end up paying a lot for the convenience.

SiriusXM is expensive because it only generates profit from its subscription service.

 

2. They Have A Monopoly On Satellite Radio

Radio host mixing

 

When SiriusXM got its start, no one was really looking at using satellites to stream radio services.

This allowed the company to buy up a good number of satellites for their services.

Eventually, this led to a monopoly on satellite radio services.

While there may be some other companies who provide satellite radio services, they’re not doing it to the extent and scale that SiriusXM is.

That’s because they simply don’t have the same number of satellites as SiriusXM.

While this is great for the company, it’s less ideal for its users.

Since SiriusXM has a monopoly on satellite radio, it means there isn’t another company at their level to compete with them.

Since they face no real competition, SiriusXM can list any price that they want for their subscription services.

They still have to be careful not to turn their customers away with exorbitantly high prices, but they don’t have external pressure from competitors forcing them to lower prices.

In a healthy market where monopolies don’t exist, businesses compete with one another by offering different services, improving the quality of their products, and by lowering prices.

In most cases, customers will buy from the business that offers the lowest price.

This encourages the other businesses to also lower their prices to attract customers back to them.

When businesses don’t have anyone competing with them for customers, they’re able to control pricing entirely.

Customers who want the service have no choice but to pay the price since they don’t have any other options.

SiriusXM is expensive because it has a monopoly on satellite radio.

 

3. Streaming Radio Threats

listening to Spotify on CarPlay

 

While SiriusXM doesn’t have any competition in the satellite radio space, it does face the threat of streaming radio.

Spotify, for example, has grown in popularity and has started to become available in cars that are able to connect to the Internet.

Even those who don’t have Wi-Fi-enabled cars can easily plug their phones into the car to listen to Spotify.

While Spotify does have ads, they also offer an ad-free premium service.

Spotify charges $9.99 a month for its premium service which is cheaper than many of SiriusXM’s subscription plans.

While SiriusXM has some time before Spotify and similar streaming music services break into its market, it’s obvious that the threat has also impacted its prices.

SiriusXM has likely already lost some of its customers to Spotify and streaming music services.

Since the company is losing money, they have two options.

They can lower prices to become more attractive to customers.

They can raise prices to try and continue to maintain their current amount of revenue with fewer subscribers.

The latter option is riskier since it might encourage more subscribers to cancel their plans.

However, that seems to be the option that SiriusXM has chosen.

They haven’t lowered their prices despite streaming music becoming more popular.

This indicates that SiriusXM may continue to raise prices as it starts to feel the pressure of losing subscribers.

That’s going to make it even more expensive.

SiriusXM is expensive because of the encroaching threat of streaming music platforms which is causing them to lose customers.

 

4. Satellite Costs

Space satellite over the planet earth

 

SiriusXM uses satellites in space to stream music.

Satellites aren’t cheap to make.

It costs $150 million to $400 million to produce a large satellite that can work for years, according to the Washington Post.

Although some companies claim that they can make satellites cheaper, it’s obvious that they’re expensive to build.

To get satellite radio to its customers, SiriusXM first needs satellites in the sky.

Initially, Sirius and XM Radio were two different companies.

They eventually merged and shared their satellites with one another.

That said, because they both built and launched their satellites separately, both use different software and hardware to stream radio.

SiriusXM has a few satellites in the sky which means they spent a substantial amount of money to get those satellites built and launched.

Satellites don’t last forever either.

They’re constantly under threat from space debris which can break them completely.

If a satellite ever does completely break down, then SiriusXM must build and launch a new one.

Clearly, they take on a lot of debt with this process.

If they don’t get a large number of subscribers, then it can take them even longer to pay off those debts.

That problem becomes even worse if they need to tack on more debt to launch another satellite.

To help them get out of debt faster and start padding their pockets for the inevitable launch of another satellite, they need to charge higher subscription plan prices.

The profit they earn from their subscription service enables them to build more satellites and maintain the ones that they have.

SiriusXM is expensive because of the cost of producing and maintaining satellites.

 

5. Ground Station Costs

Confident Female Host Smiling In Radio Station

 

SiriusXM doesn’t just have satellites.

They also have ground stations.

Like standard AM/FM radio stations, SiriusXM has several ground stations across the country.

They use radio receivers on the ground to transmit the data that the satellites in space produce.

Then they beam the data to cars that have the service activated.

Having ground stations and several radio receivers also costs the company money.

For example, SiriusXM must sometimes increase the number of ground transmitters they have to ensure the data can make it through a dense collection of buildings.

Those who live in urban areas, for example, may understand how difficult it can sometimes be to get service from something that uses a satellite.

That’s because the signal fades as it passes through solid objects.

Unless the individual is high above the buildings or is in an area that has fewer buildings, they may need extra help boosting their signal.

The same goes for those who live in areas surrounded by dense trees or mountains.

The solid objects block the signal’s ability to reach its source.

SiriusXM knows that if it’s unable to produce a clear signal for its customers, then the customers will leave.

They won’t pay a high price for radio if they can’t even hear it.

To ensure their customers can listen to SiriusXM radio clearly, they have invested in several ground stations and ground terminals.

All those buildings and services cost them more money.

To keep those stations operational, they need enough revenue from their subscriptions to stay afloat.

Since SiriusXM doesn’t have ads, the only way they get enough profit is through their subscribers.

SiriusXM is expensive because it has several ground stations and terminals that need funding from its subscribers.

 

6. Car Radio Partnerships

Woman hand turning button of radio in car

 

One of the problems that SiriusXM first encountered was getting its signal into cars.

Most car radios didn’t support the type of signal that SiriusXM provided.

Because of that, it had to partner with several different companies to make car radios that used its proprietary chip.

In particular, they’ve partnered with the following companies in the past to produce their car radios:

  • Pioneer
  • Alpine
  • Clarion
  • Delphi Delco
  • Sony
  • Motorola

The reason this makes SiriusXM expensive is that they have to spend more money to outsource the production of car radios than they would if they were able to produce the radios themselves.

While it would initially cost SiriusXM a lot of money to build their own production factories, they could potentially save money in the long run by operating their own radio manufacturing company.

They already produce the chips that the radio needs.

Yet, since they rely on others to make the car radios for them, they obviously have to spend money on their services.

Whenever SiriusXM upgrades their chips, new car radios need to be produced that support those chips.

That means they need to spend more money to get those radios made.

This further adds to their operational costs which they need to cover with revenue from their subscription model.

SiriusXM is expensive because they partner with other companies to make car radios instead of producing the radios themselves.

 

7. Sports Costs

Young athlete man with headphones

 

One of the radio genres that you can find on SiriusXM is sports.

Whether it’s talk shows about sports or live sports broadcasts, you can usually find what you need on SiriusXM.

Sports fans might choose to subscribe to SiriusXM if they’re on the road often or traveling and know that they can’t make it to a TV in time to watch a game.

The problem with broadcasting sports is that it can be expensive for a provider.

Networks must bid on the opportunity to broadcast certain games since many of the popular games make networks a decent amount of money.

Sports attract a lot of viewers, and in terms of TV programming, that equates to a lot of money through ads.

SiriusXM may even allow some ads to be broadcast during sporting events.

That also earns them money.

Some networks don’t run ads, so it still costs SiriusXM money to broadcast the event.

They’re gambling on having subscribers join them to get access to the sports that they cover.

Aside from live events, SiriusXM usually offers exclusive sports talk shows and podcasts.

Since they know that subscribers can get that information from other sources, too, SiriusXM must provide a premium listening experience.

They need experts who can give the listeners news that they might not necessarily get elsewhere.

Since they’re providing premium sports entertainment, they can attach a premium price tag to it.

SiriusXM is expensive for a few reasons when it comes to sports.

For one, they have to pay a certain fee or bid to be able to broadcast the event.

They also must pay anchors or podcasters who are experts in their field (or who are at least very entertaining) to entice their subscribers to listen or to attract new interest.

These add to their operational costs, making their business more expensive to run.

To cover those expenses, they need a high price tag on their subscriptions.

SiriusXM is expensive because of its sports events and shows.

 

8. Celebrity Talk Shows

creator talking in radio

 

SiriusXM knows how attractive celebrities are to a business.

Fans love to tune in to interviews and podcasts that feature their favorite celebrities.

It’s why they have a whole channel dedicated to various celebrity podcasts and talk shows.

Some of the most famous include Howard Stern, Andy Cohen, and Gayle King.

They also partner with Masterclass, which features experts in a given field speaking about themselves, their skills, and even teaching audiences a bit about how to do what they excel at.

However, celebrities don’t come cheap.

They get paid to host shows by SiriusXM.

SiriusXM also sponsors special events that bring a group of celebrities together.

For example, they’ll sometimes have one of their talk show hosts interview the entire cast of a popular TV show.

By having big-name celebrities attached to its platform, SiriusXM hopes to attract more subscribers.

However, since labor costs get higher whenever SiriusXM adds another celebrity show to their lineup, they have to earn more revenue to cover the costs.

Expensive subscription plans are the result of the company taking on higher labor costs.

SiriusXM is expensive because of its use of several celebrities on its platform.

 

9. Target Audience

Woman listening to the music

 

Another reason SiriusXM is expensive is that it knows who its target audience is.

In most cases, those who have some money to burn are going to sign up for a subscription radio service.

Those who need to follow a budget are usually satisfied with free radio.

While SiriusXM does have several exclusive shows and over 100 channels for their subscribers to listen to, not everyone can justify spending nearly $11 or close to $20 for advanced subscriptions monthly.

Because of that, SiriusXM knows who to cater to.

Its target audience tends to be those with a bit more money in their pocket who can afford a subscription to a radio station.

Because its target audience is a wealthier bracket of people, it can charge a higher amount of money for its service.

They don’t count on those below a certain income bracket to subscribe.

Since SiriusXM is not trying to appeal to those in a lower income bracket, they don’t have to worry about offering a cheaper service.

In 2010, a study examined the demographics of those who listened to SiriusXM.

It found that 56% of SiriusXM listeners either had a degree or an advanced degree.

Even more importantly, it found that 24% of SiriusXM’s listeners had a household income of $150,000 or more.

Almost a quarter of their listeners made $150,000 or more.

Clearly, SiriusXM knows who its target audience is and knows that those people can afford its subscription service.

As a result, they don’t feel any pressure to lower their subscription prices.

SiriusXM is expensive because its target audience, usually, can afford its expensive prices.

 

10. Pandora Purchase

Laptop computer displaying logo of Pandora

 

A final reason SiriusXM is expensive is that it acquired Pandora Radio.

Pandora Radio was a major competitor of both SiriusXM and Spotify.

However, as other media platforms like iHeartRadio started to gain traction, Pandora began to lose its audience.

This led it to accept an offer from SiriusXM for $3.5 billion.

That’s a substantial amount of money that SiriusXM had to pay to acquire Pandora.

While it kept Pandora active, it still hasn’t been performing that well.

Spotify is mostly to blame.

With SiriusXM already having spent a good deal of money on buying the company and then having it not perform well, they may lose money as a result.

This leads to more expensive prices because SiriusXM has to recover from those losses.

SiriusXM is expensive because of its purchase of Pandora Radio.

 

Conclusion

SiriusXM is a premium satellite radio service that charges its listeners a monthly subscription fee.

Due to the quality of its channels and its operational costs, SiriusXM has an expensive business to run.

High subscription fees are a result of SiriusXM’s operational costs and the fact that it relies mostly on subscription payments for revenue.


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