XM Moves Into Video

XM Moves Into Video

SATELLITE RADIO IS A robust service as it is. But what if XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) were to start beaming video, too?

Think of a future in which cars and mobile devices would be able to receive video transmissions and enhanced real-time data. Deciding between taking the Holland or Lincoln Tunnel into New York would be a quick choice if you knew where the bottlenecks were — in real time. And it goes without saying that keeping the kids quiet on road trips is a lot easier with cartoons streaming across video screens.

Both XM and Sirius are tiptoeing closer to the day when they'll provide video and data transmissions in addition to their audio offerings.

On Wednesday, XM announced that it was buying privately held WCS Wireless in a stock deal valued at about $198 million. Why is WCS attractive? It has wireless spectrum licenses in certain geographies covering 163 million people in the U.S. The additional frequency bands will allow XM to expand its service with multimedia offerings, including video and data. Having a fatter range of spectrum means XM won't have to compromise its existing music audio services to stream video and data. The deal also allows XM to deliver more customized services and programming to local markets, which might help it to secure local advertising.

On the heels of the announcement, several analysts issued upbeat comments about the prospects for richer video and data feeds. And some noted that XM was buying WCS — and thus its additional bandwidth — on the cheap. "We believe this acquisition makes sense for XM," wrote Sean Butson, analyst at Legg Mason, in a report Thursday. The deal could position XM better for offering content to wireless providers and various wireless multimedia networks, he says. (Butson doesn't own shares of XM; Legg Mason doesn't have an investment-banking relationship with the company.)

Wednesday's news followed on the heels of a joint-venture announcement involving XM, Time Warner's (TWX) America Online and sports and entertainment presenter AEG to form a new digital-entertainment company called Network Live. The purpose: To deliver live entertainment programming via the Internet and satellite, as well as other vehicles such as video on demand, wireless broadband and HDTV.

Meanwhile, Sirius has talked for some time about delivering video to cars, and offering traffic navigation services in conjunction with GPS systems. At its analyst meeting in May, Mel Karmazin, Sirius' chief executive, noted that the company is working with Microsoft (MSFT) to install video screens in the back seats of cars for video. Sirius is also in discussions with content companies that specialize in children's programming, he said.

In fact, David Schrier, analyst at ABI Research, an Oyster Bay, N.Y.-based technology research firm, is pretty skeptical on how big video could be for satellite operators. There's only so much available spectrum out there, he says. In some areas, maybe information on traffic or weather could be beamed to customers, perhaps point-of-interest information for navigation systems, says Schrier. But people looking to watch ESPN while barreling down Route 66 will still have to contact a satellite TV provider (and slap a 30-pound satellite dish on top of their car).

Even so, the foundation is being laid for something. With creative partnerships with content providers and advertisers down the line, moves into video and data services make sense. If nothing else, they'll enrich the satellite radio experience — and might attract more subscribers. That's the goal, anyway.