Can XM Put Radio Back Together Again?
Heard avril Lavigne's 'Complicated' just a wee bit too often? You can thank Lee Abrams, the man who shackled FM radio to the tyranny of mass market research. The 'Moses of programming,' they call him.
By Frank Ahrens
Sunday, January 19, 2003; Page W12
Why does radio sound the way it does today? Why does it sound like it's been prepped, packaged and served up in easy-to-digest bites, like tiny bits of Spam stuck on toothpicks?
We're talking about music radio, so we're talking about FM. Staticky AM remains the province of news, sports, talk and such utility-style information. Silken FM, as it has been for the past 35 years, is the home of music, thanks to its static-free stereo sound.
Owing to a growing sophistication in audience research, light-speed consolidation of radio ownership and the attendant rise in value of FM stations, the commercial FM dial has been essentially reduced to six musical formats: Pop/rock, hip-hop, country, classical, Spanish-language and variations on the theme of "adult contemporary," a sort of light pop or R&B. Research has shown radio owners that these are the moneymaking formats, and this is where they've flocked. Swept off the dial are niche formats, such as blues, bluegrass, easy listening and jazz, except for Kenny G-style "lite jazz," which falls neatly in the adult contemporary category.
Today's broadcasters will publicly tout what they call the diversity of the radio dial, but they know better. "It's not like the old days," they lament, though never in public.
An example: I once heard the Talking Heads' hit "Burning Down the House" on four Washington stations -- all of which theoretically aim at different target audiences -- within a span of a few hours on one day. Why? Because the song tested well among four different audiences, which meant it was guaranteed to bring ratings and advertising revenue.
Flip around the D.C. dial in the mornings and listen to the top-rated stations: On hip-hop WKYS, you've got the rowdy "Russ Parr Morning Show" aimed at black listeners, ages 18 to 34. On rock station DC101, the cackling "Elliot in the Morning" show is doing a shtick not dissimilar from Parr's -- comedy, a little music, games, listener calls. Except that his show is aimed at white listeners 18 to 34. On Magic 102.3, syndicated superstar Tom Joyner is doing a tamed-down version of the morning show motif, aimed at older black listeners, mostly female, 25 to 54. Up at Mix 107.3, Jack Diamond is doing a Joyner-style show, except it's targeted at white listeners, mostly minivan moms, 25 to 54. There is an old saw in the radio industry: "If it worked in Tulsa . . ."
It's not that Washington radio is bereft of talent. There is an art and skill to radio personality, and all of these hosts are radio pros, as are other notable Washington radio stars, such as Don Geronimo and Mike O'Meara of the "Don and Mike Show," WPGC's Donnie Simpson and WHFS's "The Sports Junkies." But their shows are cut from the same template as shows in New York, Chicago, Los Angeles, Houston, Seattle . . .
Then there are the ads: Most FM music stations play 18 to 22 minutes of commercials per hour -- some as much as 24 minutes. Most are abrasive enough to cause a reflexive lunge for the radio to punch to another station -- any station. The bad news: The same ad might just be starting on whatever station you land on.
Where does this leave radio in an era when the time spent listening to AM and FM is dropping? In an era of Internet music downloading, Internet radio, MP3s, burnable CDs, commercial-free digital music stations on your home cable and satellite systems, not to mention the distraction of cell phones, BlackBerries, PalmPilots hooked to the Internet, portable DVD players, TiVo and home video consoles that will soon function as vast digital entertainment libraries?
Who needs radio anymore?
You do, when it's good. Because there is something that radio can do that you can never do. Sure, you can download your entire CD collection onto your iPod and walk around with it. But those are the songs in your library, and even in random play there is a certain joyless satiety to that. The magic of radio long has been and will continue to be: You're alone in your car, flipping the dial, and, every so often, at exactly the right moment, exactly the right song comes on the radio. It makes you slap the steering wheel with happiness. The serendipity is spellbinding.
FM still manages to capture that magic, once in a while. But the response FM increasingly engenders is, "I'm so sick of that song."
But are we sick enough to pull out our checkbooks? Lee Abrams and his colleagues at XM Satellite Radio Holdings Inc. are betting their reputations and considerable money that we are. XM is a fledgling business, a company that beams satellite radio to your car or home for a monthly fee. Abrams, an FM radio legend for more than 30 years, is the man who dreamed up XM's 100 channels. He thinks XM can find that perfect song at the perfect moment for enough paying listeners that it can became a sustainable business.
He arrived at XM five years ago like a man stumbling onto an oasis, saved from what he believed had become the wasteland of FM. At XM, he was told to create a new kind of radio. There would be no howling morning shows, no dumbed-down deejay blather and almost no commercials. It would be like starting HBO all over again, except starting with what HBO has become -- the sophisticated "Sopranos," not the polka shows and second-rate movies that marked the channel's early days. It would be a wonderland.
Abrams vowed to save radio. But first XM would have to save itself.
Twenty-one days until the revolution.
On a hot summer morning in the not-too-distant past, several dozen XM employees amble into a conference room at their Northeast Washington headquarters. They and more than 400 other staffers have been scrambling for months to get this billion-dollar, brand-new thing off the ground -- a risky concept called satellite radio.
XM is banking that enough people are fed up with what they hear on their radios that they'll cough up at least $150 for an XM receiver and $9.99 per month to pay for the 100 channels of XM's subscription radio -- something like cable TV for radio -- and have it beamed by satellite into their cars and homes. On this day, XM is putting the finishing touches on its dozens of niche music channels, such as all-blues and all-disco channels, as well as channels devoted to folk, heavy metal, experimental jazz, Big Band swing from the '40s and so on. But the question lingers: Will anyone pay for radio?
This three-story Industrial Revolution brick building -- a former printing shop near the intersection of Florida and New York avenues NE -- has been gutted and turned into a 21st-century technological hive, complete with 82 digital studios, a 200,000-CD library and satellite uplinks on the roof.
Inside, the look is Starship Enterprise, with walls of blinking electronics and high-tech gee-wizardry. You can touch the money everywhere. The false ceiling is steel mesh. Chief executive Hugh Panero even had a special chair installed in the main control room, fashioned after the one that Captain Kirk sat in on the bridge of his ship.
The people in the conference room on this day are mostly programmers -- the staffers who will decide what songs XM's channels play. They settle around a long table made of blond wood. High-tech accouterments populate the room -- video monitors, speakers, whiteboards, a PowerPoint display.
The employees are mostly male, mostly white, with a few spiky-haired punk women and programmers of color rounding out the group. Shorts and aloha shirts are the corporate uniform; loudmouth one-upsterism the conversational norm. There is a brief exchange about the "XM signature," which is a seven-tone identifying tune played on all the channels, customized to the channel's sound. On XM's country stations, for instance, the signature has a twang.
Someone asks the programmers if anyone wants the signature done by barking dogs. Everyone's hand shoots up amid laughter. One programmer deadpans: "We have it in farts, if anyone wants that."
Dave Logan is standing at the head of the table; he rings a bell, signaling that that idea might not be quite appropriate, even for out-there XM. Logan is Abrams's top lieutenant; the two worked together at a Chicago radio station in the late '70s and have been friends since. Logan is a handsome, tanned, high-energy, agreeable sort. He exudes can-do confidence.
"We need to get back to the Holy Grail," he tells the programmers. "And here's the Moses of programming."
Glenn Lee Abrams saunters into the room, generous stomach first, substantial reputation trailing behind. For most of the '70s and '80s, Abrams was the most influential man in FM radio. He is to thank -- or blame -- for much of what FM sounds like today. The programmers burst into applause.
He is a glorious ramshackle. At 50, Abrams has bushy, gray hair, still rebelliously long enough to say "aging rocker" instead of "corporate suit." He has a way with insightful phrases and the occasional cuss word. That, coupled with his legendary past -- which everyone in this room knows of and admires -- makes him an inspirational figure here.
He tells the programmers that XM needs "swagger."
"Are we Pablo Cruise?" he asks, rhetorically, invoking the 1970s California soft-pop group. "No! We're Led [expletive] Zeppelin!"
He urges the group not to make on-air mistakes that are "stupid and terrestrial." He never wants to hear shopworn FM phrases on XM, such as "commercial-free" and "coming up -- more great songs!" He tells the programmers they need to break the FM lock on record labels and band managers. "Get to know them," he says. "Get the guy some free tickets to the circus for his kids. Or get him some blow."
"Kidding!" Abrams emphasizes.
What follows is an all-morning critique session. Of XM's 100 channels, about 30 are talk, news and variety channels, many bought from other providers, such as CNN and the BBC. Most of XM's 70 music channels, however, are original, programmed at the XM headquarters by the people around this table.
In an adult version of show-and-tell, the music station programmers play a two-minute clip from their channel before the group -- Abrams included -- to demonstrate what it will sound like. Most of the clips sound fresh -- bits of songs almost never heard on radio these days, clever interstitial dialogue, canned sound effects. The clips that sound too much like today's radio merit a stern Abrams rebuke.
At lunchtime, Abrams gives his troops a high-octane send-off: "FM gave up on music -- or just tested it to death." One wonders if the irony of this comment sinks in -- Abrams is one of the founding fathers of radio research.
As the industry's top rock radio consultant for more than two decades, Abrams put his stamp on more than 300 stations around the country. Then he watched as research became more scientific and overtook his business, draining the gut out of radio until it became something that had no more use for Abrams, who walked away in disgust from what he'd wrought.
When he landed at XM, he was charged with building 100 new stations from scratch.
Most of these programmers came here from FM stations. A cynic would say that by regarding FM as the "don't" example for what they're about to launch, they're biting the hand that fed them their careers. They, on the other hand, would tell you they feel like they've been liberated from the FM straitjacket. There's more than a nascent business at work here -- there's the fever of religiosity.
There are 21 days until the revolution, they tell one another over and over. Panero plans to sit in his Captain Kirk chair and push the button himself. The launch date: September 12, 2001.
For our purposes, Abrams's story -- and, in a way, XM's -- began on a summer night in 1967, on a sidewalk outside a grungy VFW on Chicago's South Side. Abrams was 15, skinny and longhaired. Teenagers were rolling out of a sock hop, where they had just heard a local cover band called the Dimensions of Thyme play "Louie, Louie," "In the Midnight Hour" and other garage standards. Abrams buttonholed a sock hopper and his best girl and asked, "What kind of music would you like to hear the Dimensions of Thyme play?"
The teens were sick to death of the fluff they heard on AM Top 40 radio, brought to them by grown-ups. They and their friends listened to albums by new bands, bands with edge -- the Rolling Stones, the Animals, the Yardbirds. That's who we want to hear, they told Abrams.
He dutifully wrote it down. He grabbed another sock hopper. And another. The Thyme began altering its playlist to reflect the desires of its audience.
It turns out that Abrams was the manager of the Thyme, and the band's middling guitar player. But on this day, on this Chicago street corner, he was inventing the thing that would eventually change the way radio sounded for the remainder of the century. What he was doing was primitive, but primitive in the way that the Wright Flyer was primitive. Abrams was doing audience research -- finding out what listeners wanted to hear, as opposed to what his band mates wanted to play.
On FM radio at about the same time, pretty much the same trend was unfolding -- deejays ruled, playing what they wanted; what they thought the listeners should hear. Abrams could smell the opportunity.
In the late '60s, FM stations were the forgotten stepchildren in the AM hegemony. Their lush signals were used either to simulcast the signal of their AM sister station, filled with paid programming or just considered write-offs and turned over to wacky hippies who were pretty much allowed to play or say anything, as long as they didn't cost the station owner his Federal Communications Commission license.
At the same time, new rock artists such as the Beatles, Jimi Hendrix and Cream were expanding the scope of the genre, pushing it sonically wider and longer than the standard three-minute AM pop ditty. On AM, Hendrix sounded tinny. On FM, and on headphones, he was a revelation. Top 40 AM stations were trepidatious about the new music; FM embraced it.
Progressive rock stations such as WNEW in New York championed the new music. Delphic, intellectual, often anti-establishment deejays played the new songs, read poetry on-air, bashed the government and the Vietnam War.
They created a youth subculture, but gathered only limited ratings. Station owners quickly recognized the potential revenue FM could create if its appeal could be broadened. So did Lee Abrams.
The teenage Abrams was an entertainment polymath. In addition to managing his band, Abrams started a tiny record label out of his bedroom and sold 45s to local clubs. At nighttime, he launched his radio research.
AM radio signals travel farther after sunset than they do during the daytime, because they bounce off the ionosphere, which rises in altitude at night thanks to the cooling of Earth. It's not unusual for a strong AM signal to travel halfway across the country on a clear night. Abrams tuned in faraway stations and listened to how they sounded -- what records they were playing, what promotions and jingles they ran. He culled the best of them and put them in a news-letter, "Better Ideas for Better Stations," which he sold via ads he took out in the music trade papers.
During summertime, the Abrams family hied it down to Miami, where Lee fell in love with a local Top 40 AM station, WQAM. One day, he walked into the station and boldly proposed that management hire him as a consultant. "I'll be your pipeline to the teens," he pitched.
The station bit, paying him out of a news tip fund. While working at WQAM, Abrams invented ways to do research. Abrams hitchhiked around South Florida and watched how drivers interacted with their radios -- what caused them to stay on a station, what made them punch to another in disgust.
By the time he was 19, Abrams had a bunch of ideas, but not much experience or credibility and even less money. He got in touch with a San Francisco AM consultant named Kent Burkhart. Abrams recognized that FM was undiscovered territory. Burkhart recognized a blossoming talent. Let's get together, Abrams said: You do AM, I'll do FM.
On New Year's Day 1973, Abrams launched what he called "Superstars." It was radio's first album-oriented rock format and it broke rank with traditional stations by promoting artists, not songs. Abrams stations would play lesser-known songs by well-known acts, such as Ted Nugent and Eric Clapton. Playlists would be largely taken from the hands of the deejays and assembled by consultants like Abrams and station managers. They, in turn, would carefully monitor listener preferences and reactions via focus groups, exit polls and comment cards placed at record stores.
It would prove to be the Model T for FM rock formats -- the template for all that would come after it.
Step One in the Superstars rollout handbook: Fire the deejays.
"We were stuck with these underground deejays who thought they knew more than the listeners," he says. "They were elitists. They wouldn't play Led Zeppelin because they had already 'sold out.' We wanted [deejays] who were in Top 40 and had that discipline. But these were people who would go home and listen to Pink Floyd and Genesis. They would bring the discipline and the idea of being part of a plan, but they brought more passion than the underground deejays because they were playing Top 40 now, and this was the first time they could play all this cool music and get paid for it. No more Donny Osmond and Bobby Sherman. They were going to get to play Frank Zappa."
The Superstars format rolled out at WQDR in Raleigh, N.C., a happening multi-college market. There was a pretty overnight deejay there named Sandra Willamon who would finish her midnight-to-6 a.m. shift, sleep on the ladies' room sofa, then get up to write copy for the station at 8 a.m.
When Abrams came to WQDR to supervise the Superstars format, Sandra says, "It was love at first sight for me."
"I think it was his eyes," she says, which are still a bright green. "And someone told me, 'This guy Lee Abrams, he's brilliant.' And I thought, 'That's good, a smart man.' Also, he had this enormous Jewish Afro, which was also appealing -- at the time."
Abrams and Willamon married and moved to Atlanta, where Burkhart/Abrams began creating its empire, station by station, out of Burkhart's basement. Soon, there would be other employees and an actual office.
Eventually, 800 stations would pay Burkhart/Abrams to do their own research in addition to analyzing research the stations had already commissioned.
"We had two waves of research going at one time," says the sprightly Burkhart, still active in media at an undisclosed age and living in Key Biscayne, Fla. "It helped us see things ahead of time. We knew where the public was going before they knew they were going there."
Around 1980, Radio & Records, the powerful trade magazine, surveyed the top 50 radio consultants and asked which of them was the most influential. The consultants picked Burkhart/Abrams.
Critics, however, blamed Abrams for sucking the lifeblood out of FM. For making radio sound the same across the country. For turning it corporate. For monetizing what had been a creative outlet. For denying radical deejays their right to free expression.
Ben Fong-Torres -- who, as an editor of Rolling Stone magazine from 1969 to 1981, was the counterculture's Solomon for rock music -- wrote an article for GQ magazine around the time criticizing the Abramsization of FM radio.
"I blame him for the death of FM free-form progressive-rock radio, a death which is still mourned by music lovers around the country and probably beyond -- wherever people have memories of radio in its finest hour," Fong-Torres wrote.
Today, Fong-Torres still talks romantically about the deejay-to-listener connection that was achieved in the early days of prog-radio.
"At its height in FM, you could look to the announcer as a person to inform you about not only the music and artists, but about the community at large," says Fong-Torres, 57, who lives in San Francisco and is a writer and lecturer. "They could bring in personal sensibilities to his or her broadcast day and, by their mood, tell you what is going on in the world around them. Then, if you happened to fall in and match their mood, they could play music that would be an underscore, an underpinning to what you have in common. Whatever you're thinking politically or socially; if you're coming down from a high or getting high, whatever. At the right moment with the right person on the radio, you could go on a little journey together."
Despite whatever Abrams may have done to his beloved free-form FM, however, Fong-Torres believes that Abrams cares about the art form the two share.
"Any animosity I have toward him and his ilk is also moderated by the fact that in Lee's case, there is a tremendous and deep knowledge and interest in music and, when given the chance to do something interesting [such as XM] . . . it is entertaining. He has a bottom-line love of music and our times."
Here, it is important to pause and plainly state something that is obvious to the radio industry and maybe even to listeners: The business of radio is not about playing songs that people want to hear. Radio is about promising discrete audiences to advertisers; it is an advertising-delivery vehicle. The reason that it's rare to hear niche formats on the radio such as, say, a station that plays Big Band music, is that radio companies know that the potential audience is not big enough to merit a Big Band station.
Further, the average Big Band station listener is likely to be over 55 years old and therefore, from an advertiser's point of view, not worth pursuing. Advertisers seek the lucrative 18-to-34 and 25-to-54-year-old audiences. Even though an increasing number of studies point out that older consumers spend their disposable income and can be persuaded to try new brands and products, cautious media buyers are unwilling to test those assumptions. Instead, they stick to the common wisdom that makes FM stations highly profitable: Younger people are more likely to respond to advertising.
Which is why XM could never fully replace FM.
Carping about a lack of variety on the FM dial is typically the province of the local music zealots, fans who crave new music, those with alternative tastes who believe the Dixie Chicks and Celine Dion are not only Wal-Mart-grade lowbrows but artistic agents of evil.
For a great swath of the rest of folks who like hit songs and funny morning shows, FM is just fine.
Further, FM can do something that XM cannot: Be local.
Bennett Zier runs eight Washington radio stations for corporate goliath Clear Channel Communications, the world's largest radio company, with more than 1,200 U.S. stations. He is a smart and savvy radio veteran who knows that an FM station's biggest selling point will always be that it broadcasts to a local audience and can build up good will among its listeners that will lead to brand loyalty. He points out that this year, his DC101 station raised thousands of dollars for kidney research and that his WMZQ country station raised $1 million for St. Jude's Children's Research Hospital. His employees recently stuffed care packages for the USO.
"There are extraordinary things that you are able to do because your radio stations are in the marketplace," unlike XM, which is a national service, Zier says. (To hedge its bets, Clear Channel invested in XM; in return, the radio giant got to place four of its FM stations in XM's lineup. When XM launched, some Clear Channel stations would not run commercials for XM, saying they felt like they were advertising for a competitor.)
FM is still agile enough to respond to listener desires and market forces, Zier says. When the Internet bubble burst, taking with it the dot-com advertisements that fueled radio's growth in the '90s, Clear Channel decided to run fewer commercials.
"During the 1990s, a lot of times we were just putting spots on the air because business was so robust," he says. "When the bubble burst, we realized a better way to run our business is to run less commercials, which in turn will make our listeners more loyal and stay longer."
Back in the late '60s, keeping FM listeners tuned in for hours on end was not the problem. Getting enough listeners to turn FM into a real business was.
Enter consultants such as Abrams, who broadened FM's appeal past stoners and hippies. FM began to make real money, and station owners began taking research very seriously.
Burkhart/Abrams dominated through the '70s and '80s. Abrams was making in the high six figures, and every radio owner, it seemed, wanted an Abrams-formatted station.
But as the '80s drew to a close, something started changing. The industry had caught up to Abrams.
Increasingly, as Abrams met with radio stations that he hoped to cultivate as clients, he was getting beaten up by suit-wearing researchers who'd adopted Abrams's research methods, applied higher-order mathematics and statistical analyses and dazzled with their presentations. He was telling station owners and general managers how to combine emotion and science; the researchers were telling the GMs: If you play X song, you will get Y rating and earn Z dollars.
"I think people became a bit addicted to research because it's convincing," Abrams says. "It puts everything in black-and-white with no question marks."
Abrams left Burkhart/Abrams in 1988, saying he was "bored." Burkhart confirms this, saying the parting was amicable and that all those years on the road took their toll on Abrams. "You had lots of guys taking shots at you all the time," Burkhart says. "It does have a wearying effect."
But something else was happening in radio at about the same time. Rappers such as Run-DMC, Public Enemy and N.W.A. were taking rap mainstream. The big success stories of 1990s radio were the euphemistically titled "urban" formats -- hip-hop, rap, new R&B, adult contemporary. These were stations that played black artists, aimed at the increasingly affluent black radio audience, which advertisers began to covet.
Abrams never formatted urban stations. In the '90s, he became suddenly irrelevant in FM radio.
Worse, his signature album-oriented-rock format was dying.
"It shot itself in the foot with over-research," Abrams wrote in an e-mail for this story. It forgot "the roots, the foundation, the natural audience's needs, missing the whole point."
In 1996, when the federal government essentially lifted long-standing limits on how many radio stations an individual or corporation could own, consolidation was extraordinary and nearly instantaneous.
Small stations were bought by small chains, which were bought by bigger chains, which merged to create goliaths, bigger fish eating smaller ones. Prices for radio stations skyrocketed, thanks to the demand. The buzzword was "scale." Companies thought the quickest way to profitability was to get big fast. Investment bankers applauded the effort by lending billions in capital.
Ten years ago, the nation's more than 12,000 radio stations were owned by 5,100 companies and individuals. Now, that number stands at about 3,800 owners. San Antonio-based Clear Channel Communications may own more than 1,200 stations, but the issue is larger than sheer numbers. Because many of those Clear Channel stations are in the nation's largest cities, fully half of the U.S. population hears the company's stations every day. (The eight stations Clear Channel owns in Washington are the maximum allowed in one city.)
On the upside, a lot of mom-and-pop station owners became instant millionaires and retired happy. On the downside, these new, huge radio chains were saddled with debt. Tiny, privately owned companies became big, publicly traded companies now subject to the demands of Wall Street, which expected continued growth and escalating earnings.
To meet the Street's demands, stations had to increase revenue and cut costs. Cutting costs meant consolidating jobs. If a company owned five stations in one city, it might fire three program directors and put all five stations under the charge of two PDs, who could hardly devote their full attention to the sound and music selection of all five stations. The big chains fired local on-air hosts and replaced them with syndicated shows.
To raise revenue, stations increased the number of commercials they played. Once in the 10-minutes-per-hour range, most stations now more than double that, often playing the ads in uninterrupted blocks.
Individual radio stations -- some of which big chains paid more than $100 million to acquire -- simply became too valuable to become laboratories for anything chancy, such as trying an unproven music format, tolerating extended deejay disquisitions or spinning a song that wasn't a guaranteed hit.
Stations became slaves to the kind of research Abrams pioneered.
Today, stations and chains employ a number of research methods. For example, they call listeners on the phone and play snippets of songs, asking not only if they like the song, but if they recognize it. The theory goes that most listeners like hits and will flip stations if an unfamiliar song comes on.
Research firms provide stations and chains with detailed data, showing which songs and musical genres tested best for the audience the radio station seeks. How much guesswork is eliminated? Research even tells program directors which order the station's songs should be played in. Smaller chains and stations that can't afford big research firms ape the playlists of the big stations, which are published in the trade magazines.
The result: The Top 40 station in Los Angeles often plays the same songs, the same jingles and sometimes the same syndicated deejays -- and may be owned by the same company -- as the Top 40 station in Washington, D.C. (In fact, it is.)
If XM thought it had a good business plan before consolidation -- to sell more variety to radio listeners -- it seemed like a money machine in the wake of consolidation.
In 1997, Abrams was again restless and looking for something new. He was contacted by a recruiter from the company that would become XM: Do you know anyone who'd like to program 100 brand-new radio channels?
Um, yeah, Abrams said. Me, for instance.
The recruiter told Abrams he was too much of a "heavyweight," and that the company couldn't afford him. But Abrams was relentless, and inundated the recruiter with information and pitches.
Eventually, Abrams was hired as XM's top programmer -- he would be in charge of dreaming up all the formats. It was a chance to do FM all over again, only with better toys. Because he was programming a national service, he would not be constricted by the size of a local market. Which meant that almost any format was game. He and outside researchers identified more than 80 music and 45 talk formats they thought XM listeners would find appealing.
And this time, there would be no calculus-spouting pointy-heads one-upping his research.
Abrams leaned on something called "psychographic" research, which is a sophisticated polling and analytical method that isolates listener groups based on habits, desires, affinities and dislikes. Abrams likes to say it has more emotion than high-math research. Abrams's psych charts classify radio listeners into genera, such as "new rocker," "aging modern rocker" and "real people" and identifies their perceived preferences. For instance, "real people" are aged 25 to 50, listen to country radio, watch network television, own a van, eat at Shoney's, lean politically right, like sports and wish rap would go away. XM programmed five country channels for these fans, broken down into bluegrass, classic country, progressive country, hit country and middle-of-the-road country.
XM's business plan would be based on cable television's.
In the late '70s, television viewers had essentially four choices: ABC, CBS, NBC and PBS. Wildcat companies started laying cable to improve the network reception. Soon, everyone realized that cable allowed for more channels and more viewer choices. Cable-only channels began appearing, no longer targeted at every possible viewer, but at a narrower niche viewer -- ESPN, MTV, HBO. Most importantly, advertisers and subscribers followed. If an advertiser wanted to reach a particular audience, networks were shotguns. Cable channels were sniper rifles.
XM told investors, such as General Motors Corp., that it could create a satellite service that would stretch across the United States. This meant that XM could satisfy niche musical tastes. Translation: There aren't enough, say, reggae fans in Washington to support an all-reggae station here. But there are enough reggae fans across the country to support an all-reggae station on XM, which could be heard coast-to-coast, XM said. Because it would be a subscription service, many stations would be commercial free. Those that did carry ads would be limited to six minutes per hour.
Investors, who knew of the cable success and the steady decline in radio listenership since 1990, liked the idea. XM raised more than $1 billion in capital. In the early days at XM's sparkling headquarters, the company spent what it took to build its dream. XM sank $62 million alone into renovating its headquarters.
To try to lure a major talent, XM waved stock options under the nose of top-rated talker Rush Limbaugh. But his syndicator refused to let Limbaugh appear on XM, knowing that the 600-some over-the-air stations that carry the conservative host would revolt. XM paid millions to top-line ad shop TBWA/Chiat Day for a nationwide campaign keyed to the launch; ads featuring B.B. King, David Bowie and Snoop Dogg appeared on television and in movie houses. In September 2000, the company's stock soared to more than $45 per share. A year later, XM was telling Wall Street that it needed about 2.7 million to 3 million subscribers by 2004 to break even.
On Friday, September 7, 2001 -- five days before the national launch -- XM held another boot camp. Several people at XM had been working for three years to reach this point. The tireless Dave Logan had spent countless hours with each of his program and music directors, taking Abrams's big ideas and converting them into playlists and programs. He was rallying the troops for one final push. "Far better it is to dare mighty things," Logan liked to tell his programmers, borrowing from Teddy Roosevelt.
On this day, he stood onstage and told his staff: "Next week is going to be one of the most memorable weeks of your life, and you'll never forget it."
As it was at every other office across America that had televisions, the XM staff watched the events of September 11 unfold in real-time horror. XM executives were in the air that day, heading to Dallas and San Diego, where the national launch would begin. By the end of the day, it was clear that it would not be business at usual on September 12 at Best Buy and Circuit City, where XM receivers would be rolled out to customers.
The service got a big splash in USA Today, but nobody would see or care about it. Then there were the ads: The high-profile campaign that featured David Bowie and B.B. King was suddenly unpalatable and grisly -- they were depicted falling out of the sky, to mimic music coming down from a satellite. Another XM ad featured a NASCAR car crashing to the ground. The campaign was quickly pulled. By the end of the day, Panero decided that XM would wait at least two weeks to launch.
XM launched on September 25 to quieter fanfare but quick acclaim. Within weeks, it racked up plenty of kudos -- Fortune magazine named it the product of the year. Time called it the invention of the year. But the ripples continued. If the airlines and tourist industries were hit hardest by the fallout of 9/11, the media and entertainment industries were not far behind.
It turned out to be the worst time, maybe ever, to launch a new luxury entertainment product. XM's favorable press and buzz as a hot Christmas present helped the service recoup, however, and through last year, the service hit its subscription promises to Wall Street.
But XM's cash went up like tinder.
A satellite business is an extraordinarily expensive venture to run. Though XM's subscriber growth is on-track, the math doesn't add up. With 300,000 customers paying $9.99 each, the company can gross $3 million a month -- not nearly enough. In the fall, it was burning through $30 million per month, Wall Street analysts estimated, and still it carries more than $400 million in debt. The stock has plummeted from its high of more than $45 per share to around $3 per share.
XM has always been in a race against time. Could the company add enough subscribers to become profitable before the cash ran out? The money paranoia kicked in last summer, when bosses were told they couldn't fill positions that had been vacated. The XM promotional 18-wheeler went to fewer NASCAR races. By last September, suggested layoff lists were being drawn up. On November 11, they were executed: Eighty staffers were fired to cut costs.
First to go was Dave Logan, Abrams's good right hand.
Logan was Ginger Rogers to Abrams's Fred Astaire. Fred got all the press but, as they say, everything Fred did, Ginger did backward and in high heels. As Logan wrote in an e-mail for this article before he was fired, "Lee decides we need to land the plane backwards at Reagan National while the sky turns green. It's my job to make it happen." (As part of his termination agreement, Logan was prohibited from commenting further for this article.)
Despite the money crunch, Abrams remained upbeat. It's always a sunny day in Lee's office, goes the saying around XM's programming department. As a radio vet, he's been through such contractions before. But he will miss Logan.
After the layoffs, Panero and the XM board were faced with the task of raising $400 million within the next few weeks to keep the company going. With XM/AM/FM radios optional in 25 models of 2003 GM cars, he is confident he can meet his projection of hitting 1.2 million subscribers by the end of this year. The second-generation XM radios are more user-friendly than their predecessors. An XM boombox has been rolled out. But the company is still a long way from its break-even number, which has now been pushed up to 4 million subscribers by the end of next year. The question that lingered more than a year ago -- will people pay for radio? -- has been partially answered. Some will. But will enough?
"The money we're raising now is to continue the growth of the service," Panero said in an XM conference room in early December. "Macro-economic forces have slowed us down or hindered the process, but the economy is painful to everybody." He's thankful that XM has more than a year under its belt. "I think if we were starting from scratch today," he said, "I don't think satellite radio would've gotten off the ground."
On December 23, XM got an early Christmas present: $450 million in new financing, a combination of payment deferrals to GM and new cash. "We believe we have achieved full funding through cash flow breakeven," Panero said in a statement.
From Day One, XM has been an attractive product. Now, it must prove it is a good business.
I bought an XM satellite radio for my car just after Christmas 2001. For the first few days, as expected, I spent most of my time on Channel 44, a station called Fred. It is a "classic-alternative" channel that plays the music I grew up with: R.E.M., Clash, Cure, the Jam, the Housemartins, the Smiths, Elvis Costello, Joe Jackson. The sort of stuff that has almost no home on FM radio these days. Blissfully, there are no commercials on Fred. Another appealing feature of XM: The name of the song and artist playing appears in LCD display.
One Saturday soon after the XM installation, I headed to West Virginia. I drove north through Montgomery County on Interstate 270, listening to Fred. However, being a savvy Washington driver, I have been trained by local all-news station WTOP to keep an eye on the clock in my car and flip to 1500 AM for traffic updates every 10 minutes "on the eights."
I punched a button on my new radio that switched from XM to AM at eight minutes past the hour. Immediately, the traffic reporter warned me of a huge backup caused by an accident west of Frederick, on I-70. So far, I-270 was clear. I switched back to Fred on XM.
Every 10 minutes thereafter, I flipped back to WTOP to check on the wreck, as I sped toward it. All four lanes were now shut down, warned the WTOP reporter. Traffic was backed up for miles in both directions.
I needed an escape plan.
I pulled a Maryland map out of my glove compartment and studied it. WTOP suggested exiting I-70 to a side road at a certain point to avoid the accident, which I did, even as traffic began to slow in front of me. About four miles later, the traffic-free, winding two-lane road crossed over I-70: Below me were four lanes of parked brake lights as far as I could see. It was a liberating moment. I was sailing along unencumbered above those wretched souls. It was a moment of exultation. Ahead of me were open roads and 100 channels of new radio. Behind me, clogged traffic and FM.
Frank Ahrens covers the media, entertainment, advertising and marketing industries for The Post. Before that, he covered the radio industry.