The service would include at no charge 20 XM radio stations and 130 AOL-produced stations currently available only through AOL's subscriber service. A premium AOL/XM service would be available for a monthly subscription fee.
The paid service would provide higher sound quality, no commercials and 50 more XM stations, Ann Burkart, spokeswoman for Dulles, Va.-based, AOL, said.
AOL, a division of Time Warner Inc., has struggled to hold on to subscribers as a growing number of consumers switch from dial-up to broadband services offered by cable and telephone companies. The AOL portal scheduled to launch in the summer would put the company in direct competition for online advertising dollars with Microsoft Corp.'s MSN and Yahoo Inc.
Offering an online radio service, even one at no charge, probably won't bring in a lot of ad revenue by itself, David Card, analyst for JupiterResearch, a division of Jupitermedia Corp., said. In addition, consumers have not shown much willingness to pay for Internet radio, since a lot of traditional radio stations broadcast their programming on the Internet for free.
"(Online) radio is a good feature to have as part of a full service, but I'm not sure how much demand there is to pay for it separately," Card said. "(And) an advertising model hasn't yet emerged to support it."
Burkart, however, said the current [email protected] service has 10 million unique visitors a month. "It's a very popular and increasingly popular feature," she said.
Therefore, the company believes people will be willing to subscribe to the upcoming premium service, Burkart said.
XM, on the other hand, appears to have found a market for its satellite service, but it hasn't been cheap.
XM, and its chief rival Sirius Satellite Radio Inc., have been spending heavily on programming and sales and marketing in order to attract subscribers to a relatively new market. Both companies reported losses in the fourth quarter ended Dec. 31, but increases in their number of subscribers. Sirius ended 2004 with 1.14 million subscribers, and XM Satellite with 3.2 million.
"(Satellite radio) is growing pretty dramatically, and there's a lot of money changing hands," Card said.
XM, for example, signed an 11-year, $650 million deal to broadcast Major League Baseball games beginning with the 2005 season. Sirius signed a five-year, $500 million contract with shock jock Howard Stern, who is scheduled to move his popular morning talk show to the radio network in early 2006.
In addition, XM has signed a deal with Hyundai Motor America to have its satellite service factory-installed in all car models by 2007.
The AOL deal should help promote the XM service further.
Yahoo and MSN currently offer online radio services at no charge, as well as commercial-free premium services for a monthly fee.