Building consumer awareness key to satellite radio future - c.e. What's Hot What's New What's Happening - XM Satellite Radio, Sirius Satellite Radio - Brief Article

DSN Retailing Today, Jan 7, 2002 by Laura Heller

Video may have killed the radio star, but new subscription services from XM and Sirius Satellite Radio are opening a new chapter in radio history.

It's been a few decades since those looking for innovation in entertainment programming turned to the radio, but all that is about to change this year as satellite radio takes to the airwaves with two new subscription services and a host of mobile audio products that may well give a nice boost to sales in an otherwise lackluster category.

And the aftermarket autosound market could certainly use it. Sales for the 10 months ended in October dropped 4.5% to a little more than $1.8 billion from $1.9 billion the year before. "Right now, the hottest product categories are in-dash CD players, larger speakers and amplifiers. Next year, this will probably shift toward satellite radio as the fastest-growing category in mobile audio," said Sean Wargo, the Consumer Electronics Association's senior industry analyst.

"This is a new revenue source in the mobile electronics category for retailers," said Doug Wilsterman, vp of marketing and distribution for Sirius Satellite Radio. "They are looking at this as a chance to replicate the success of DirecTV and wireless communications."

"Overall satellite radio should be very good for the aftermarket mobile audio categories. These have been somewhat slow over the past year or so," said Wargo. "Although we'll have to give it some time to really kick in, satellite may breathe some growth into the category over the next two to three years."

Retailers are hardly sitting on their heels waiting for interest to pickup. Both Best Buy and Circuit City boast new in-store displays for the technology, using interactive demonstrations that allow consumers to sample programming. "The education phase of this product is moving along right now," said Best Buy spokesman Jeff Faust. "We're starting to see people coming in and asking about it. The buzz is good."

This may be an understatement. Interest from the consumer press is extremely high, according to Rachel Branch, senior public relations strategist at Sony, with requests for test units coming in by the hundreds.

"If there is a hotter word than hotcakes, that would be it," quipped Paul Sabo, marketing manager for XM Radio at Sony In particular, Sabo is referring to the company's plug-and-play unit that hit shelves in available markets last fall. "It has really taken off beyond anyone's wildest expectations," he said.

Although several in-dash or head units from various manufacturers for the XM service are now on the market, Sony's unit allows consumers to access satellite radio through a cassette-card adaptor powered through the cigarette lighter, similar to ones that let portable CD players operate through a cassette deck, eliminating the need for an in-dash unit and installation fees.

As an added bonus, a similar product for use with home systems allows subscribers to enjoy satellite radio in multiple locations for one subscription fee. Currently XM charges $9.99 per month, and Sirius plans a monthly subscription fee of $12.95 when it launches in February.

According to Sabo, the popularity of home units bodes well for satellite radio's future. Just a few weeks after the products hit the market, sales of home units began to take off, indicating that consumers were quickly looking to access satellite radio in other locations after getting a primary unit for the car. "This tells us people are really enjoying [the service]," he said.

"Everything people have told us indicates the market is ripe for this kind of service," said Wilsterman. When Sirius began conducting market research for the prospective category more than a decade ago, interest in commercial-free programming was high. "The research has been very consistent," he said. "The only difference is that people have become more dissatisfied with commercial radio."

But will they be willing to pay for it? With the list of potential monthly subscriptions growing faster than the unemployment rate, where does consumer tolerance cap out? Since the category is new, no concrete research data exists. According to Wargo: "The results of prior surveys do show some promising interest in the notion of a subscription-based radio service. About 53% of consumers are willing to pay some subscription fee to get satellite service. But 21% of consumers want the fee to be less than $5."

Clearly there will be a learning curve as both services fully come online--and products are rolled out. For now the priority seems to be building consumer awareness and strengthening retail programs. Initial partnerships and merchandising efforts are concentrated on national consumer electronics chains, such as Circuit City and Best Buy, that operate large mobile audio departments and in-house installation. But with products such as Sony's plug-and-play unit, negating the need for installation services, larger mass market distribution can't be far behind.

"The real challenge for satellite radio will be to differentiate itself from standard radio service as much and as quickly as possible. This will help to fuel word-of-mouth adoption of the product," said Wargo. "Its inclusion in the 2002 auto line-up will also help to speed things up." Both Sirius and XM have agreements with auto manufacturers to include in-dash units starting next year.