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History is repeating itself.
Soon after the first cellular networks fired up their base stations, consumers decided car phones weren't mobile enough, and they demanded portable models that could be used outside the car. Now consumers have decided that satellite car radio isn't mobile enough, and they've turned increasingly to home and portable options to tune into satellite radio's exclusive content and commercial-free music channels.
"Historically, people listen to radio more in the car," explained Sirius' Bob Law, referring to the satellite-radio industry's original focus on car tuners. "In the not-too-distant future, however, [satellite radio] will be as readily available as regular FM radio," said Law, Sirius' consumer electronics division senior VP/general manager.
Tweeter's VP/general manufacturing manager Dan Jeancola agreed. With home and portable options proliferating, he said, "People will no longer think of satellite radio as a car product."
Satellite radio has already made significant inroads into the home and portable markets, but satellite-radio broadcasters XM and Sirius are stepping up their home and portable focus this year with the launch of multiple new products in both markets.
The products include:
more dedicated home tuners, including the first Sirius-branded model, to supplement readily available home docking stations for plug-and-play tuners. Dedicated home tuners appeared for the first time in 2003 from only three suppliers, but in 2005, at least 15 companies have announced intentions to offer them, mainly in custom-friendly multizone versions.
the launch of the first XM-ready home entertainment products from Denon, Yamaha and Eton. At least 10 more companies plan to join them this year and next.
the launch of the first satellite-radio table radios from Eton and Tivoli.
an expanded selection of portable headphone stereos from Xact, Pioneer and Tao, joining Delphi's models and complementing satellite-radio boomboxes in the portable market,
and the first antenna systems that feed a satellite-radio signal to multiple points in a house.
The satellite companies expect the new products to further expand the penetration of satellite radio in the home and portable markets. Already, XM estimates its installed base of home docking stations at anywhere from 30 percent to 40 percent of the 3.77 million subscribers it had at the end of March. The percentage of XM subscribers with boombox docking stations is around 25 percent, said Dan Murphy, XM's product marketing and distribution senior VP.
For its part, Sirius estimates that more than 30 percent of its subscribers have home docking stations and 20 percent to 25 percent have boombox docking stations. Among plug-and-play tuner suppliers that offer boombox docking stations, said Sirius' Law, the attachment rate of docking stations is 25 percent to 30 percent. Sirius had more than 1.24 million subscribers at the end of January.
The attachment rate is even higher at Tweeter, which sells XM and Sirius service. More than 80 percent of customers who buy a car dock from Tweeter also buy a home dock, Jeancola said. The attachment rate of boombox docking stations exceeds the company's forecast of 40 percent to 50 percent and has approached 80 percent, he added. "When people spend $12.99 per month for a subscription, they want to use it in as many places as possible," he explained.
The XM/Delphi MyFi headphone portable is "a home run," he noted, and the Tivoli/Sirius table radio is doing "quite well." Likewise, Polk's component-size XM is doing "extremely well, better than anticipated," having found a home largely through the company's custom-installation channel. Many installs incorporate multiple Polk/XM tuners to let consumers stream different channels simultaneously to different rooms.
Statistics compiled by ChangeWave Research of Potomoc, Md., also underscore satellite radio's growth in the home and portable markets. The percentage of surveyed early adopters with home satellite-radio products rose to 2.8 percent in March from May 2004's 2.2 percent. The percentage with portable devices rose to 1.6 percent, from 1.2 percent during that time.
The survey also found that the percentage of early adopters planning to buy car satellite devices edged down during that time while the percentage planning to buy a portable edged up.
ChangeWave, the research arm of investment adviser Phillips Investment Resources, surveys more than 1,300 professionals in 20 technology-related industries. The results can be projected to early adopters in the middle and upper-middle class segments of the U.S. population.
New home and portable products targeted to such consumers, XM's Murphy contends, will help boost average ticket prices, if not total dollar sales, in the declining boombox market, in the flagging home-component market, and in the MP3-driven headphone stereo market. "We've already had an impact on the boombox market," he claimed. "You couldn't sell a boombox over $99 before satellite radio," he said, citing XM boombox docking stations priced at $99, $169 and more, excluding plug-and-play tuner.
As for headphone stereo, Murphy contended that satellite headphone radios "could actually be the preferred portable solution in 36 months," with dollar sales exceeding sales of headphone CD and MP3 portables. XM/Delphi MyFi sales are exceeding expectations, he said.
In the meantime, satellite headphone radios are helping drive up average headphone portable tickets. "Who would have thought you could sell one [a headphone stereo] at $350?" said Tweeter's Jeancola, referring to the XM/Delphi MyFi.
Likewise, as home devices proliferate, they'll provide retailers with an "opportunity to bring people back into the store" and "stop the decline in the average [home audio] retail ticket," Murphy said. In particular, he cited XM's Connect-and-Play program. Connect-and-Play home entertainment devices, from A/V receivers to home theater in a box (HTiB) systems and DVD players, are capable of controlling outboard XM tuners that are so small they're built right into a standard-size home XM antenna. The antenna/tuner will be available through Audiovox in early May at a suggested $49.99. As of mid-April, the first six weeks of production were already sold out.
Retailers selling a $229 XM-ready A/V receiver at 30 points, Murphy said, can add the antenna/tuner at 30 points, plus receive a $20 activation commission from XM. That turns a $68 gross margin into more than $100, he said.
"A $50 attachment to a receiver," added Tweeter's Jeancola, "is a no-brainer."
Yamaha is shipping the first of multiple XM-ready A/V receivers and plans to sell XM-ready HTiBs shortly. Denon plans April shipments of its first such A/V receiver and plans additional A/V receivers later in the year. Eton plans April shipment of the industry's first XM-ready tabletop radio.
Other companies planning XM-ready products in 2005 or 2006 are Pioneer, Harman Kardon, LG Electronics, Onkyo, Thomson/RCA, Polk Audio, Boston Acoustics, Orient Power, GPX and Crosley.
Given the proliferation of home-satellite configurations, the satellite industry will offer an option for most home audio buyers, Murphy and Law said. Satellite-ready components will appeal to consumers who are already in the market to replace a component or who have been considering a replacement. Stand-alone tuners will reach custom-install customers or owners of component-audio systems who are satisfied with their current components. Both types of home products will appeal to consumers interested in audio performance that exceeds plug-and-play tuners.
Whatever form that home products take, satellite radio is a natural in the home, Law said. "Commercial-free music channels lend themselves to home listening" in much the same way that hard-disk-drive jukeboxes and CD megachangers do, he said.
Indeed, CEDIA's president Ray Lepper sees satellite tuners as a music source complementing other music sources in the home. "I see more content from more sources being accessed more flexibly" in custom-installed systems, he said. Satellite radio will be just one of them.
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