Satellite Radio: Retailers Upbeat But Cautious

By Amy Gilroy On Jul 23 2001 - 6:00am

As the aftermarket launch of satellite radio draws near, retailer expectations run from optimistic to somewhat skeptical, regarding what some call the most significant product introduction in autosound since the compact disc.

While even six months ago retailers unanimously sung the praises of satellite radio with its CD quality audio, 100 channels and nationwide coverage; now many are voicing mundane concerns about consumer awareness, promotions and launch delays. Instead of talking about increased store traffic, retailers are now asking questions such as "How simple will the activation process be? Will there be sufficient national advertising? And will the programming be strong enough to coax the youth demographic into paying $10 to $13 a month?"

Many now claim the key to satellite radio's success depends on advertising and programming.

Steve Laplant, general manager for Jo-Di's, Hartford, Conn., expressed a common worry. "I'm concerned with how many people in the United States will spend $10 a month to listen to whatever they want. I know I just reach in the backseat and pull out a CD. So I am concerned with how many customers will sign up initially." He added, "I think it would be easier to sell if the service was packaged into the price of hardware. I think people are getting maxed out with monthly bills between cellphones, pagers, car and mortgage payments."

Joe Komaromi, president of Pacific Audio & Alarm, Fullerton, Calif., claimed, "The only thing that will drive it is marketing. If the satellite radio companies push the marketing, it will go, but if the dealer has to bear the brunt of the marketing, it won't fly. The consumer won't believe us."

Young people, especially, may have problems paying for a monthly service charge, said retailers, with several noting that kids have the option of downloading MP3 files from the Internet to listen to whatever they want, without a monthly charge.

Bob Zinno, VP of Boomer McLoud, Newington, Conn., said he sees the early adopters as an older audience. "It's like anything else. Initially it will be an older demographic because a kid is not necessarily going to run out for this. But for an older guy, to get a choice of music for nine bucks a month is a no-brainer, plus it's crystal clear sound."

Other key dealer concerns centered on promotions and pricing as Sirius and XM have yet to announce their advertising plans and full details for activation and compensation (see story, p. 29).

A spokesman for Car Toys, Tulsa, Okla., said, "I think most people won't be willing to invest in what it takes to receive satellite radio unless it is extremely inexpensive. Initially, I think the sales will be slow unless they are real aggressive with marketing it. If you give people $1 installations or give the equipment away, then it could take off. But in my opinion, since most of the kids can get their music for free, why would they pay for it?"

Alpine said its lowest XM-ready head unit costs $269 and requires a $299 adapter.

On the plus side, retailers claim that satellite radio offers strong revenue potential through equipment upgrading.

John Haynes, purchasing manager for Al & Ed's, Monterey Park, Calif., said, "We are very excited about the prospects of satellite radio being offered to our customers. The innovations in our industry sometimes come few and far between. The jury is still out if the consumer will pick up the value of it right away, but we believe it will be an important part of our business."

Similarly Tim Lavoie, president of Tim's Car Tunes, Indian Orchard, Mass., adds, "I hamper any of my concerns about satellite radio by saying it has been a very long time since there has been a product to drive people into the stores. And the advent of satellite radio will do for our industry what CD players did for the industry 15 years ago. It will create a new demand for the aftermarket."

Zinno is also taking the optimistic stand. "These are major, major league companies that will spend a lot of money in promotions once they are on the market. I'm giving it my seal of approval. Some dealers are just upset about the delay. The satellite radio companies came out and started to talk to dealers a year ago, so it loses its sizzle when it doesn't come out on time. We were hoping it would launch by summer and now we're looking at September, but I think it will spark consumer interest when it comes out."