XM, Sirius Price Competition Heating Up

By Amy Gilroy On Jun 23 2003 - 6:00am

Now that both XM and Sirius have secured funding, launched their advertising campaigns and are delivering popularly configured products to the market, competition in satellite radio may finally heat up.

Price competition can already be seen. Last month, Sirius partners Audiovox and Kenwood announced new plug-and-play receivers at $99, and XM responded with a $30 rebate on the Delphi SKYFi, bringing its net price down to $99.

Pricing has become so sharp on FM-modulator receivers that Pioneer elected not to ship the new GEX-FM913XM announced in January. Marketing VP Michael Townsen said the company could not compete with sales prices such as $49 on a Jensen modulator. "We felt our replacement model would not be competitive in the current market environment with a lot of consumer rebates and discounts being driven primarily by Sirius," he said. The company said it would announce a new modulator for XM this summer.

XM, of course, remains the front runner in satellite radio with a first-to-market advantage and subscriptions of over 600,000, compared with Sirius' 68,000-plus. XM has also achieved wide distribution of the popular Delphi SKYFi, which is now at Wal-Mart, while Sirius partners Audiovox and Kenwood are just beginning to ship plug-and-play units to retailers.

According to Sirius president/CEO Joseph Clayton, "demand will outrun supply" on both of the plug-and-play units for at least 60 days with greater quantities to be available later in the year.

Some industry members say the next few months will be key. "This is a critical year for satellite radio. All the cogs are now in motion, from funding, to marketing agendas, to actually having a full range of products in the stores, particularly for Sirius who was really handicapped last year," said Ryan Jones, senior analyst of the Yankee Group, Boston. "Now the race is on," he added.

Now some industry members are wondering just how low prices will go.

Sirius' Clayton said not to expect $49 plug-and-play receivers this year, "This isn't about a price war. We anticipated [XM's price move] beforehand — $129.95 is not a price point and $119.95 is not a price point. I suspected that $99.95 is where we had to be," Clayton said.

But Jones says it's possible that plug-and-play receivers could be a free giveaway in a year's time, as a carrot to lure consumers into service contracts. "It won't ever get to the point of DBS cable," said Jones, but "there will be certain products, such as the plug-and-play, where that will happen. It could happen in 12 months," he said, noting that dedicated car stereo aftermarket products will continue to be sold as profitable merchandise.

Best Buy marketing director Mike Manske noted, "Our business plans include some margin in the product. In my personal opinion, I believe there's an opportunity, almost like cellphones, where with added features and benefits, consumers will pay for the hardware."

Dan Murphy of XM said the company has promoted dealer margins and "will continue to introduce products that support this strategy." He continued, "However, like the cell phone industry, you will always have different consumer offers from various service providers, which in some cases provide low-end phones for free, and in other cases introduce new phones that sell for hundred of dollars."

At present, XM and Sirius are still refining their product strategies. Lately, XM has focused heavily on its plug-and-play product, but Murphy said it would get more aggressive in the dedicated car aftermarket in the near future.

"The products on the car stereo side of the fence have not gone through a lot of the enhancements, revisions and updating. You will see our focus on it and it will be as aggressive and as thorough as the plug-and-play," Murphy said.

Sirius launched this month an advertising campaign to support its first plug-and-play models. The company is sponsoring national TV and cable commercials with dealer tags "showcasing our content" on ESPN, MTV, Comedy Central and other cable stations, as well an "aggressive national radio and print buy," said executive marketing VP Mary Pat Ryan.

According to XM's new rebate program, consumers can get an instant or mail-in rebate through July 13.

Total Satellite Radio Subscriptions
Source: Company reports

XM Subscriber Demographics
Age of XM subscribersIncome levels of XM subscribers
Under 181%Less than $25,0003%
18-247%$25,000 to less than $50,00014%
25-3423%$50,000 to less than $75,00020%
35-4424%$75,000 to less than $100,00015%
45-5425%$100,000 or more35%
55-6425%Refused to answer13%
Note: Sirius claims similar demographics for its subscribers.
Source: XM Satellite Radio
©TWICE 2003

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