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Aftermarket Curious About Sirius XM 2.0


The planned fourth-quarter 2011
launch of Satellite Radio 2.0 service could give satellite-
radio retailers a lift after enduring years of declining
retail-level sales, but the magnitude of the lift will
depend in part on the still-unspecified services and
personalization features promised by Sirius XM, some
retailers and marketers contend.

Some marketers contend that some type of “virtual ondemand”
service would help satellite radio compete better
against smartphone-delivered Internet radio in the car.

Some retailers contend that sound-quality
enhancements would help boost sales
through performance-oriented aftermarket
mobile electronics retailers.

During a recent conference call with investors,
Sirius XM CEO Mel Karmazin revealed some
details about the planned service, though he left much
to the speculation of retailers and marketers. The service,
he said, will increase “bandwidth” by 25 percent
and thus deliver more channels and data services to
next-generation satellite radios without making existing
radios obsolete. The 2.0 service will also enable new
convenience and personalization features, Karmazin
said without offering details.

At an earlier investors’ conference, he likened
the launch of 2.0 to cable-TV’s evolution
from offering basic service to ondemand
content and pause-and-skip

Sirius XM executives did not return calls
to provide more detail about the planned service and
whether the service would add bandwidth by utilizing
new spectrum or by adopting an enhanced compression
algorithm that would squeeze the additional channels
into existing spectrum.

Because the new service will be available only
through new radios, however, Sirius XM will make it possible to sell aftermarket satellite radios to the millions
of vehicles already equipped with OEM-installed satellite
radios — at least until the automakers build it into their vehicle

“2.0 will help give dealers something new to talk about,”
said Keith Lehmann, senior VP of Kenwood’s consumer
electronics sales group. But more content “still does not
address the core problem that satellite radio has, and
that’s all the new ways of getting more music for free and
on-demand in the car,” including Internet radio, he said.

“It’s something Sirius has to address in some way,”
Lehmann continued. “Maybe a virtual on-demand service
is the way to go” under which consumers would pay extra
to store favorite songs or programs for which they would
pay extra to play back, he mused.

For his part, Rob Elliott, executive director of
buying group In Car Experts (ICE), contended
that “anything that drives the consumer back
to the aftermarket is highly welcomed.”

The mobile-electronics specialist customer
base, however, would be attracted to a new satellite radio
tuner not only if it offers more content and convenience features
but also if it offers improved sound quality. “The large
majority of consumers who seek out specialists are concerned
about sound quality, and sound quality as well as
convenience and personalization would get them to come
back.” For that reason, Elliott said he hoped 2.0 would not
turn to compression to squeeze more bandwidth out of satellite
radio’s current allotted spectrum.

Satellite radio, Elliott continued, “falls short of other options
in sound quality, so anything that puts it on an even
keel or above other alternatives, and if it offers something
else unique,” will appeal to a specialist’s customer base.

For people interested mainly in a variety of music, Elliott
noted, Satellite Radio 2.0 has its work cut out for it in light
of “the variety of music you can get elsewhere.” People
who stick with satellite radio, he contended, often do so
for “exclusive content, a specific channel that they can’t live
without, or for sports programming.”

At Pioneer, car electronics marketing director Ted
Cardenas said a move to enhance satellite radio service
with additional content is “essential to stay competitive
in major metropolitan areas” at a time when customizable
3G-delivered Internet radio and new HD 2, 3 and 4 channels
are attractive propositions in the car.

Upgraded or not, satellite radio will maintain
a competitive advantage with truckers and
others who drive long distances and don’t
want to keep switching AM or FM stations
as they travel through multiple radio markets,
Cardenas said. Satellite radio also has an in-vehicle advantage
in rural areas where few terrestrial stations are
available and where 3G coverage, which delivers Internet
radio through smartphones, is spotty, he added.

For his part, Roger Lanctot, senior analyst at Strategy
Analytics, believes “the timing and manner of Sirius XM’s
announcement of Satellite Radio 2.0 suggests that Sirius
XM is attempting to prevent OEM defections to HD Radio,
music service solutions or Internet radio.”

“Sirius XM has already lost momentum in the automotive
market,” he contended. Automakers, he said, “have shifted
toward offering satellite radio as an option rather than as a standard feature.” In addition, Sirius XM and its
OEM customers are using subscription-conversion
data to determine which cars should and
should not be offered with the service,” he said.
“This means that even though Sirius XM has been
able to show subscriber gains in its past two
quarters, rapid growth is a thing of the past and
pales by comparison to the subscriber numbers
of a Pandora or Slacker,” Lanctot contended.

Although Internet radio in the car has “suffered
a blow” from the cellular carriers’ launch
of tiered 3G-data plans that make unlimiteddata
use costly, automakers have nonetheless
embraced Internet radio because of consumer
demand and awareness, he continued.

With such challenges in mind, there are three
areas — audio, traffic and data services — in
which 2.0 could help Sirius XM hold onto and
attract subscribers, Lanctot said.

In audio, the only solution is more or bettertargeted
audio channels, although more channels
makes Sirius XM more difficult to use, he
claimed. As a result, with 2.0, “expect Sirius
XM to update its content search-and-save capabilities
to better replicate an Internet radio
experience.” The satellite company can also be
expected to enhance its iPhone and iPod integration
with song-tagging capabilities similar to
HD Radio iTunes Tagging, he said.

Lanctot also expects Sirius XM to add capabilities
similar to what HD Radio developer iBiquity
Digital has been demonstrating in recent
years, including more artist, track and album
information; album art; and possibly reviews or
other metadata.

In traffic, “Sirius must bring its traffic data
services up to a competitive grade,” he said.
With the proliferation of HD Radio technology,
he added, Sirius will soon be competing with
more advanced traffic services.

In data, Lanctot said he expects Sirius XM to
improve its Travel Link service, offered by Ford,
with a greater variety of content with improved
graphics, particularly to compete with smartphone