Aftermarket Curious About Sirius XM 2.0

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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 capabilities.

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 plans.

“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 solutions.


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