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Satellite, HD Radio Potential

TWICE: Describe the potential for satellite radio and HD Radio in the home in 2007.

Bales: Satellite radio will continue to grow and offer more entertainment solutions. Because of subscription costs, most consumers will opt for plug-and-play tuners with home and car docking stations. There will also be much consumer interest in XM- and Sirius-ready audio components and systems. Both satellite radio providers offer compelling content and can easily be moved from mobile, to portable, to home use.

While XM Satellite Radio in-home solutions were introduced, neither XM home antennas nor XM-ready attachment components showed large sales increases as yet.

Bente: Simply based on the fact that many of our products feature satellite radio-ready options, we are convinced that the potential is big. We even provide direct access to satellite radio in some of our products via remote control. We are also encouraged by the latest availability of transportable cards that enable one subscription to cover both home and car use.

Klipsch: While I think satellite radio and HD Radio both have great potential, I think it is too soon to tell how they will impact the home in 2007. Satellite radio has been around for several years and is now just starting to gain momentum, thanks to the car industry. Because many vehicles are already coming equipped with Sirius and XM, people are finally getting more comfortable with it. HD Radio, on the other hand, just recently hit the market, so it is still in a “trial” period. Because the business models for satellite and HD are quite different, consumers will ultimately vote with their wallets.

The big question is how will this format stack up to satellite radio? Additionally, Internet radio competes in this arena. It seems that mainstreamers have not bought into HD Radio yet. However, I believe that we are past the chicken-and-egg syndrome. There are now more than 1,000 HD stations and products to support them, and we will see if the HD format has legs.

I know that HD Radio Alliance has been spending millions of dollars to promote awareness, but I am not exactly sure how successful they’ve been. But with what little time they’ve had, I think they’ve done a good job in starting to build some brand awareness.

TWICE: Is multicasting the key to HD Radio’s success? Will it undercut one of the legs of the satellite radio business case?

Klipsch: I think multicasting is very important to HD Radio’s success because it gives listeners more options while generating some healthy competition with satellite radio. It will be interesting to see as both follow very different business models.

Cohn: The value proposition for HD Radio is the combination of sound quality and programming choice. The success of HD Radio depends on the consumer becoming more exposed to both. I don’t view HD Radio as a competitor of satellite radio but more an evolution of current analog offerings.

TWICE: Will the initial inroads of HD Radio in the home be mainly in tabletop radios, given the industry’s focus on bringing these products to market?

Bente: Here is where we sometimes find ourselves as an industry — adding to the confusion and missing the forest for the trees. HD Radio offers quality that small, tabletop devices are incapable of capturing. In our rush to add the feature to a product, we often miss the purpose of it. Let’s show how good it can sound first. It’s all about the experience.

Klipsch: Yes, the initial inroads of HD Radio in the home will mainly involve tabletop radios. Currently, there are five to six such models on the market and rumor has it that a lot more are on the way. The question will be, “Will HD Radio follow the iPod speaker path where price point is king, or will people take the high road and choose higher performance at a higher price?”

Cohn: For the technology to really penetrate the market, it must become ubiquitous. The value proposition must exist for the consumer wherever they listen to music; in the car, on the go and in the home. Because the quality of the signal is so vastly improved, the advantage of HD Radio is apparent, relative to the analog products. Like anything else, however, the level of enjoyment can be elevated based on the quality of the product you are using to receive the signal.

TWICE: Will dedicated satellite radio home tuners be used mainly in custom installed multiroom audio systems where subscription costs are not a major concern?

Bales: Dedicated home tuners will have a place in the business, but portable tuners should continue to dominate due to their affordability and connectivity with entry-level components and systems.

Klipsch: I believe consumers who have whole-house systems will be major users of satellite radio tuners. After all, it is one thing to have a stand-alone satellite radio in one room, but to have it play throughout your home is an experience that’s easier to justify. Additionally, the owners of whole-house systems are typically at higher income levels so they are less sensitive to monthly charges.

Bente: It really isn’t, in my opinion, a matter of subscription cost; it’s a matter of convenience. Audio entertainment that offers a vast variety of choices and is available in all genres and types is a good thing, period. Whether it’s in a custom installation application or not has little to do with the convenience and variety offered by satellite radio.

TWICE: When will we see the first home audio products that are simultaneously XM-ready and Sirius-ready?

Bales: At CES 2007.

Bente: The products will appear as soon as we figure how to mitigate both parties’ needs for choosing sides, or they figure out that there really is a benefit in working together. I think it will be sooner rather than later.