Monday, May 15, 2006

How Will Satellite Radio Respond to HD Radio?

May 15, 2006

Satellite Standard Group is following the issues that effect the SDARS industry. Today we are looking HD Radio. atHD Radio has been mentioned as a potential competitor to satellite radio providers Sirius and XM. Many who follow the equities and those that have satellite radio often seem to push aside that idea, citing that HD Radio is simply “regular radio” with a digital signal.

While this may indeed be the case, there is no doubt that HD Radio is trying to take the steps required to become viable. This may well present an opportunity for Sirius and XM to work a little more along the same path, rather than trying to nip at each others heals. HD Radio is trying to roll out in specific markets at this point. Perhaps the satellite radio providers could “combat” that move with some joint advertising of their own. What Sirius and XM need to realize is that HD Radio is seen as “something new” in the eyes of consumers, and therefore, it must be good. Don’t look for HD radio to point out that the stations people listen to are not national. Don’t look for HD Radio to point out that someone’s favorite station in Boston will not be capable of staying tuned in on a drive to Philadelphia. HD Radio will concentrate their efforts on sound quality. Satellite Radio already has that PLUS so much more. satellite Standard Group feels that they need to point that out.

The HD Radio business model differs from that of satellite radio in many respects, but there are also parallels. HD Radio is not a subscriber service. In theory, receiving HD Radio is “free”. We say in theory because the service is driven by advertising revenue, but current receivers do not enable listeners to get “HD”. Listeners will have to purchase an HD receiver to get the digital benefits of HD Radio. For the first time terrestrial radio has to go out to automobile manufacturers and subsidize the installation of receivers (much like what Sirius and XM had to do).

The tough part in this for HD Radio is that they are following Sirius and XM into this arena. The table has already been set, and HD Radio has to “pay to play”. Where Sirius and XM can offer the Ford’s, and GM’s of the worlds subsidies, as well as revenue sharing, etc. HD Radio seems to only be able to offer subsidies. The easy part for HD radio is that they already have a “captive” audience on regular FM that they can advertise to.

For some people, the concept of better sound quality offered by HD Radio on their current stations may be enough for them to be satisfied. These are the people that Sirius and XM need to market to. These are the people that Sirius and XM need to showcase all of the content to. These are the people who may be the future subscribers to satellite radio.

Believe it or not, there are many people who simply do not grasp all that satellite radio has to offer, and some may not grasp it until they are exposed to it through a friend, or a new vehicle purchase that comes with a subscription to the service.


In our opinion, there are some key steps that Sirius and XM need to take to ensure the most success as HD Radio evolves.

Market all of that exclusive content that is offered. Let people know that you are the only place for Howard Stern, Bob Dylan, every MLB game, every NFL game, Martha Stewart, Oprah, etc., and make sure people understand that this in NATIONAL coverage.

Conserve equity by selling the concept of satellite radio overall. Sure, Sirius and XM should run their own advertising, but they should also explore and advertising campaign on a united front.

Be sure to advertise well in areas where HD Radio is trying to advertise. Make sure that those people KNOW that there is a better choice out there, and that choice is satellite.

Make people aware of the number of COMMERCIAL FREE music channels there are. Show people that there is a channel to fit every mood.

Make sure people understand the depth of news and talk that satellite Radio has to offer. Someone watching Fox News as they eat breakfast can continue to get their Fox News via satellite radio as they start their commute.

Improve the user interface for satellite radio in the OEM channel. Ensure that OEM displays that show all of the information those subscribers with “plug and play” receivers receive. To date it is almost as if many OEM satellite radios have satellite radio installed as an “afterthought”. It is still as if the radio is designed for ease of use on the AM and FM dials and CD’s rather than satellite radio. A better user interface in the OEM channel would likely promote the consumer exploring what satellite radio has to offer, and thus will be more likely to keep subscribers after the promotional period.

Sell the value of the service. Is 43 cents per day more valuable to you than 18 minutes of commercials on your 30 minute commute? In most circumstances the answer would be yes.

Combine and bundle the service. This is an avenue that is not really available to HD Radio. Work with the Sprint’s, Verizon’s, Dish Network’s, and Direct T.V.’s of the world to show even more value. Make such a promotion something that is a winner for the consumer, the respective satellite radio service as well as the bundling partner.

Be prepared to offer regionally targeted advertising for a national service. Dissect the 10 biggest markets, and what is popular in each. If Chicago has a great Hip-Hop channel on HD, be prepared to market satellite radio Hip-Hop channels specifically in that market. Satellite Radio has an advantage of being able to market regionally or nationally. By contrast, it is hard for a Chicago HD Radio Station to market in New York (it simply makes no sense). Satellite Radio needs to be aware of this and exploit that advantage.

HD Radio is coming. HD Radio will have listeners. The key for satellite radio, in the opinion of Satellite Standard Group, is to make sure that the consumer is aware of what satellite radio offers that is unmatched by HD Radio, and to show the value in satellite radio.

5/15/2006 10:30:00 AM

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