Businessweek: Positive On Stiletto

Sirius' Sharp Stiletto
by Olga Kharif, BusinessWeek, Sept 20, 2006

The satellite radio company offers an early glimpse at the features it hopes will set its newest portable music player apart from the pack
Steve McCallion taps a few keys on his laptop to open a presentation on the Sirius Stiletto, a new portable satellite radio. He calls up a page that displays photos of pocket transistor radios from the 1950s, knobby dials and all. "At the end of the day, it's just a radio," says McCallion, a creative director at the company that designed the Stiletto, twirling the device in his fingers. His point is that Sirius (SIRI ) wants its own brand of radio, transmitted via satellite, to be the way people listen to radio nowadays, in much the same way they listened to transistors half a century ago. But the company is relying on a device that has come a long way since those crackly gizmos of a bygone era.

BRISK SALES.
Today, some 12 million people pay $12.95 or more a month to Sirius and its larger rival, XM (XMSR ), to listen to satellite radio channels, most of which run no commercials. Those rising subscriber numbers are likely to grow, drawing audiences from traditional, free AM/FM radio, in part because of the proliferation of satellite radio devices for the car, the home, and for listening on the go. From September, 2005, to this August, Sirius and XM sold more than 325,000 portable satellite radios in the U.S., an increase of 88% from the year before. The units generated $80 million in sales, an increase of 49%, according to consultancy NPD Group. That figure doesn't include sales from big retailers like Wal-Mart (WMT ). And chances are, sales are going to keep climbing. Sirius is hoping the Stiletto will play a big part in that growth. "Stiletto can make a major contribution," says Tom Watts, an analyst at Cowen & Co. Analysts at Standard & Poor's, which like BusinessWeek.com is owned by The McGraw-Hill Companies, also expect brisk sales.

YAHOO! CONNECTION.
What's so special about Stiletto? Part of the reason for the excitement is that the device appears to be comparable to other consumer electronics such as cell phones and music players like Apple's (AAPL ) iPod and the upcoming Zune from Microsoft (MSFT ) in appearance and features. Indeed, the new Stiletto's interface and capabilities look eerily like those of the iPod. Stiletto's predecessor, the Sirius S50, was also designed by McCallion's company, Ziba. It was released last year and features a radio-like knob to pause, rewind, or stop programs. By contrast, the Stiletto offers an iPod-like round media dial. With its polished black face, the Stiletto evokes the black iPod nano. But the new gadget also features more chrome accents and a pearlized back, giving it what McCallion calls a "gem-like quality." But the Stiletto has some features the iPod lacks. Unlike the S50, which could only download radio streams when docked (in effect, it was a low-capacity MP3 player), the Stiletto can catch live satellite radio feed. The Stiletto can reach Sirius' programming via wireless fidelity, or Wi-Fi, connections. It can also download songs from Yahoo's (YHOO ) music service, according to documents filed with the Federal Communications Commission, into 2 GB of storage.

SHADOW RADIO.
While final details of the Yahoo arrangement are being worked out, the feature is likely to let users tag songs they like on Sirius broadcasts and buy them later by connecting the device to the PC. Eventually users might also be able to download songs from Yahoo via Wi-Fi connections. Yahoo's jukebox is an appealing choice as it's one of the cheapest music subscription services around. For $5 a month (when paid for the full year)—half of what many other download services charge—Yahoo allows for unlimited access to more than 1 million songs. The service works on 16 different music devices from the likes of iRiver, Motorola (MOT ), and Nokia (NOK ) already, and the addition of Stiletto to Yahoo's roster could result in incremental subscriber growth for the portal, says Russ Crupnick, an analyst at NPD. NPD's surveys indicate that, as of late 2005, 6% of digital music buyers went to Yahoo's site while 54% went to iTunes. Sirius also allows for so-called shadow radio recording. That means whenever a user listens to a channel for more than 10 minutes, the device records the entire stream into your free storage space, so you can replay it later, when you might not have a clear connection to a Sirius satellite. S50 only allowed such recording from five channels. A HALO EFFECT. Lately, the Web has been swirling with rumors that Stiletto shipments will be delayed as Sirius negotiates licensing fees with the Recording Industry Association of America (RIAA), which had, earlier this year, sued XM for offering similar features in its portables. However, an RIAA spokesperson claims it hasn't even seen the Stiletto yet and is not involved in negotiations with Sirius. Music labels themselves are in discussions with the company or have concluded negotiations. Sirius is playing catch up to XM in some capabilities. XM's portables have offered live feed, for instance, since late 2004 (see BusinessWeek.com, 9/7/06, "A Sirius Stab at XM"). "This is finally bridging the gap for Sirius," says Dan Benjamin, an analyst with consultancy ABI Research. But XM's latest units offer less storage and no Wi-Fi connectivity, which can prove handy inside buildings where access to satellites can be spotty. Stiletto is taller and thicker—though narrower—than XM's latest models, Inno and Helix. And while it one-ups the iPod on Wi-Fi, it lacks the video capabilities available on some iPods. The iPod can also offer up to 30 GB of storage for $249, while the Stiletto will be priced at $349.99—the same price as an iPod with 80 GB of memory. "We want someone to love the product," says McCallion. "Apple has this halo of an emotional connection [with its users]. We are trying to create this emotional halo about this product. The iPod is square and static. The Stiletto is emotionally more dynamic."

UP AGAINST THE GOLD.
The device's front is designed to allow for navigating without looking. Several buttons are part of a continuous surface, and they can be located by their slightly raised edges. While they look to be part of the Stiletto's uniform black face, the buttons are made of a different material that feels warmer and softer to the touch than the rest of the surface. "The sensory difference gives users confidence that they are using the product correctly," says McCallion. The round media dial below the color screen on the front of the device tilts to let users fast-forward or pause a recording. Its edges are raised slightly to further enhance blind navigation, McCallion explains. The designers also played around with edges that sloped down, but the raised edges worked out better. As you scroll through a menu, the colorful menus zoom in and out, and menu commands pop up for easier navigation. All of the Stiletto's functional controls are on the front of the device, and its side buttons are used for volume control and to power on and off. It remains to be seen just how easy Stiletto is to use and how well its antenna works. In the past, communications companies have had to go through several iterations of the technology to get the antenna right, says Jim Goss, an analyst at Barrington Research. Then it will need to set itself apart from a growing range of handheld music players, the granddaddy of which is the iPod. Notes Roger Kay, founder of consultancy Endpoint Technologies Associates, "the gold standard is the iPod." ...READ MORE: HERE

9/20/2006 06:36:00 AM

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