Satellite Radio Seeks Growth

President Barack Obama makes a statement about Iran, Wednesday, June 9, 2010, in the Diplomatic Reception Room of the White House.
For Dan McLain of Chagrin Falls, Ohio, there was a compelling reason to buy a satellite radio receiver: shock jock Howard Stern's looming move off the traditional airwaves.

"It's just a show I enjoy. I'm a listener and my wife's a listener," he said.

On Jan. 9, Sirius Satellite Radio is set to boast the arrival of its biggest on-air personality yet in Stern. While consumers may be tempted to sign up for Sirius or larger rival XM based on ever-expanding programming lineups, falling radio prices may be an even more compelling lure for consumers. Some radios are selling for half the price they commanded last holiday season.

For the companies themselves, the race is on to achieve profitability as they make hundreds of millions of dollars worth of investments in new programming. For the third quarter, both XM and Sirius reported net losses of more than $100 million. Profitability is expected a few years from now as more subscribers sign up.

A recent check of prices found some radios for the services selling at $50 or less, including rebates. Industry insiders say that reflects the benefit of falling prices of electronic components used to make the radios. It also reflects fierce competition in the two-player market.

For both companies, getting the radio hardware into hands of consumers is the necessary first step toward getting monthly subscriber fees, their key source of revenues. Both XM and Sirius charge $12.95 a month.

"This is a razors and blades business," said Craig Moffett, an analyst with Sanford C. Bernstein. "Discounting of radios is one of the obvious levers they've got to stimulate subscription demand, because over the long term, that's where they make their money."

This holiday shopping season is viewed as key for the satellite radio services. XM has said it expects to have 6 million subscribers by the end of this year. Sirius says it expects to have more than 3 million by year-end.

"In our industry as with other consumer electronics companies, 40 percent of your growth can come in the fourth quarter, which has been our history over the last few years," said Hugh Panero, CEO of Washington-based XM Satellite Radio Holdings Inc.

Mel Karmazin, CEO of Sirius Satellite Radio Inc., based in New York, said it is important to have products at the high and low ends of the price range. Sirius is first out with a radio with MP3 capability, its S50 portable. XM is due to follow with MP3 models early next year.

"The fact is that the broader the price range, the more appealing it is to different segments of the population," Karmazin said.

At Crutchfield Corp. in Charlottesville, Va., a catalog and Internet consumer electronics retailer, the S50 is "red hot," said Rick Souder, executive vice president of merchandising. While the S50 remains in stock, sets are selling about as quickly as they come in, he said. It is the unit purchased by McLain, who was concerned about no longer being able to listen to Stern while driving around the Cleveland area. He also bought a less expensive model for his wife to use.

The hot seller last holiday season was XM's portable device, called the MyFi XM2Go, then priced at $329, Souder said. This year, they're selling at Crutchfield for about half that and Souder said most satellite radio prices are down 30% to 50% from last year.