Sirius, XM heat upsatellite radio race

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Sirius Satellite Radio and XM Satellite Radio have spent the last decade quietly laying the groundwork to bring their new radio format to market, each promising a 2001 launch. But the road to retail is not quite complete yet, and consumers must wait until the second quarter-if all goes as planned-to reap the rewards of this space-age radio revolution.

The hype surrounding satellite radio, which delivers digital-quality sound to earthbound receivers via satellites, intensified last spring as the companies moved into the marketing arena, dangling their $100 million ad budgets in front of agencies. The spoils went to Omnicom Group siblings Goodby, Silverstein & Partners, San Francisco, and TBWA/Chiat/Day, Playa del Rey, Calif., for Sirius and XM, respectively.

Both companies plan to demonstrate their offerings at the International Consumer Electronics Show in Las Vegas later this week, but consumers won't enjoy the benefits of satellite radio-including genre-specific music channels, coast-to-coast uninterrupted service and commercial-free or limited-commercial listening-until spring or summer.

"I would assume the ramp-up would be slow at first, and if it does become popular, you won't see that for many years," said Tim Wallace, managing director-senior media analyst at Banc of America Securities. "I think it's a very good niche business; whether it becomes mainstream is the big question."

Sirius seems to be slightly ahead in the game, having launched all three of its satellites last month. It's ready to distribute a limited number of receivers this quarter to test quality and assure that the nuts and bolts of the system are all in order.

Although XM does not launch its first satellite until next week-followed by its second and final satellite launch at the end of February-it does not consider itself behind the eight ball. XM, like Sirius, plans to have its radios on the shelves of stores such as Best Buy and Circuit City by the second quarter.

"We felt all along that the race to the marketplace is not going to be about the launch of the satellites but about the availability of the radios," said XM's senior VP-sales and marketing, Steve Cook.

Both services will rely on electronics marketers to make and sell the radios, expected to retail for less than $300. Car versions will be available on some 2002 models for about a $150 premium over existing radios.

Mitsubishi, Motorola and Sony will be among the companies making XM radios; Lucent Technologies and Panasonic will be among those making Sirius radios.

Both Sirius and XM will charge a $9.95 monthly fee to subscribe to their services.

Sirius will offer 100 channels; 50 of them all-music and completely commercial-free, while the other 50 are news, sports and information with limited commercial time--about four to five minutes per hour, compared with the 16 to 20 commercial minutes heard on traditional radio.

XM also will offer 100 channels. Although Mr. Cook would not reveal how many would be without ads, he said some of the music stations would run limited commercials.

The much-anticipated advertising campaigns are scheduled to break in conjunction with the consumer launches. "We're starting from ground zero" with the test launch, followed by a "ramp period" every subsequent quarter, with the strongest ad push scheduled for the fourth quarter, an all-important time for consumer electronics, said Douglas Wilsterman, VP-marketing and distribution at Sirius.

Said Banc of America's Mr. Wallace: "Like any new product, they'll have to spend a lot of money on marketing. But at the end of the day, if it's not a good product, it won't matter." He added that the possibility of terrestrial radio upgrading to digital broadcasting-which is currently in test mode-might pose a competitive threat to the satellite companies.

Although neither Sirius nor XM would reveal the specifics of their creative plans, both are faced with the task of promoting their own service while also introducing the category as a whole.

"You've got to do a little bit of both. You can't just talk about yourself without people knowing what you represent in terms of a revolutionarily dynamic change," said Mr. Wilsterman, the Sirius exec. "We want to let people know about the service; we want them to know the value proposition of what we represent; and ultimately we want to drive them to a location where they can secure the hardware and sign up.

"What we've put together is a comprehensive marketing plan. It's going to hit cylinders; it's like Marketing 101-plus," he said. The campaign will include "brand-building, relationship marketing and the Web," with ads appearing on TV, print and possibly radio, he added. Sirius will keep its logo-a dog-symbolizing company's name, which means "Dog Star," the brightest star in the Northern sky.

"Over time, we expect people to make that connection," Mr. Wilsterman said. "We want it to be consumer-friendly, endearing and represent fun."

Sirius-unlike XM, which will use TBWA for all aspects of its campaign-tapped KBA/Sloan, New York and Chicago, for promotional marketing and McCann Relationship Marketing, New York, for one-to-one communications.

"It's an exciting opportunity for us to help build a brand and a new category," said Tracey Owens, exec VP-general manager at McCann Relationship, which won the business in September after a formal review.

XM's ad strategy from TBWA will follow a similar multi-layered approach, including three elements: educating the target audience on the advantages of satellite radio, driving customer acquisition and ultimately "establishing the XM radio brand as the satellite radio company of choice," Mr. Cook said. "Clearly one of the communication objectives is to make clear that this is the next generation of radio."

The near-simultaneous launch of two players in a new market makes for a high-stakes marketing battle. "I'm not sure whether at the end of the day you don't end up with one company," said Mr. Wallace, the analyst. "I'm not sure it's a big enough business for two companies."

Meanwhile, Mr. Wallace said, there are two yet-to-be-answered questions that will determine the longevity of the new format: "Is the product they've got better than what we have today?" And "will people pay for it?"

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