The marketing challenge for Sirius and XM won't be simply to attract subscribers to their $9.95-per-month services. They also must convince consumers to purchase radios formatted to receive the digital feeds and educate them on how the nationally broadcast, 100-channel services work.
It's a challenging task that has normally sanguine senior executives at Goodby, Silverstein & Partners, San Francisco, and TBWA/Chiat/Day, Playa del Rey, Calif. -- tapped by Sirius and XM, respectively -- licking their lips with anticipation.
"It's so refreshing to have a real product to work on," said Rich Silverstein, co-chairman at Goodby, who led his agency's creative pitch on the Sirius account. "This is such a humanistic product, something you can sink your teeth into, that you want yourself. And I get to pray that rockets go into space and work."
Lee Clow, chairman-chief creative officer at TBWA/Chiat/Day, said branding satellite radio will be an easier challenge than introducing Apple Computer's Macintosh, as his agency did in 1984.
`MUCH MORE SATISFYING'
"Everybody knows radio -- it's their old friend," he said. "In 2000, this is the space-age version, and it's going to be much cooler and much more satisfying."
While its success depends on the establishment of a reliable transmission structure and the production and sale of satellite-enabled radios, at its heart, satellite radio isn't about technology. "Listeners don't care how [satellite radio] is being delivered to them," said Terrence Sweeney, VP-marketing at Sirius. "They care what the programming is like."
To that end, Sirius and XM likely will focus their ads on the quality of the programming, rather than hardware or "Intel inside"-like co-op rebates to retailers such as Best Buy and Circuit City, which will carry the radios.
Both have signed on a variety of content providers: Sirius has corralled both National Public Radio and Public Radio International, as well as Speedvision and the John F. Kennedy Center for the Performing Arts; XM has established deals with the British Broadcasting Corp. and cable network BET as well as Nascar and USA Today.
Sirius has promised its 50 music channels will be commercial-free, and XM estimated 15% to 20% of its 100 channels will air without ads. Even when there are spots, volume will be substantially smaller than the 22 minutes of ads an hour now heard on some AM and FM stations.
"On channels with advertising, ads will be demographically targeted and will make sense," said Robert Acker, VP-marketing at XM. "I don't think commercial-free is something you can build a brand on, it's a trait."
Mr. Silverstein sees Sirius' lack of ads as an asset. "We did a lot of research, and it's really interesting how much people hate radio commercials," he said. "So that's a very powerful tool, already having the consumer not liking something you're going to fix."
Translation: Don't expect radio ads as part of the agencies' new campaigns. But cross-marketing and incentive opportunities with automotive, retail and electronics partners are part of both companies' plans.
Beginning with 2002 models, satellite-enabled radios will be put in several new car lines. DaimlerChrysler and Ford Motor Co. invested in Sirius; and General Motors Corp. is a major investor in XM.
"[Satellite radio] will teach consumers how to use 100 channels in their car and to think out of the AM/FM mode," said Robert Unmacht, publisher of The M Street Journal. "Then they will want the other services in their car, like e-mail."
Already, XM is working with GM's OnStar on potential partnerships; Sirius has partnered with ATX Technologies to develop data capabilities using the radio.
Earlier this year, both companies announced they would work together on a standard radio product capable of receiving both of their satellite signals -- thereby circumventing the problem seen at the advent of the videocassette recorder, with rival VHS and Betamax formats. Both companies have numerous agreements with electronics manufacturers to create Sirius- and XM-enabled radios as well as partnerships with retailers to distribute the after-market radios and satellite radio services.
STOCK EXPECTED TO RISE
While Armand Musey, satellite communications analyst at Banc of America, estimated that fewer than 1 million people will use satellite radio by the end of 2001, he said he expects the stock prices of the competing broadcasters to jump more than $15 each in the next 12 months.
"Both have a fair amount of flexibility and a lot of cash," explained Mr. Musey, who has buy recommendations on both stocks.
By 2003, Mr. Musey said he expects the two companies will have a combined subscription base of 7.9 million users. The number could jump to 21 million by 2005.
"[Goodby] really understands how to talk to consumers, to entertain and educate," said Mr. Sweeney, whose company plans to launch its branding campaign early next year shortly after the service is launched.
"We want to develop fans, not listeners," said Mr. Acker of the planned XM marketing, which -- along with its programming -- is expected to be launched next spring.
Contributing: Alice Z. Cuneo