XM takes satellite-radio lead, but Sirius could gain ground

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With the financial-and advertising-backing of an automotive partner, a 500,000-strong subscriber base and a measured-media budget more than five times its rival, XM appears to be the winner in the satellite-radio race. But analysts caution not to count out No. 2 Sirius.

"With its head start, you have to consider XM the leader," said Tom Watts, managing director of SG Cowen Securities Corp. But "once Sirius gets all its pieces together ... there is no reason why they shouldn't be able to get a significant portion of the market."

XM Satellite Radio, launched in 2001, is on target to reach 1.2 million subscribers by year's end. Sirius appeared on the scene in February 2002 and failed to meet initial subscriber targets, but now lists 68,000 with ambitions of 330,000 by 2004. Moreover, each player is saddled with the cost of building more than $1.5 billion satellite networks, but project to break even by early 2005.

Sirius has been in the more serious financial straits. In March, the company embarked on a recapitalization, and a few weeks ago received a much-needed injection of about $175 million to alleviate a funding gap.

XM and Sirius both offer 100 channels, music for every taste, live sessions and talk-radio channels for a monthly fee-$9.99 for XM and $12.95 for Sirius-and a couple-hundred-dollar investment in a radio and antenna.

commercial issues

All of Sirius' 60 music streams are commercial-free. Only half of XM's 70 music channels have no commercials; its other music channels average less than two minutes of ads an hour, said Chance Patterson, XM VP-corporate affairs.

XM has an exclusive deal with General Motors Corp., a 20% owner in the service, and its radio is offered factory-installed in 44 of GM's 2004 models. One third of XM's subscribers have come from autos, including non-exclusive deals with companies like Nissan North America and Audi that offer the option of satellite radio. The company looks for that number to grow to 50% by the end of year, said Mr. Patterson.

Helping in this effort is advertising from GM that integrates XM into the final seconds of some corporate and vehicle TV spots, said Scott Tappan, a GM manager overseeing the partnership. Interpublic Group of Cos.' Campbell-Ewald, Warren, Mich., handles Chevrolet as well as GM creative featuring XM.

Sirius is an option on 2004 models from its exclusive partners-DaimlerChrysler, Ford Motor Co. and BMW-and on 65 models total, said Jim Collins, VP-communications for Sirius. He would not disclose how many subscribers have resulted from the partnerships, but so far none of the partners are advertising the offering.

What Sirius is advertising is its ad-free format. In February, it broke a TV, print, outdoor and online campaign from Maxxcom-backed Crispin Porter & Bogusky, Miami, with the tagline "It's On," to emphasize the diversity and commercial-free purity of the music streams, said Mary Pat Ryan, Sirius' exec VP-marketing. "It's all about the music," she said. "How nothing is compromised by commercials or what advertisers think."

Sirius spent only $9 million in measured media in 2002 compared to XM's $58 million, according to TNS Media Intelligence/CMR.

XM went all out to launch its product using such big names as David Bowie and Snoop Dogg in TV and cinema spots from Omnicom Group's TBWA/Chiat/Day. But advertising was later moved in-house, and now, with a new agency of record, Interpublic's Mullen, Wenham, Mass., XM's ads will be about continuing to "grow the whole category pie," rather than competing with Sirius, said Steve Cook, XM's VP-sales and marketing.

Cooperation to build the market may be needed. According to Merrill Lynch research analyst Marc Nabi, in 2002 fewer than 1% of new cars were equipped with satellite radio. If subscriber forecasts are on target for this year, he said, only 2% to 3% of new cars this year will be equipped with satellite radio.

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