Descending on the Dial: Radio Competition Comes to the Car

Satellite radio rules the road, but competition is coming to the car.

Sirius Satellite Radio may soon be adding video to its service before the end of the year, but the satellite radio retail market wasn't a pretty picture in May, the most recent month for which sales numbers were available.

Aftermarket units, as tracked by NPD's retail tracking service, were down annually nearly 22 percent after nearly a 6 percent annual gain in May 2006, and the continually falling prices of dedicated XM and Sirius receivers translated into an even bigger annual revenue drop of 36 percent.

The decline has been part of a trend for the satellite radio aftermarket, which soared during the 2005 holiday season as Howard Stern prepared to go to Sirius and gave away receivers in New York's Union Square, but which has cooled significantly since the middle of 2006.

It's hardly all doom and gloom for moving tunes and talk through the troposphere, though. The numbers for June, to be released later this week, could show improvement. June has historically been a strong month for the product as satellite radio has shown strong Father's Day gift appeal and freshly graduated male teenagers look to pimp their rides with mobile media.

And it's important to note the receiver aftermarket does not tell the whole story of satellite radio, which is relying more than ever on subscriptions from factory-installed units. More aftermarket in-dash CD and DVD players also come satellite-ready, although these have been slow markets as well.

Still, the receiver recession would support XM and Sirius' argument that the two companies should be allowed to merge, as steady decreases in the cost of receivers don't seem to be spurring consumers to sign up at retail. The companies have argued that competition is coming from HD Radio as well as MP3 players.

HD Radio, which provides better audio quality and more stations to today's radio broadcasters, is free and ad supported. However, it is usually only included on very expensive car radios, in part because there are no competitors that can subsidize the cost of receivers with a subscription like cell phone carriers do.

There are many products, such as DLO's TransDock, that allow you to use your iPod in your car, and Apple claims that more than 70 percent of car manufacturers are starting to include some kind of iPod support with new cars. However, again, to get the full benefit of navigation, you'll have to spend big, and today the iPod is more about listening to what you already have than the sampling experience of satellite radio.

Finally, there are cell phones, and the wireless operators have continued to experiment with music, although mostly with selling it. Wireless data networks are getting faster. Sprint, in particular, has an opportunity to challenge satellite radio as it builds out a new high-speed wireless network next year using WiMAX technology. Furthermore, the hotly contested 700 MHz auction could open a slew of new entrants. And then there are the wild cards such as Slacker, a startup offering Internet radio today, but which plans to take on XM and Sirius with a less costly satellite solution.

So the audio providers are here and the wireless pipes are coming. The area where satellite radio has an advantage today over other emerging radio solutions is convenient and affordable playback in the car, which remains the four-wheeled listening room in which radio is the preferred means of entertainment for many.

It would take, at best, years for alternatives to match that advantage. The ability for XM and Sirius to maintain it will be one of the key issues that the Federal Communications Commission will need to decide in weighing a satellite radio merger.

Ross Rubin is director of industry analysis for consumer technology at The NPD Group (