Automakers keen to cash in on digital satellite radio

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Knowing that most people listen to the radio in their cars, auto manufacturers are eager to offer digital satellite radio. Digital radio will be available in 48 states in the United States in 2001, and most of that growth will be in the auto sector.

Smaller profit margins on new vehicles and increasing competition are forcing automakers to explore new ways of making money. Industry analyst, Thilo Koslowski, said, “Vehicle manufacturers will be able to generate revenue through outfitting vehicles with satellite radio receivers, sharing activation fees, and in subscription fees with the service providers.”

Sirius Satellite Radio and XM Radio hold the only two satellite digital audio radio service licenses, which were issued in 1997. The new generation of satellite radio promises to be more like cable- and satellite-based television services than analog AM and FM radio stations or satellite radio services. Consumers will be able to subscribe to the radio programmes they are most interested in, such as rock, jazz and oldies.

“Radio broadcasters are worried about the effect XM and Sirius will have on their listenership. Digital satellite radio certainly offers a new form of entertainment. Subscribers will receive up to 100 channels of music and news/talk, with ultra-clear signals, as well as nationwide coverage from each of the services, but subscribers will have to pay to receive these services. It remains to be seen if consumers will pay for radio channels, especially when digital terrestrial technology is implemented, bringing digital signals to local stations in the next few years,” said Robert White of Gartner* Dataquest’s Digital Media group.

Digital satellite radio services does not provide targeted local news, weather, sports and traffic reports to individual areas, and this could be a problem, because Sirius and XM are relying on sales in the car market. “Motorists need traffic updates, especially during their primary drive times, which are vital to radio ratings,” said Koslowski.

Consumers who have to switch from satellite to traditional AM and FM radio stations may question the value of a subscription-based service.

Digital satellite radio will also be targeted for the home market, but consumers who pay for digital cable and satellite services already receive digital music channels.

“As music in digital formats such as MP3 files are more easily networked around the house, more of the consumers’ demand for music will be met. If a consumer is easily able to construct a play list of MP3 files on their PC, and then listen to that music anywhere in their house, the need for a satellite radio receiver or traditional radio could decrease,” said senior analyst P.J. McNealy. “Even though the potential market for satellite radio is significant, we believe that moving consumers to accept a subscription-based radio service remains a challenge.”

* Gartner provides additional analysis on this market in the report ‘Digital Satellite Radio: Broadcasting clearly from the Stars’. This document describes the new services, examines its targeted segments and analyzes opportunity for satellite radio providers, the automakers and consumer electronics manufacturers.
Gartner, founded in 1979 and headquartered in Stamford, Connecticut, has 4,300 associates, including 1,400 research analysts in 80 locations worldwide.

Gartner

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