Their Pitch to Consumers
by Leslie Stimson
Soon, theater audiences will see XM Satellite Radio advertising
spots depicting music as various objects falling from the sky.
Specialty magazine readers such as car audio enthusiasts already
are seeing ads for Sirius Satellite Radio.
The companies developing satellite-delivered digital audio broadcasting
are preparing to launch their subscription services this fall
to take advantage of holiday consumer electronics sales.
With that in mind, XM and Sirius have begun extensive ad campaigns
to reach potential radio buyers. They are training retail employees,
planning listening kiosks and taking other steps to increase the
profile of their service launches.
Wall Street analysts, media buyers and terrestrial broadcasters
are watching with interest to see how the two companies will tell
consumers the story of satellite radio, and differentiate their
products from one other.
The Power of X
XM’s $100 million campaign has been in development for
about a year by TBWA/Chiat/Day. The campaign, called "Radio
to the Power of X," is anchored by national 60-second spots
featuring artists such as BB King, Snopp Dogg and David Bowie
that began airing in some 3,000 movie theatres on Aug. 10.
The spots show objects falling from the sky to show that a listener
can receive music anywhere, according to Lee Clow, chairman and
worldwide creative director for TBWA/Chiat/Day.
For example, "Classical Rain," a 30-second spot, depicts
a truck falling from the sky and smashing instruments to introduce
viewers to XM’s classical channel. Another spot shows a racecar
dropping from the sky to illustrate the NASCAR channel.
XM’s effort includes national radio, magazines, newspapers,
direct mail, outdoor and online. About $45 million of its ad budget
will be spent in the fourth quarter.
Sirius plans a similar effort but says it considers TV to be
part of the campaign, rather than its anchor. Its ad agency, Goodby,
Silverstein & Partners, is known for the "Got Milk?"
campaign.
"Their trademark has been to build brands with an edgy,
cool attitude. We’re sure our campaign will fall into the
footsteps of some of these incredible things they’ve done,"
said Sirius Vice President of Marketing Doug Wilsterman.
Reluctant to place a dollar amount on Sirius’ advertising
efforts, Wilsterman called it a "competitive" campaign
that will build on its elements. The first began in June with
print ads inserted in mobile enthusiast magazines in conjunction
with Sirius sponsorship of autosound competition events.
The magazine effort was to expand to trucker publications in
August along with events featuring Sirius’ trucker channel
celebrities, then to music enthusiast magazines and finally broad-based
consumer magazines.
Radio plans
National radio ads are an important component for the XM and
Sirius campaigns. Both companies said it was too early to identify
radio markets or formats on which they intend to buy time.
Clear Channel Communications has an ownership stake in XM, so
those stations are expected to figure prominently in XM’s
targeted radio markets, although XM’s Steve Cooke, vice president
of retail marketing and distribution, said Clear Channel stations
are not the only ones that will be used.
"Radio – it’s a great way to reach the people
that are our target consumers," said Wilsterman.
Wall Street sources and ad observers consider the way in which
XM and Sirius handle their product launches is critical to the
success of the product category.
"It won’t succeed or fail on day one, but Sept. 12
will be a good indicator of how well the market will receive pay
radio," said satellite business consultant Steve Blum, president,
Tellus Venture Associates.
XM’s plans a so-called "soft launch" in Dallas/Ft.
Worth and San Diego on Sept. 12. The area has good weather, a
relatively young population, limited public transportation and
open spaces to limit the chance of signal blockage, said several
sources.
XM said music sales and consumer electronics sales are high
in those markets as well.
"If you’re someone who spends an hour or so driving
each day, that’s a better target than a city where a lot
of people are riding a subway," said one advertising source.
XM plans to expand the service to the rest of the southwest,
including Los Angeles and Denver, by mid-October. Its receiver
partners would count on stocking shelves nationwide with compatible
receivers and antennas by mid-November, coinciding with XM’s
media efforts expanding nationwide.
XM won’t have all of its terrestrial repeater sites completed
when it begins its rollout. This, coupled with the phased-in rollout,
may be risky, said one analyst, who questioned the ability of
the signal to be received if a consumer bought a unit in the southwest
and then drove a few states away and expected to hear the service.
XM says its satellites are performing better than expected,
and that it won’t need all planned 12,000 repeaters to launch
its service.
Nationwide
Sirius has a different service launch approach.
"We think it’s important for the consumer to understand
that satellite radio truly is a nationwide service, and when we
launch, we plan on going it on a nationwide basis," said
Wilsterman.
Several advertising execs said that by waiting, Sirius has the
opportunity to watch and learn from XM’s gradual rollout.
What does XM gain by this approach? "They’ve got to
come out with their guns in September. … Stuff that got no
response, or didn’t work, you cut it out of your national
(ad) rollout, to minimize risk," said Broadcast TN Media
Executive Director Howard Nass.
Key to the availability of aftermarket satellite receivers this
fall is the process of putting receiver chips in the hands of
manufacturers.
Sirius says Agere Systems expects to ship production chips to
receiver manufacturers in the fall, while XM’s chipmaker
of choice, STMicroelectronics, said it was shipping chips for
use in XM radios in August.
XM and Sirius salespeople have been traveling to consumer electronics
stores, training retail employees how to move satellite radios.
Sirius estimates it has trained 10,000 salespeople so far as part
of its participation, with Kenwood USA Corp., in the Mobile Electronics
Retailers Association.
Sirius says it will have 5,000 points of distribution when it
launches service.
XM and Sirius are spending money on point-of-purchase advertising
with custom end-aisle displays.
"They’re not just plopping a radio in their normal
product wall, they’re building big displays to highlight
satellite radio," said Cooke.
In some locations, XM and Sirius will share so-called "listening
kiosks" where consumers can hear the product.
Along with programs, consumers will hear statistics about the
programming choices, the XM fee of $9.99 per month with commercials
on most of the music channels, and $12.95 per month for Sirius
with no commercials on music channels.
To reach other potential early adopters, XM plans to have listening
kiosks at concert venues owned by Clear Channel Entertainment,
which bought SFX Entertainment. Sirius has a similar event-sampling
deal with the House of Blues concert venues.
Both XM and Sirius have re-vamped their Web sites to enable
potential customers to sample music channels and order on the
sites.
Slow to cars
Putting radios in cars has taken longer than both companies
originally thought it would.
"It’s a significant issue that will slow down consumer
adoption," said Ryan Jones of The Yankee Group.
Why are automakers slow to adopt? Satellite radio has yet to
be proven, Ryan said, and the economic slowdown has a part.
"In tougher economic times, automakers are looking to cut
costs, just like everyone else. Sticking with an already-ramped
up production run of the traditional radio is a lot cheaper than
ramping up production of those satellite radio units."
Ryan said the auto issue doesn’t mean satellite radio won’t
take off; but it will lengthen the product launch.
General Motors, which has an ownership stake in XM, will offer
radios in two Cadillac models this year. Sirius says its auto
partners, Ford, DaimlerChrysler and Mercedes Benz, will offer
Sirius radios next year.
Unaligned automakers such as Volkswagen, Honda, Toyota and Nissan
eventually are expected to offer units that receive both services,
thanks to a receiver interoperability agreement between XM and
Sirius, sources said.
Both Sirius and XM are pushing automakers to bundle the cost
of the subscription in a finance or lease agreement. The latter
is important because people tend to lease a car for fewer years
than if they purchased it, which would mean a greater chance for
turnover in the radios of leased vehicles.
The advantage of bundling the price in the finance agreements,
rather than showing them as a separate charge on the bill, is
that Sirius and XM don’t need to rely on a car salesperson
to sell their service, one analyst said.
However, when at lease renewal time, this might be a problem.
"All of a sudden, something that was free – which
is how the car sales person will spin it – costs $10 to $13
a month. I expect big churn numbers in the OEM market."
Although the rollout is expected at the end of this year, analysts
project the steepest growth curve for the service in the second
and third years of operation, a typical uptake rate for consumer
electronics.
Blum projects a total combined subscriber base for XM and Sirius
of 17 million to 18 million people by 2006.
