Their Pitch to Consumers - Radio World

Their Pitch to Consumers

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.
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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.

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