Saturday, December 09, 2006

Where do we go from here?

The world of audio is experiencing a radical transformation right now. There has been a massive explosion of opportunity in not only the music market, but the broadcasting and media market as well. Thanks to the infiltration of computers into every aspect of daily life, consumer electronics and audio products are submitting to the digital revolution. Satellite radio, born of the digital era is looking to challenge the world of free radio and become the premiere choice in audio programming of consumers around the world. The main concept of satellite radio is differentiation. The objective is to discover how satellite can differentiate itself from the digital jungle that has taken over the audio world. There is no doubt that the trend of business is going in the direction of consumer-oriented and personal service, so companies must face issues of product personalization as well. The radio industry has taken an ambiguous turn for the future, as more consumers are starting to give up on terrestrial radio and the commercial storm that has plagued it. With mp3 player sales increasing exponentially every day, and with emerging technologies such as podcasts, and user generated content like YouTube, the corporate world of broadcasting is slowly dying.

A unique selling proposition being utilized by terrestrial radio is the concept of personal service. Despite the wide variety and nationwide coverage that Satellite offers, terrestrial still has a leg up in that it provides local, city specific programming that is capable of being simulcast nationwide. True, terrestrial does play an inordinate amount of commercials sometimes, but the truth remains that it is a free service available to virtually anyone. Neither XM nor Sirius can claim this.

It has become the objective of XM and Sirius to position its services as a luxury product to those who seek premium services and innovative technologies. An example of this high-end mentality is the recent integration of satellite into premium automobiles. Porsche, Acura and even Bentley motors have now agreed to include XM in its vehicles as part of the standard package. Whereas, auto manufacturers like Volkswagon, BMW, Scion and Nissan are catering more towards the mp3 world and iPod connectivity. Some of the world’s largest manufacturers like GM have created strategic, long-term partnerships with satellite radio, and major airlines such as AirTran Airways are also now incorporating the satellite experience into its in-flight entertainment. Locking people into the satellite service is becoming more successful than simply offering it as a convenience. By providing an environment in which you can’t escape satellite radio, XM and Sirius have been able to gain massive market share and increase user trials.

Integration is a crucial aspect of the digital world. Why? Because the digital world was designed to be integrated. The same computer that runs your powerpoints is capable of running an entire radio station out of the basement of some guy’s house. The same software that lets you cram tens of thousands of CDs into something the size of a 3x5 card has the capability of communicating with a website to broadcast user generated content to the world. Mp3 music management software is now in satellite radios, satellite radios are now in GPS devices and GPS devices are now in cell phones. Digital communication is just a language capable of completing an infinite amount of tasks, simultaneously. Radio and mobile DJ’s alike praise the latest digital music management software because of its organizational ability, convenience, size and portability. When you rely on a machine that can learn virtually any function of existing electronics, the possibilities are endless. The electronics industry is rapidly creating a widespread digital fusion that has given rise to all-in-one products and multipurpose gadgets.

Integration is not only important in the product category, it is equally vital in the service department as well. In addition to being included in automobiles and airliners across the nation, satellite service is now being combined with other services such as GPS and cell phone service. The synergy created by joining such powerful devices as GPS, cell phones, and satellite radio is enormous. All are dependent upon the same functions, and utilized the same technical concepts in order to provide useful resources. If a device can communicate with a satellite, then it can perform multiple tasks such as pinpoint user location, transmit audio and receive audio. Cingular Wireless recently realized this and now offers 25 XM channels through the Cingular service, which can be streamed directly through a cell phone and listened to by using special headphones. Bushnell, a GPS device company now offers GPS units with streaming XM. What is the advantage to having such all-in-ones? The advantage is synergy. For example, XM provides a special traffic service that can by synchronized with a Bushnell GPS device. Together, they provide instantaneous, customized traffic reports with alternative routes based on data provided by the GPS unit. These digital electronics are starting to show exactly how technology can become a highly-efficient workhorse for mankind.

Yet another form of integration is the marriage of traditional and new, or terrestrial and satellite. In 2006, XM successfully achieved one of the biggest business stunts ever conceived in the world of radio. The satellite giant actually merged with terrestrial radio to provide a simulcast of programming content to both XM subscribers and terrestrial radio listeners. Opie and Anthony successfully bridged the canyon between satellite and terrestrial formats by simulcasting their show on both XM and CBS broadcasting stations each morning during drive time. In a move that hugely benefited satellite’s main competitor, XM provided a major advertising opportunity to CBS terrestrial intravenously through its own premium programming. XM demonstrated to the satellite world that it is actually better to live in harmony with the enemy than to ignore it, which is as shocking as it is perplexing.

Apart from integration, the way satellite radio has uniquely positioned itself for the fierce competition of the future is by signing promising talent and acquiring exclusive broadcasting coverage rights of events like football, NASCAR, and baseball. XM has signed shock jocks Opie and Anthony long-term, and Sirius has followed with its signing of Howard Stern. On a daily basis, new talent like Oprah and The Who are granted their own channels on satellite, and thus making the service even more attractive to skeptics and potential customers. Expansion is the number one priority of the satellite industry, in order to keep up with established mediums such as terrestrial and mp3’s.

Satellite continues to expand content-wise as well as geographically and demographically. XM and Sirius both started within the United States, but are now successfully broadcasting throughout Canada. XM and Sirius look to expand globally and stomp their weak competition, while appealing to new and unsought demographics at the same time. Adding specialized channels that appeal to niche populations, like the Catholic channel on XM, and focusing sales promotions on new target markets such as college students has become the adventurous new goal of satellite radio. With new players entering the market recently, including Canada Satellite Radio and WorldSpace – worldwide satellite radio, the satellite industry is becoming increasingly competitive on many fronts of the audio and music industries. Radio technology also continues to evolve into new ideas such as High Definition (HD) radio, forcing satellite to raise the bar even higher in order to attract and retain customers. HD radio offers sound quality equal to satellite, and programming that comes directly from the “hometown.” HD radio is even offered commercial free in some cities, providing a free alternative to satellite programming. Satellite has somewhat of an advantage, however, in that it does not require the purchase of a $400 receiver, it has more offered content, it is commercial free and all channels are broadcast nationwide, not just some.

The satellite radio market has recently slowed down in subscriptions and sales. Similar to mining, where the initial quantity of a resource is always easier to get than the last, there has been a plateau of revenue for XM and Sirius because they have already skimmed the market for easily convinced, affluent, risk-taking consumers. The next batch of customers will only come with increased marketing and sales promotion costs. Therefore, the marketing objective of satellite has become an effort to solicit potential customers who are not overly impressed with the benefits of satellite radio already. New technology in portability has helped satellite in this area, but improving one-on-one relationships with customers and improving the viability, pricing and operational capability of satellite radio is what the industry must focus on the most. Consumers markets, like the college-aged demographic expect their electronics to fully complement their individual personalities. This being said, it is in the best interest of the satellite industry to continue personalizing its products and services similar to the way mp3 players have. Personal selling is not the only thing necessary for future prosperity, though; sales promotions are just as vital. Sales promotions have been instrumental for XM and Sirius in obtaining new customers. XM’s provides free trials of its service on every AirTran airplanes, and earlier this year gave every AirTran passenger a free satellite receiver with proof of ticket purchase in hopes of increasing subscriptions. Sirius just completed a two-day, free trial period in October, in which the world was offered free access to Sirius satellite radio through the internet for two full days. Though it was a promotion for Howard Stern, Sirius is already reaping the increased sales benefits overall. Going into the holiday season, both XM and Sirius are confident that sales will increase significantly as a direct result of their promotional efforts.

In summary, the concepts of integration, collaboration, global expansion and mass customization are what will guide the future possibilities of satellite radio. The direction of business is headed towards personal interaction, and both XM and Sirius are lacking in the relationship department. By making a comprehensive assessment of the potential satellite market, XM, Sirius and other satellite providers can increase sales through a general pull strategy. By getting into the life of their consumers, satellite providers can learn a lot about the demands mass populations have for the radio industry. Studies of consumers’ daily life, likes, dislikes and preferences can provide the essential information needed to modify satellite service according to its consumers. Providers can also figure out which formats and stations are most popular among the different target markets and create content accordingly. Advertising and sales promotions for satellite should follow the same direction. Altogether, with an innovative product, solid service, and a profound understanding of the consumer’s wants and needs, satellite will be propelled past its competition into a prosperous future.

Saturday, December 02, 2006

Ever consider marrying your sister?...didn’t think so.

In the past week it has been rumored that Sirius CEO Mel Karmazin has leaked certain hints of a possible XM/Sirius merger. Right now, these two companies dominate the satellite world and are very successful as competitors. However, if they were to combine forces it would create a complete monopoly over the industry. As I see it, like brother and sister, there would be no way these two could get along and play nice.

At this point, not much good can come from a satellite radio merger. As seen in the past when moguls join, it’s like two single people moving into a house together; everything goes into the same pot and most assets are assimilated into one collection. Unique corporate identity is lost, and the result is less-than-satisfied customers. In the case of XM and Sirius, the unique programming of each provider will be severely compromised if a merger of this magnitude were to occur. It could detrimentally “wipe out the sounds that enticed some people to subscribe in the first place” as the New York Daily News puts it.

XM claims that the merger is just a rumor, and Sirius claims that it is just “one of those ideas you kick around.” The possible merger question came about as a result of both XM and Sirius losing significant stock value recently, and having increasingly pessimistic holiday sales predictions. If both companies do join, I can’t see them gaining any monumental benefits, but I do see them sacrificing valuable quality.

This also presents the question of, why does everything have to be under the same company anyway? Monopolies are detrimental to a capitalistic society like the United States, decreasing competition and giving consumers no other choice. The merge would indeed decrease operating costs for each company, but the fact remains that a merger between XM and Sirius is a horrible idea on many fronts. That’s why I think it’s safe to assume that this fantastic idea is indeed a rumor, and should remain just that.