MARKETING: Analysts: Sirius is still in satellite radio race

With the financial and advertising backing of an automotive partner, a 500,000-strong subscriber base and a measured-media budget more than five times its rival, XM appears to have the lead in the satellite radio race.

But analysts caution not to count out No. 2 Sirius.

"With its head start, you have to consider XM the leader," says Tom Watts, managing director of SG Cowen Securities Corp. in New York. But, "once Sirius gets all its pieces together, there is no reason why they shouldn't be able to get a significant portion of the market."

Washington-based XM Satellite Radio launched in 2001 and says it is on target to reach 1.2 million subscribers by year end.

Sirius, based in New York, which debuted in February 2002, failed to meet initial subscriber targets. But it now lists 68,000 with ambitions of 330,000 by 2004.

Each player is saddled with the cost of spending more than $1.5 billion to build satellite networks over the next few years, but they project to break even by early 2005.

Sirius has been in the more serious financial straits, and in March, the company began a recapitalization plan.

XM and Sirius both offer 100 channels, music for every taste and live sessions for a monthly fee - $9.99 for XM and $12.95 for Sirius. Consumers also must invest $200 in a radio and antenna.

All of Sirius' 60 music streams are commercial-free.

Only half of XM's 70 music channels have no commercials; its other music channels average less than two minutes of spots an hour, says Chance Patterson, XM vice president of corporate affairs.

XM has an exclusive deal with General Motors, which owns 20 percent of the service. XM's radio is offered factory-installed in 44 of GM's 2004 models.

One third of XM's subscribers are consumers who have the systems equipped in autos, including non-exclusive deals with companies such as Nissan North America Inc. and Audi of America Inc., that offer satellite radio as an option.

XM thinks that number will grow to 50 percent by year end, Patterson says.

Helping the effort is GM advertising that integrates XM into the final seconds of some corporate and vehicle TV spots, says Scott Tappan, a GM manager overseeing the partnership.

Sirius is an option on 65 different 2004 models from its exclusive partners -DaimlerChrysler, Ford Motor Co. and BMW of North America LLC, says Jim Collins, Sirius vice president of communications.

He would not disclose how many subscribers have resulted from the partnerships, but so far none of the partners are advertising the offering.

Mary Pat Ryan, Sirius' executive vice president of marketing, says Sirius is advertising its ad-free format. In February, it broke a TV, print, outdoor and online campaign with the tag line "It's On" to emphasize the diversity and commercial-free purity of the music streams.

"It's all about the music," Ryan says. "How nothing is compromised by commercials or what advertisers think."

Sirius spent $9 million in measured media in 2002 compared to XM's $58 million, according to Competitive Media Reporting in New York.

XM went all out to launch its product using big names such as musicians David Bowie and Snoop Dogg in TV and cinema spots.

But now XM's ads will be about continuing to "grow the whole category pie," rather than competing with Sirius, says Steve Cook, XM's vice president of sales and marketing.

But many more subscribers are needed if the market is to grow.

According to Merrill Lynch research analyst Marc Nabi, fewer than 1 percent of new cars were equipped with satellite radio in 2002.

If subscriber forecasts are on target for this year, he says, only 2 percent to 3 percent of new cars sold this year will be equipped with satellite radio.

Elizabeth Boston and Jean Halliday write for Advertising Age, a sister publication of Automotive News.