HD Radio Grabs the Ear of Satellite Rivals

Eric Ferguson stocks XM Satellite Radio receivers at a Costco store in Lake Park, Fla. XM and Sirius Satellite Radio await federal approval for their merger plans.
Eric Ferguson stocks XM Satellite Radio receivers at a Costco store in Lake Park, Fla. XM and Sirius Satellite Radio await federal approval for their merger plans. (By Mark Elias -- Bloomberg News)
By Sam Diaz
Washington Post Staff Writer
Tuesday, July 3, 2007

When Hyundai introduces its still-unnamed premium sports sedan for 2008, it will arrive with a built-in feature that most other new cars won't have: high-definition radio.

Over the past few months, high-definition radio technology, which delivers clearer and crisper sound for over-the-air radio, has made inroads into the new-car market, a major battleground for audio entertainment. Hyundai, Jaguar and BMW are among the automakers that have installed the required special receivers into their cars.

The retailers Best Buy and Wal-Mart in March said they would carry high-definition equipment in their stores. In May, broadcast companies launched stations in the updated format in the nation's top 100 markets.

HD radio's recent announcements could be noteworthy as XM Satellite Radio and Sirius Satellite Radio continue to lobby the government to approve their planned merger.

Executives of the country's two satellite radio companies point to HD radio, Internet radio and in-car iPod accessories as their competitors. Regulators are keenly interested in looking at the competitive landscape for radio, particularly in the car, where many satellite radio systems are installed. None of those technologies were around a decade ago when satellite radio was created, proponents of the merger have argued.

With 14 million subscribers, satellite radio still has many more listeners than HD radio, although HD is gaining ground.

In 2006, the number of HD radio receivers sold was about 200,000. That number is projected to reach 1.5 million this year, according to the HD Digital Radio Alliance, a consortium of broadcasters promoting the technology. And the number of stations broadcasting in the new format has more than doubled in less than a year, to more than 1,300 from about 600 at the end of last summer.

HD radio, unlike its satellite counterpart, broadcasts over traditional airwaves and charges no monthly subscription fee, a feature the industry is promoting as part of its $250 million marketing and advertising campaign.

The monthly fee charged by the satellite companies could put them at a disadvantage if consumers begin to choose between the two options, said Rob Enderle, principal analyst at Enderle Group.

"Free tends to trump fee in almost every market," he said. "I think the argument for XM and Sirius is that if they don't merge, they'll probably go away."

Sirius chief executive Mel Karmazin said that increased rivalry from newer technologies could threaten the future of satellite radio. Neither XM nor Sirius has ever made a profit.

"It's not news to us that HD radio is a competitor," Karmazin said. "It may be news to regulators because they don't follow this as much as we do, but this is the market we saw when we announced our merger."

Peter Ferrara, president and chief executive of the HD Digital Radio Alliance, said he thinks satellite radio is complimentary to traditional radio. He also recognizes that it would be tough to challenge satellite radio for the attention of the major carmakers, who tend to adopt new technologies only after they have reached the mainstream market.

For the first time this year, subscriptions for XM and Sirius are growing, through their partnerships with automakers including Chrysler, Ford, General Motors, Toyota and Honda, something Ferrara sees as more of a threat to the widespread adoption of HD radio.

"If they [merge], they can control the dashboard," Ferrara said about the satellite companies. "They already have the partnerships. They could block us out."

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