The showdown for your car's dashAugust 21, 2012: 12:51 PM ET
Suddenly satellite radio is in a fierce fight with terrestrial radio for control of automakers' and consumers' attention. Question is, who can really win?
By Peter Suciu, contributor
FORTUNE -- Satellite radio is apparently coming in loud and clear. SiriusXM Radio successfully raised its monthly fees and saw better-than-expected subscriber growth last quarter, adding more than 622,000 net subscribers. The company is apparently the king of the road as well -- for now.
Currently two out of every three new cars sold in the United States come equipped with satellite radio, and many include a free trial subscription as well. With new car sales up in the U.S., SiriusXM (SIRI) is seeing an increase as well. Free trials are even being extended to some used vehicles too. "Nearly every automaker has a deal to provide satellite radio in certified pre-owned vehicles for three to six months now," says Mark Boyadjis, senior analyst at IHS Automotive. The strategy is paying off. Industry forecasts suggest that SiriusXM should have around 23 million subscribers by the end of 2012.
And yet, the company's rate of growth will likely be slower than in years past. Why? Growing competition from other technologies such as HD and Internet radio. The latter, which includes music streaming services such as Pandora (P), Clear Channel's (CCO) iHeartRadio, Tunein Radio, Spotify and Slacker Radio, are just as dominant on the desktop in the home and office as SiriusXM is in the car. (Satellite radio never really broke out of the automobile as then-separate Sirius or XM hoped prior to their 2008 merger.)
The question now is whether Internet can break into the dashboard? Yes, says Boyadjis. Anti-trust fears about the satellite radio=providers' merger has given way to major competition, he adds. "A number of sources are battling for listeners," he says. Not to mention the old standbys: AM, FM, and the Apple (AAPL) iPod.
Internet radio has had an easier time becoming portable. Mobile apps have allowed phones to become receivers for Web-based broadcasts almost anywhere. Portable satellite radio devices have had a harder time, comparatively. "Internet radio is coming into the car on smartphones and may be the lasting format because it goes where the phones go and they represent a better single service model because the related services can be used in more places," says Rob Enderle, principal analyst with the Enderle Group.
What about so-called HD radio? While "hybrid digital" is currently leading in digital radio technology, with more than 1,900 stations covering 84% of the United States, listeners still need new receivers to hear the music. "HD radio is an upgrade on regular radio and lowers the need for satellite radio by making traditional radio better," says Enderle. Nearly every auto maker is adopting the standard. But HD radio has the same issue as satellite, namely that multiple receivers are required if one wishes to take it out of the vehicle.
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That leaves all three standards looking for ways to compete with one another, inside and outside of vehicles. SiriusXM's Internet Radio is an attempt to provide a stream of more than 130 satellite radio channels to tablets and smartphones. Another long-rumored option: moving away from subscriptions altogether. One thing is nearly certain: everyone is trying desperately to hang onto lucrative drive-time listeners. "It is a captive audience," says Kay.