Satellite Radio and Toyota
By Barry Willis December 13, 2004 — The future is still bright for satellite radio. On December 8, XM Satellite Radio Holdings, Inc. announced that it had signed a deal with Toyota Motor Corporation to begin factory-level installation of XM receivers in 2006. The most popular brand of automobile in the world, Toyota is the last large automaker to commit to either XM or its competitor, Sirius Satellite Radio.

Statistics quoted by XM chief executive Hugh Panero in the announcement indicate that about "60% of people who buy a car with pre-installed XM keep it after their free trial subscription runs out." Most drivers gain initial exposure to satellite radio though rental car agencies, where one of the two services is available as a low-cost option. Those who wish to add satellite radio to private vehicles must do so through aftermarket installers, at a cost of several hundred dollars. Selling satellite radio as an accessory "basically is not an efficient way to demonstrate or sell the service," Panero said. XM already has sweetheart deals with Honda and General Motors.

Sirius has similar contracts with DaimlerChrysler AG and BMW AG, as well as a post-production agreement with Toyota set to launch in February. Toyota buyers will therefore eventually have a choice of either service, as will buyers of Lexus vehicles, according to a Lexus sales associate we spoke with.

In the second week of December, Sirius stock prices declined more than 20%, following an upswing in the wake of announcements that the company had signed radio star Howard Stern and his former boss, Viacom chief operating officer Mel Karmazin, to multiyear contracts. The drop came after Wall Street analysts lowered their ratings on the company. Sirius stock reached $9.43/share on Tuesday, December 7, three times its trading price in October.

Sirius stock jumped 11% in response to the Sirius/Toyota announcement. By comparison, XM stock went up only 2% on similar news, possibly affirming that the market is based on hysteria, not logic. With more than 2.5 million subscribers, XM has three times the market share of its smaller competitor. Howard Stern's commitment to Sirius Satellite Radio hasn't had an appreciable effect on XM's subscription pace, according to XM CFO Joe Euteneur. His company should have more than three million subscribers by the end of the year, he told an investors meeting.