Satellite radio battle heats up as first major automaker makes XM a standard feature

NEW YORK (AP) _ The CD player, cruise control and heated seats are standard features on many new cars _ is the satellite radio far behind? <br/><br/>Many analysts say satellite radio is on the verge of

Thursday, March 24th 2005, 8:25 am

By: News On 6

NEW YORK (AP) _ The CD player, cruise control and heated seats are standard features on many new cars _ is the satellite radio far behind?

Many analysts say satellite radio is on the verge of a major market debut, with Hyundai Motor Co.'s deal Wednesday to make equipment from XM Satellite Radio Holdings Inc. a standard feature in all the South Korean automaker's models. Rival Sirius Satellite Radio Inc. has struck similar agreements with Land Rover and Jaguar, both owned by Ford Motor Co.

The XM-Hyundai deal marks the first time a major auto manufacturer has agreed to offer satellite radio right along with automatic windows and power steering. But, more importantly, XM's relationship with Hyundai marks a turning point for a fledgling industry desperate to expand its subscriber base to match its spending habits.

Both XM Satellite Radio and smaller rival Sirius have each committed to shelling out millions of dollars on programming contracts with the likes of shock jock Howard Stern, NASCAR and Major League Baseball. But, with only 4.4 million subscribers combined since they went on air a few years ago, Wall Street has been waiting for a major subscription deal that demonstrates they can make ends meet.

``When you have auto manufacturers being very aggressive in adding the product to their cars, it lends comfort that both companies are moving along the adoption curve very well,'' said Maurice McKenzie, an analyst with Friedman, Billings, Ramsey & Co.

Wall Street has held to the view that each satellite radio provider needs about 10 million subscribers to break even. XM said the deal with Hyundai, which is seen having a domino effect on other auto makers, means XM radios will be in more than 500,000 Hyundai vehicles by 2007.

Such potential subscriber growth is needed to keep up with the amount of money both companies are looking to spend. Sirius, which now charges $12.95 a month to receive its 120 channels, needs to add 1.1 million new subscribers to pay for Stern's $500 million, five-year contract.

XM, whose monthly charge is $12.95 for 150 channels, needs about 745,000 additional subscribers to break even on its $650 million, three-year deal with MLB.

``If subscribers don't come in at a significant rate, these stocks will fall,'' said Sean Butson, an analyst with Legg Mason Research. ``But, we feel they're both fully funded and have enough cash to break even soon.''

So far, satellite radio has lured listeners who buy receivers that can be hooked up to car stereos, used at home, or as personal audio devices. The nascent industry has expected a big boost from new car owners as a way to reach more subscribers.

Before the Hyundai deal, both satellite radio players have cobbled together piecemeal deals with the auto industry as manufacturers made the service an option in only some models. Both XM Satellite Radio and Sirius have so far split the auto companies nearly in half, and are expected to develop these smaller deals into something broader.

``I don't think XM or Sirius cares what kind of car you drive, it's really more about volume gain,'' said Phil Magney, principal analyst with Telematics Research Group, which conducts product research on automotive interiors. ``Consumers are changing the way they use their entertainment, so enabling these systems as standard equipment makes more sense. More (auto makers) will begin to do that.''