The Bridge Ratings Consumer Satellite Radio Merger Perceptual Study


Wednesday February 28, 2007

News of Proposed Merger Likely to Impact 2007 Subscriptions

As serious rumors of a possible satellite radio merger began surfacing in 2006, Bridge Ratings began interviewing current and potential satellite radio subscribers to learn about their perceptions and possible actions should such a merger occur. The following data summarizes much of what we have learned.

For the purposes of this study, Bridge Ratings interviewed consumers at retail outlets who have purchased Satellite radio. Telephone surveys were also conducted between August 1, 2006 and February 23, 2007. Calls were placed to both current and potential subscribers to satellite radio.

I. Consumer Interest Index (CII) :

Since 2003, Bridge Ratings has conducted Consumer Interest surveys in order to project the potential size of the satellite radio subscriber base. Over time marketing by both satellite radio companies has heightened awareness and interest in the medium.

This chart compares actual and projected subscriber growth for both XM and Sirius through 2006 with Bridge Ratings' Consumer Interest in satellite radio. Consumer Interest is determined by asking potential satellite radio subscribers at any point in time if they are "Very Likely", "Somewhat Likely", "Not Likely" to consider subscribing to satellite radio in the next sixty days.

II. Consumer Expectations - Not in the Public Interest

We asked current and potential satellite radio subscribers about a series of customer-related benefits or impacts that are likely to occur if or when the two satellite radio companies would combine. Consumers rated the following as "Very Likely", "Somewhat likely', or "Unlikely" developments:

Consumer Profile
Total Consumer Group
Current Satellite Radio Subs
Potential Satellite Radio Subs
Increase in Mthly Subscription Rate
Increase in Hardware Cost
Decrease in Monthly Subscription Rate
Increase in No. of Available Channels
Decrease in No. of Available Channels
Improved Programming Quality
Reduction in Programming Quality
Fewer Commercials on Music Channels
Increased No. of Commercials on Music Channels
Able to Use Current Radio
Required to Replace Current Radio
Better audio reception
Worse audio reception

When isolating potential satellite radio subscribers, those who indicated they were they would seriously consider subscribing to one of the two (or both) services within the next six months, we asked: "XM and Sirius have announced they intend to merge the two companies together into one some time before the end of 2007. How does this news affect your interest in subscribing?"


III. Howard Stern

Bridge Ratings estimates that 2.5 million of Howard Stern's terrestrial audience (20%) were Stern's most loyal listeners and that Stern has converted 52% of them (1.3 million) specifically to subscribe to Sirius to hear him. Bridge Ratings views the unconverted 48% of Howard Stern's core fan base as the prime group to pursue for further growth as they will be less costly to acquire than the 80% of Stern's terrestrial audience who were categorized as those who "listened occasionally" or "listened frequently".

With the possible merger of Sirius and XM, a new opportunity opens for building Stern's audience. However, in Bridge Ratings' analysis of satellite radio consumers, those who have chosen XM do not consider Stern to be a high priority and therefore have indicated to us that they do not miss him. But with 7.6 million+ XM listeners potentially available to hear Stern in a merged company configuration, Stern will benefit - it just won't be as significant as one might think.

As part of this satellite radio study, Bridge Ratings surveyed 1000 current XM subscribers. Random telephone calls were placed to this national sample. As with all of our studies, this was a representative sample of XM consumers between the ages of 18 and 72. The following chart reflects the responses to the question: "If the Howard Stern radio show were available on your XM satellite service for no additional charge, how likely would you be to listen on a regular basis?" Very likely, Somewhat likely, Not likely at all.

Based on these full-sample results, 12% of XM's current subscriber base is Very likely or Somewhat likely to listen to Stern's channel on a regular basis. Applied to the subscriber base of 7.6 million, there is a potential of 912,000 additional Stern listeners in the current base of XM subscribers.

We don't believe that retail sales ever equaled expectations for Q4 of 2006 despite the holiday season. The soft fourth quarter of 2006 has not only carried over into 2007, but January 2007 retail activity and interest is below that of Q3 2006 which Bridge Ratings noted in our year-end report was the softest quarter of the year for the sector. Again, it is worth noting that 83%-87% of the sector's shortfall in 2006 was due to XM's shortfall in additional subscriptions and this percentage held true in Q3 2006.

In light of the recently announced merger intentions of these companies and the findings in the most current Bridge Ratings study, we are inclined to reduce our pre-merger-announcement (PMA) subscriber numbers for full-year 2007. For the moment, we will hold with our estimate of 17 million by the end of 2007 until additional consumer feedback is accumulated over the next few weeks.

Some revised industry estimates put 2007 subscription gains for the two companies at between 5.3-5.6 million more subscribers bringing the industry total by year-end to approximately 19 million with first quarter gains coming in at around 1.1 million new subscribers. Bridge Ratings' estimates are closer to 17 million by year-end.

Based on Bridge Ratings January-February retail interviews and measurement of retail activity, Q1 2007 increases are projected at this time to be: Sirius: 440,000, XM 280,000 or 720,000 new subscribers for the first quarter of 2007. This compares to a sector total of 726,101 during Q3 of 2006.

The following 'thermometer graph' represents quarter-by-quarter subscriber growth estimates (pre-merger announcement) for the satellite radio sector. To date, subscriber growth projections have achieved 11% of the annual projection with approximately 432,000 additional subscribers since January 1, 2007.

Estimates of added subscribers are based on Bridge Ratings consumer interviews and projections. This chart will be updated on a monthly basis or as data is received.


"Brand Stimulation" Flattening - Part of the Problem

In September 2006 Bridge Ratings began conducting "brand stimulation" studies with potential satellite radio consumers. In initial results from this study, consumer interest in satellite radio had cooled considerably from earlier in 2006. A primary reason for softer 2006 sales can be attributed to the softening interest in the technology. From our interviews with consumers this slowing interest is due to three factors the mass radio audience considers important:

1. "What's in it for me?" - A clear and unique benefit - why do I need it?
2. How strong are the negative attributes of the current 'brand preference' - In the case of satellite radio, 'brand preference' refers to the emotional use attachment to and the comfort the consumer has with traditional radio.
3. The "level of demand" created by the degree of attractiveness of the brand's product line.

A fourth component may be added as the year progresses. While it is unclear what impact on future subscription sales the proposed merger may have, initial Bridge Ratings data indicates that 45% of potential subscribers will wait longer than previously expected before subscribing. This 'wait-and-see' component is likely to negatively affect subscription numbers going forward until XM/Sirius clarify and market how the consumer will be affected.

Bridge Ratings measures each of these first two attributes which generates a "level of demand" quotient that we can track over time. For satellite radio as an industry, brand and product interest has seen a significant downtrend in brand stimulation since April 2006. After a slight upsurge in interest during the last quarter of 2006, interest in satellite radio among all consumers is at its lowest point (see chart). This slowing "brand stimulation" is at the heart of the sector's marketing challenge which we don't see improving anytime soon unless new marketing strategies are introduced.

The Satellite Radio Consumer

Discover satellite radio consumer sample profiles. Click here.


Brand Awareness Tracking


"Can You Name a Satellite Radio Service?"
Wk Ending:
Feb 07
Jan 07


"Which Satellite Radio Service Did You Purchase Today?"
Wk Ending:
Feb 07
Jan 07


Full Year Satellite Radio Consumer Index: Branding vs. Purchase
Feb 07
Jan 07


The above table measures strength of brand against actual retail purchase. An index above 1.00 indicates positive retail strength compared to brand awareness.

Bridge Ratings will continue to release updates on our retail interviews through 2007.

*Based on telephone interviews and point-of-purchase interviews conducted at retail outlets between January 1 and February 26, 2007. Retail outlets vary by week but may include Best Buy, Circuit City, Sears, CompUSA, Target, Staples and Sam's Clubs stores.

Markets surveyed: Los Angeles, San Diego, Phoenix, Boston, Detroit, New York, Boston, Chicago, Dallas. 3910 listeners 18+ were surveyed during this week.


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