Satellite radio is going mainstream. The late-2001 launch of Satellite Digital Audio Radio (SDAR) service ushered in the era of digital radio, and by the end of 2005, the combined subscriber bases of competitors XM Satellite Radio and Sirius Satellite Radio rose more than 109 percent to exceed 9.23 million. The services project combined subscriber-base growth of at least 63 percent in 2006 to more than 15 million even though listeners must pay a monthly fee for a service– radio– that was previously free through terrestrial AM and FM broadcasters.

Every indicator points to continued swift growth. A 2005 consumer survey conducted by CEA, for example, found that eight percent of all households planned to buy a satellite radio within the next year, with 81 percent of the buyers being first-time buyers. By the end of 2013, Lehman Brothers forecasts 49 million subscribers.

Satellite Strengths
Satellite-radio subscriptions are soaring because of:

· Commercial-free music channels,

· A cable-TV-like diversity of music and information content,

· Digital-quality music without the multipath distortion and static that afflicts terrestrial analog radio stations, and

· Uninterrupted programing whether driving between cities, or between coasts.

· Because satellite-radio services are digital, satellite tuners offer such additional features as:

· Displaying channel names, song titles, and artist names,

· Storing programming in memory for later playback,

· Alerting subscribers to songs or artists currently being broadcast on other channels,

· Displaying prices of individual stocks and sports scores, and

· Delivering traffic data to car and portable navigation systems, which will route users around traffic jams and accidents.

A 2005 report issued by J.P. Morgan’s equity research arm found that, among nonsubscribers interested in buying a satellite radio, 62 percent cited commercial-free programs for their interest, while 49 percent cited audio quality, 42 percent cited greater programming selection, and 31 percent cited unique content.

Driving Home
For motorists, a major satellite-radio advantage is the ability to enjoy uninterrupted programming when traveling through multiple local-radio markets (which occurs during some peoples’ daily commute) or into areas with few or no listenable radio stations. Satellite-radio broadcasters Sirius and XM, in fact, initially focused on delivering their programming to vehicles, and although most satellite-radio listening is still done in the car, the service providers are focusing increasingly on the home and portable audio markets to deliver their programs.

Today’s satellite-radio-equipped products include home tabletop radios, compact stereo systems, home-theater-in-a-box (HTiB) systems, component A/V receivers, headphone stereos, boomboxes, and at least one LCD flat-panel TV. At least one undercabinet CD-radio for the kitchen and multiple undercabinet LCD TV/CD/radios also are planned for 2006.

At the end of 2005, 25 percent of the installed base of satellite tuners was used in the home, according to a Lehman Brothers estimate.

Whether at home or on the go, satellite-radio subscribers enjoy a cable-TV-like ability to listen to a diversity of music and information content, much of it unavailable on AM and FM radio. The content includes music channels for almost every interest, a greater variety of sports programming, local traffic and weather information for select metropolitan areas, and radio personalities who sought refuge from terrestrial-radio content restrictions enforced by the Federal Communications Commission (FCC).

Adoption Rate
Satellite’s advantages have proven so popular that the number of satellite-radio subscriptions broke the 1 million mark in late 2003, only a year and ten months after satellite radio’s national launch. The adoption pace was second only to that of DVD players and far exceeded the speed with which consumers bought the first million radios, TVs or VCRs, according to CEA statistics.

At the wholesale level, suppliers shipped 7.36 million tuners to retailers in 2005, up 24 percent, according to final CEA statistics. In factory-level, dollar sales soared even more, rising 46 percent to $605.4 million. The statistics incorporate tuners for the home, car and portable applications but exclude automaker’s sales.

Product Diversity
Sales reflect a growing diversity of satellite-radio configurations to meet different consumer needs. The configurations include:

· A variety of under-seat (or in-the-glovebox) tuners that are controlled from aftermarket and OEM CD-receivers.

· A handful of car CD-receivers with built-in satellite tuners.

· Palm-size plug-and-play (PnP) tuners, which dock with home stereos, car stereos, and battery-powered boomboxes. Some also dock with battery/antenna packages that turn PnP tuners into walkabout headphone stereos.

· Dedicated walkabout satellite-radio headphone stereos. They’re equipped with tiny satellite tuners to receive live satellite programs. They became available for the first time in late 2004 from one supplier. In 2005, three companies offered such portables, and more were expected in 2006.

· Hybrid satellite/MP3 headphone stereos, which become available for the first time in 2006 from at least two suppliers. They incorporate satellite tuners to listen to live broadcasts but also sport ample flash memory to store and play back time-shifted satellite-radio content and MP3-type music files transferred from a PC. In late 2005, a model without satellite tuner became available to store MP3 files and satellite content delivered through a home docking station.

· Palm-size add-on tuners with integrated antennas, which can be controlled from a growing selection of home audio products. The home products include component-A/V receivers, compact stereo systems, HTiBs and tabletop radios. Many battery-powered boomboxes also accept the tuner/antennas, which are about the size of a pack of cards.

· Dedicated home tuners, most of which are intended for custom-installed multi-room audio applications in which music is distributed throughout the house from a central source to in-wall and in-ceiling speakers.

In early 2003, only about a dozen consumer electronics brands offered satellite radio products, but in 2006, at least 50 companies could be competing in the home, portable and car satellite-radio markets.

The automakers also are doing their part. For the 2006 model year, almost every automaker in the U.S. offers satellite radio, mainly as a factory- or dealer-installed option. More often than not, the automakers offer only one satellite service, but seven automakers give motorists a choice. They are Audi, Volkswagen, Infiniti, Lexus, Nissan, Scion and Toyota.

All told, satellite-radio service was available in 1,123 of 2,015 vehicle trim lines available in early 2006, according to Autobytel, the Internet-based car-buying service. Some of those models were 2007-model-year vehicles. XM was available in 680 trim levels at the time, and Sirius was available in 598.

Content Diversity
To these radios, Sirius and XM beamed more than 125 and 160 channels, respectively, in early 2006. The companies offered 68 and 67 channels, respectively, of commercial-free music, and more than 55 and 85 channels of sports and entertainment programs and car navigation/weather channels.

People who buy the tuners enjoy commercial-free music programming that covers the spectrum of genres from country and folk to rap, hip hop and dance at monthly subscription costs of $12.95 for either companies’ service. Each service also delivers many variations on a musical theme. There isn’t one country channel. There's new country, old country, alternative country and bluegrass. In 2004, Sirius even launched an all-Elvis channel.

In recent years, the content of the services’ non-music channels grew more diverse as rivalry between the two carriers grew more intense. On these channels, which carry commercials, there is plenty of news, sports, weather and entertainment content, much of it provided by well-recognized content partners such as CNBC, MSNBC and Fox News. There are comedy channels, kids’ channels, and conservative talk channels. Sirius offers an NFL channel for exclusive broadcasts of all NFL games. It also broadcasts  NHL, NBA and college basketball games. For its part, XM carries college basketball and football games, NASCAR race coverage, and exclusive broadcasts of every Major League Baseball game.

For motorists, both satellite services in 2004 launched national traffic broadcasts of local traffic and weather reports in about 20 markets. Later in 2004, XM began offering XM NavTraffic service, which delivers traffic information – including accident locations – in real-time to car navigation systems in those markets. Navigation systems display the location and nature of accidents and average traffic-flow speeds on maps that appear on videoscreens. The systems then suggest alternate routes to a driver’s planned destination. Sirius started a similar service in late 2005.

More to Come
If that’s not enough content for you, then both services are planning network enhancements that will increase their channel offerings. Sirius plans late in 2006 to boost its channel selection by 25 percent without using audio-quality-reducing compression techniques.

For its part, XM plans to acquire about ten MHz of new spectrum to complement its existing 12.5 MHz of spectrum, but as of early 2006, it hadn’t disclosed when the additional services would be available.

If the acquisition is approved by the federal government, the new services would be available only in 180 of the top 265 U.S. markets, not nationwide, because the spectrum is reserved by federal regulators for land-based services.

One Subscription, Multiple Listening Venues
Initially, XM and Sirius focused on delivering satellite radio to passenger vehicles, but subscribers also have shown a strong interest in listening to satellite radio at home and outdoors.

The initial focus on the car stereo market was natural, given that there are about twice as many registered vehicles (at more than 200 million) in the U.S. as there are households, XM research shows. The satellite providers also believed their services would deliver substantially more value in moving vehicles than in home because digital transmission eliminates multipath distortion and static, which are more likely to be heard in moving vehicles than in stationary homes. The satellite companies also reasoned that commuters and long-distance drivers would appreciate the ability to listen to a single program while traveling through multiple local-radio markets.

On all counts, XM and Sirius were right, yet the diversity of their programming also caught fire in the home and office, the two companies contend. They base their opinion on where subscribers are using transportable plug-and-play (PnP) tuners, which can be connected to existing home and car stereo systems when plugged into home and car docking stations. The tuners also can be snapped into boombox docking stations, which incorporate amplifiers, speakers and a rechargeable battery pack to reproduce programs outside the home and car.

Such versatility overcomes one of the drawbacks of buying separate tuners for the home and car: Satellite-radio broadcasters require a separate subscription for each tuner, although discounts are available to consumers who buy multiple subscriptions.

More Home, Outdoor Options
Because potential subscribers aren’t always stuck in traffic inside their car, satellite companies began in 2004 to aggressively expand the selection of products that extend the satellite-radio experience to the home and outdoors.

Dedicated component-size home tuners appeared for the first time in 2003 from only three suppliers, but in 2006, at least 15 companies planned to offer them. Most are so-called multi-zone tuners capable of distributing two or more satellite channels simultaneously to different rooms of a house. Multi-zone tuners are designed to be integrated with custom-installed, distributed-audio systems, which reproduce music through in-wall and in-ceiling speakers scattered throughout a house. Prices of component-size tuners start at less than $219.

In 2005, home options proliferated with the introduction of the industry’s first satellite-ready AV receivers, HTiB systems, stereo music systems and tabletop radios. These were all XM-ready devices that control outboard XM tuners that are so small that they fit inside a standard palm-size XM antenna. Plug the $49 antenna/tuner combination into an XM-ready home audio device, and you can use the device’s remote control or front-panel controls to select satellite channels for playback through a menu appearing on the device’s front-panel display or on a connected TV screen. Satellite-radio program information, including song title and artist name, also appear on the device’s front-panel display or on the TV screen.

In 2006, at least 13 suppliers planned to offer XM-ready home audio products and boomboxes, and a greater selection of products was expected to be available at more affordable prices. In 2006, XM-ready A/V receivers will be priced as low as about $229, with HTiBs expected to sell for as low as $249. XM-ready compact music systems were to be available at prices less than $100, and XM-ready boomboxes were to be available for as low as $79.

In late 2005, the first XM-ready boombox appeared in stores and was expected to face multiple competitors in 2006. A timetable for Sirius-ready boomboxes hadn’t been announced by early 2006, but the first Sirius-ready home audio products are expected to appear on store shelves in 2006 from at least two suppliers. One of the products would be the industry’s under-cabinet CD/radio for kitchens.

For people who like the outdoors, multiple brands of boombox docking stations are available for satellite-radio PnP tuners. These battery-operated amplifier/speaker combinations come with carrying handles and slots that accept PnP tuners, which also can be docked with home and car audio systems. Boombox docks start at prices of about $99, excluding tuner.

Two-in-one
Sometime in 2007, consumers might be able to buy the first home audio products and boomboxes that give them a choice of connecting either a Sirius or XM tuner/antenna combination. These products will give consumers more flexibility in buying home audio products and boomboxes, but consumers will have to wait until sometime in 2007, at the earliest, because of contractual obligations between XM and suppliers of XM-ready products.

Meantime, multiple aftermarket car audio suppliers have begun offering “satellite-ready” CD-receivers promoted as controlling either an outboard Sirius tuner or outboard XM tuner. The first such products were launched in 2005 by one aftermarket company, and it was to be joined by three other aftermarket companies in 2006. Adapters are available for other aftermarket XM-ready or Sirius-ready CD-receivers to make them compatible with the competing service.

Seven automakers also give consumers a choice of services.

Next-generation Mini Tuners
In 2006, the next generation of satellite-radio technology will appear to make it more possible for consumers to listen to satellite radio through multiple products without buying additional tuners – or paying an additional subscription fee for each additional tuner.

New XM mini tuners, about the size of a nine-volt battery at 1.3x1.65x0.44 inches, can be plugged directly into slots in new home and car audio systems and in new boomboxes slated to appear from at least one supplier in 2006. The tuners will be controlled from the audio systems’ user interface.

With a mini tuner, you can take your tuner with you without disturbing the resting place of your home system’s satellite antenna, which you’ve carefully placed inside the house in a spot with the best reception. That’s a major advantage over palm-size antenna with integrated tuner. With these antenna/tuner combinations, you have to relocate the antenna every time you move the combination from one audio system to another inside the house — or when you bring it back inside after using it outdoors with an XM-ready boombox.

Mini tuners, expected to cost less than $30, eventually will replace the now-proliferating $49 tuner/antenna combinations. They also might replace larger and generally more expensive transportable PnP tuners, whose prices start at less than $60.

PnP tuners can be shuttled from the home to car and used in boomboxes, but they’re larger and feature on-board control buttons and displays. PnP tuners can be controlled from an included IR remote, but they can’t be controlled from a home or car audio system’s front-panel controls, from the system’s remote or from a home system’s TV-screen user interface.

Although mini tuners are meant to be inserted directly into an audio device, they are also compatible with existing XM-ready products. You’d plug the mini tuner into a small docking station connected to a home or car audio system, and you’d be able to take the tuner with you without disturbing the location of a separate antenna. These docking stations will cost less than $30 each.

In-door Reception
Whatever type of tuner you use in a house, you might not be able to enjoy satellite radio in some rooms of the house without stringing a long run of antenna cable from the tuner to an indoor antenna located somewhere else in the room – or even somewhere else in the house.

To eliminate inconvenient cable runs, Sirius offers a Sirius/DBS Combiner System that transports signals from an exterior satellite-radio antenna over the same coaxial cables used to distribute satellite-TV signals throughout a house. The satellite antenna mounts onto the satellite-TV dish. For its part, XM offers an in-home, in-building wireless-distribution system that makes long runs of antenna wire unnecessary.

Other indoor listening options are also available. XM delivers its music channels and some talk channels to PCs through the Internet. Sirius delivers select music and talk channels through the Internet. On top of that, XM makes many of its music and talk channels available to DirecTV satellite-TV subscribers, and Sirius makes many channels available to DISH Network satellite-TV subscribers.

Satellite Headphone Stereos
For the ultimate in listening flexibility, consumers could opt for personal headphone-type satellite radios. They first appeared in 2004 from two companies, but in 2006, headphone satellite radios were expected to be available from at least six suppliers.

Some of these models are relatively hefty in size. These models are palm-size rechargeable-battery packs docked with a PnP tuner. The tuner/battery-pack combos retailed for as little as $99 in 2006, excluding PnP tuner.

 Other versions, in contrast, are pocket-sized devices that are “wearable” in traditional MP3 headphone-stereo fashion. They stream live satellite radio but also feature a VCR-like timeshifting function. The recording capability lets you enjoy anywhere from five to 40 hours of time-shifted satellite programming for later playback when you’re out of range of a satellite signal. Several of these models also double as MP3 portables that use flash memory to store and play back music transferred from a PC. Prices of these models start at about $399.

A less expensive option, starting at around $199, is a headphone MP3 player that stores time-shifted satellite programming recorded at home and music transferred from a PC – but doesn’t stream live satellite radio for on-the-go listening. To record satellite programs, these devices must be docked with a home-stereo docking station that receives live satellite programming and reproduces it through a connected home audio system.

Satellite-radio/MP3 Copyright Issues
Consumers are excited about hybrid satellite/MP3 headphone stereos, but the products are agitating the music industry, which is concerned about an exciting new feature offered by the devices. Not only do the portables record satellite programs, but they enable consumers to mark select satellite-delivered songs and recall them for later playback by song title, artist name and genre – just like songs transferred from a PC.

The stored satellite-delivered songs can be played back for as long as a satellite subscriber pays his monthly subscription fee. Once a subscriber cancels service, the songs will be rendered unplayable.

Despite the songs’ potential expiration date, the music industry wants the federal government to intervene to prevent digital satellite radio services from turning into a massive unauthorized, revenue-robbing free-download service. In testimony before Congress in early 2006, Chairman of the Recording Industry Association of America (RIAA) Mitch Bainwol specifically pointed to technologies that allow broadcasts to “to be automatically captured and then disaggregated, song by song, into a massive library of music, neatly filed in a portable device’s digital jukebox and organized by artist, song title, genre and any other classification imaginable in a manner that substitutes for a sale.” (See the Digital Radio Copyright Battle section for more details on the debate, which also includes digital AM and FM broadcasts.)

Other Headphone Options
Although intended for use outside the home and car, headphone-type satellite radios also reproduce satellite programming through home and car stereo systems, thanks to built-in FM transmitters that send the programming to nearby FM radios tuned to a frequency not used by local FM stations.

If you don’t want to carry a headphone stereo around, you can use your cellular phone to tune into select Sirius channels. In 2005, cellular carrier Sprint Nextel began offering 21 Sirius music channels over cellular frequencies to compatible phones for a subscription of $6.95 per month.

Automaker Expansion
Of course, states outlaw the use of headphone stereos while you’re driving a car, so when you’re on the road, you’ll have to opt for one of a growing number of automaker and aftermarket satellite-radio options.

For the motoring public, General Motors became the first automaker to offer satellite radios in November 2001, when it began selling XM tuners in the Cadillac Seville and Deville. For the 2006 model year, almost every automaker in the U.S. offers satellite radio, mainly as a factory- or dealer-installed option. More often than not, the automakers offer only one satellite service, but seven automakers give motorists a choice. They are Audi, Infiniti, Lexus, Nissan, Scion, Toyota and Volkswagen.

All told, XM service was expected to be available in 144 passenger-vehicle models in calendar 2006, and Sirius was expected to be available in more than 90.

In early 2006, satellite radio was available in 56 percent of 2,015 vehicle trim levels, up from 38 percent in early 2005, according to Autobytel, the Internet-based car-buying service. XM was available in 680 trim levels, and Sirius was available in 598. Most of the vehicles were 2006-model-year vehicles, but some were 2007 models.

In most cases, satellite radio is available as an option to new-car buyers, but some vehicles have begun to offer satellite radio as standard equipment. In the 2006 model year, for example, XM is standard in four Acura models, five Cadillac models, two GMC models, four Honda models, two Saab models, one Scion model and one Harley-Davidson motorcycle model.

Another automaker, Mercedes, has committed to offering Sirius as standard equipment in 2006 for all of the 2007-model-year vehicles in its SL class, CL class, AMG and 600 series vehicles. Rolls Royce also offers Sirius as standard.

In addition, satellite radio is available from makers of recreation vehicles, trucks and boats and through car rental companies.

Aftermarket Sales
Aftermarket car audio suppliers are doing their part to popularize satellite radio, selling their products through national and regional retail chains, small mobile electronics specialty stores, online stores and other outlets, including truck stops.

All of the largest aftermarket suppliers offer satellite radio, and their products take multiple forms. One is a satellite-ready in-dash CD-receiver that controls a separately available satellite tuner, which can be tucked away under a seat or behind the dash. Many of these CD-receivers are designed to control either a Sirius tuner or an XM tuner, but in 2006, at least four major companies will be offering CD-receivers that are both Sirius- and XM-ready at prices down to $129. Adapters are available for other XM-ready or Sirius-ready headunits to make them compatible with the competing service.

If you’re looking for a simpler installation, two aftermarket autosound companies each offered a CD-receiver with built-in satellite tuner in 2006.

Satellite for any Car
To add satellite reception to any existing car stereo system, consumers are blessed with multiple options. The most popular option is the palm-size transportable PnP tuner, which can be plugged into an installed car-docking station for playback through an existing car stereo system (and into a home docking station for playback through a home stereo system). The newest PnP tuners feature built-in FM transmitters that beam satellite programs directly into a car stereo’s FM radio over frequencies not used by local FM stations.

If you happen to drive through multiple radio markets with one of these tuners, you might have to change the tuner’s broadcast frequency and re-tune your FM radio to a frequency not used by a local radio station. A wired switching box, however, eliminates this drudgery. It disconnects the car’s AM/FM radio from the car’s AM/FM antenna, preventing interference from stations broadcasting on the same frequency as your PnP tuner.

In 2006, prices of PnP tuners started at less than $50, and car docking kits with antenna usually sold for $39-$49.

For a cleaner, more factory-like look, another option consists of an under-seat satellite tuner, dash-mounted wired remote controller, and a wired FM modulator, which plugs into the car radio’s antenna input. Like the latest PnP tuners, the wired modulator turns a satellite signal into an FM-radio signal that’s reproduced by a car’s existing FM radio. In an advance over wireless modulators, the wired versions disconnect the stereo system from the car’s AM/FM antenna to prevent potential interference from radio stations broadcasting on the same frequency as the modulator.

By late 2004, FM modulated packages with wired controllers retailed for as little as $169, excluding professional installation.

Satellite Surround Sound
There’s a lot more that satellite radio broadcasters can do with their portion of the 2.3-GHz band.

In early 2006, XM became the first satellite-radio provider to launch regular 24/7 broadcasts in 5.1 discrete channels of surround sound using a technology called XM HD Surround, which was developed by broadcast-equipment maker Neural Audio to be compatible with two-channel stereo systems. The formats of XM’s surround-sound channels are free-form and classical pops. XM also broadcasts special shows and live performances in 5.1 from its studios.

To unlock XM’s surround-sound channels to their fullest potential, consumers have to get home stereo products equipped with Neural decoding software. They are to be available in 2006 from at least four home audio suppliers, who planned XM-ready A/V receivers priced down to a suggested $299. These receivers control add-on tuner/antenna combinations priced at around $49.

Neural-equipped aftermarket and OEM car stereos were in development by early 2006. These receivers decode Neural broadcasts from select terrestrial FM stations, including affiliates of NPR, which has recorded and broadcast events in discrete 5.1. Other select FM stations have broadcast programs from time to time in Neural Surround.

Neural-encoded broadcasts can be decoded by existing 5.1 matrix-surround Dolby Pro Logic II and Circle Surround II decoders, but Neural claims its decoder will deliver better separation and stability. For example, the location of a voice won’t be pulled in the direction toward the channel with the dominant music passage, the company contends.

Neural decoders, like the other decoders, also up-mix any two-channel material, including CDs, to 5.1 channels, although the best effects are delivered when an encoded program is decoded.

For its part, Sirius in 2004 began broadcasting select songs on its classic rock channel in Dolby Pro Logic II surround sound, a stereo-compatible matrixed five-channel format that can be reproduced by home and car audio systems equipped with compatible surround decoders. Millions of home A/V receivers are so-equipped, as are a growing number of aftermarket and original-equipment (OEM) car stereo systems, according to Dolby Labs.