With the year coming to a close, it's time for that obligatory "end of year" prediction and some fine words of wisdom (with hindsight being 20/20 of course). So here's one of them: 2007 will be the year that the OEM subscriber growth will truly begin to shine.

In 2005, we were obsessed with retail. With good reason of course, because the satellite radio retail market was skyrocketing due to the buzz that Stern generated (as well as the seemingly weekly on-air celebrity contract announcements). So it's no surprise that the focus for 2006 was on retail as well. We were still high off of 2005, with noses-sniffling and teeth-grinding, we were jonesing for just another bump to recapture that feeling from the prior year.

And in the beginning of 2006, retail was doing great (thanks again to the aftershock of Stern's move to Sirius). But then the heavy hand of the FCC came down, causing halts in production for both companies (XM's occured prior to Father's Day, while Sirius' after Father's Day; Sirius clearly benefiting from this maneuver). A combination of this, and the drop in Stern-influenced subscribers, caused the retail market to wane. Anyone who was tracking NPD Group numbers clearly saw that XM was feeling the ill effects of this drop in retail more than Sirius, but the overall effects to the industry as a whole were real. This is no better illustrated than the seemingly weak reaction to satellite radio products this holiday season (though the jury is still out on exactly how bad this month will be).

The reason why the retail market has a significance in this industry is because it theoretically is a measurement of consumer interest in satellite radio. This is true to a degree. When people know they want XM or Sirius, they go out and seek it out at retail. So the obvious example is with Howard Stern fans - they knew they wanted to hear him, so they went out and purchased a Sirius. But satellite radio is an interesting product in that many people don't realize that they want it. They don't "get it" until they experience it. The reason why Stern fans wanted Sirius so bad is because they've been experiencing Stern for 20 years. It's already familiar. A softness in retail doesn't mean that there's a loss in interest in satellite radio, it's an indication that there's not enough familiarity with the product.

So that brings us to the outlook ahead. This year is all but done with (though both XM and Sirius still have a few days to aggressively encourage activations before Monday), and now the focus is on what is to come.

But first, a quick note about year-over-year comparisons. (I'm not stalling, I'm bringing it all together. Keep reading.)

While all this doom-and-gloom seems depressing, it's partially driven by unrealistic expectations and skewed comparisons. Last year was a break out year. An anomaly. The retail numbers simply cannot be considered a baseline that we should compare year-over-year results to (though the tendency is to do so, since this is such a young industry). This year was doomed to "drop" in retail because last year's conditions were simply impossible to recreate.

By this same thought, though with an opposite result, we're going to see rapid year-over-year growth in 2007 for OEM-driven subscriber additions - especially when looking at the percentages. Auto manufacturers are very slow to react to 3rd party changes, with no better example of this than that of Toyota (who likes things to be "just right" for factory installation). As a result, many of the OEM partnerships who signed contracts in the previous years will begin to come to fruition next year, and ramp up steadily for the years to follow.

For Sirius, DaimlerChrysler has promised a 40% overall penetration rate in 2007. Mercedes has promised over 50%, and Audi/VW is targeting over 80% next year. Let's not forget the 21 Sirius-capable models from Ford, BMW's increased penetration and the fact that KIA is going standard with Sirius in 2008.

XM is no slouch when it comes to OEM either. Honda has promised over 650,000 XM units, GM has slated 1.8 million XM units and Nissan has promised 500,000 XM units in 2007. XM will be factory-standard equipment for Acura in 2007, while Hyundai too will offer XM as standard equipment in 2007 (~500,000 units). Oh, and let's not forget about Toyota.

Many of these OEM partnerships have yet to see the light of day, so with the initial phases rolling out in 2007, year-over-year OEM driven subscriber additions with undoubtedly show growth. This translates to "good news" in those easily swayed investment media outlets (translating to stock price increases as the easily swayed investors react to this news).

It's not all peaches and cream of course. As penetration increases, the conversion rate will decrease. XM reports just over 50% of OEM free trial subs subscribe to the service. Sirius doesn't report their conversion rate, but it's most likely similar. As the number of new cars with satellite radio increase (from about 27% this year to around 55% in 2010), you can expect that conversion rate to go down. Craig Moffett, analyst at Berstein, expects the conversion rate to decrease to about 44% by 2010. Still not a bad number, all things considered.

So what of the effect on retail? Retail shouldn't be discounted, but the focus will shift in time. As OEM penetration increases, the need for plug-and-play receivers will drop. Think of plug-and-play receivers like the CD players of yesteryear. Before CD players were integrated in vehicles (a process that took about seven years to reach the same installation rates that satellite radio has achieved in three years), everyone was driving around with their portable CD players plugged into their tapedecks. The Discman was the CD equivalent to the satellite radio plug-and-play receiver. Eventually, as satellite is integrated into cars, we won't need them. 

The retail market, over time, will shift to handheld receivers like the Stiletto and the Inno, to home tuners and to more hybrid devices like the XM Mini-Tuner. Inclusion in other devices, like as part of home entertainment systems, will help keep retail subscribers aloft and going strong. Perhaps both companies will start using an OEM-style strategy for retail (i.e., a free 3-month subscription with the purchase of a satellite-enabled home entertainment system). And let's not forget about the fabled "convergence" of satellite radio + MP3 player + a cell phone (which I'm skeptical about). Who knows what's around the corner for retail - innovation will be a key driver - but it's inevitable that retail's focus will drift away from the vehicle as OEM penetration increases.

So while this fourth-quarter doesn't look to be the bearer of great news, take a look at 2007 and focus on the much larger OEM market. Consider that from a percentage basis, OEM growth will be significant (resulting in good press). Even with the most conservative of estimates, there's still a huge opportunity for both companies in 2007, and the doom-sayers will quickly change their tune.

(...now, about that churn issue.) 

The Pioneer Inno's name is derived from the stem of the word "Innovative."

So it's with a bit of a chuckle, a wink-wink, and perhaps even a jab to the ribs, that we see the Inno as one of PC World's 20 Most Innovative Products of the Year.

Their reasoning for bestowing this honor is the Inno's ability to receive a live XM signal and record/store songs, as well as bookmark them for purchase later.

[PC World] 

Thanks Jessica! 

James Brown, the "Godfather of Soul", who died on Christmas Day, will be honored by XM Satellite Radio all week on Soul Street (ch 60) and The Groove (ch 64).

Both channels will air tributes, including archival interviews with Brown and vintage concert recordings, througout the week. Yesterday Soul Street played a song of his every hour on the hour to pay tribute to the life and music of James Brown.

Brown died of congestive heart failure on Christmas morning in Atlanta at age 73. There will be a public viewing at NYC's Apollo theater where he made his debut. A private ceremony will be held on Friday in Brown's hometown of Augusta, Georgia, and another public ceremony will be held a day later at the James Brown Arena.

If you missed Opie & Anthony on The Tonight Show with Jay Leno last night, you can catch the video below:

[via Bearing Drift] 

Washington Post tech writer Yuki Noguchi and Leslie Walker, dropped by the XM Satellite Radio's headquarters (nicknamed The Eck) for a tour on Monday.

It's a great read of their experiences within the facility which is a century-old renovated printing press where National Geographic and Newsweek were once printed. Their personal account of the tour really illustrates the corporate environment that creates the music and programming we all listen to everyday.

[Washington Post: Post I.T.]
Thanks to everyone who sent this in!

If you're one of those last-minute shoppers who refuses to hit the mall, remember that it's still not too late to get those satellite radios online. And many of the popular online resellers are now offering free overnight shipping so you're gifts will still arrive before Christmas.

Here's a list of satellite radio resellers (in alphabetical order) that are offering free overnight shipping:

• Crutchfield (free Saturday delivery if ordered by 12 noon ET on Friday)
  
• JJI Electronics (use coupon code: "NEXTDAY" to get free overnight shipping)
  
• MyRadioStore (free Saturday shipping if you order before 5pm ET on Friday)
  
• Satellite Radio Superstore (call for Saturday delivery)
  
• XM Fan Store (order by 4pm Central and get free FedEx overnight)

If you know of other resellers that are offering free overnight shipping, go ahead and comment and the list will be updated.

Well it was rumored that this would happen, so it's little surprise that it has: Ron & Fez, the "other" dynamic duo from XM Satellite Radio's The Virus (ch 202), have signed an agreement with CBS Radio.

The deal puts Ron & Fezzy on CBS Radio's WFNY New York lineup weekdays from 6pm-9pm ET.

They begin broadcasting on WFNY immediately. Hopefully Fez will be able to get himself a home now.

[via Radio Ink & AllAccess] 

The Motley Fool has an intriguing article today on why satellite radio may not be selling so well this holiday season.

They raise the question on whether satellite radio is really losing to bigger ticket items like flat-screen TVs and next-gen game consoles; and more importantly, whether satellite radio is a good holiday gift to begin with. The Fool's view is that subscription services are awkward presents. Unless the recipient has expressed the desire to have a satellite radio, you're pretty much unloading a monthly bill on their lap. Last year was easy... got a Stern fan? Buy a Sirius.

"They're little more than fruitcakes with circuitry."

Unfortunately it's a valid point. It's rude to hand over a gift that is only useful if they pay a monthly fee. So both companies don't just have to overcome a mental "conversion" with the subscriber, but they also need to convince the gift giver that "paying for radio" is appreciated by the recipient. That's rough

So it's understandable that both Sirius and XM are pitching three-months of service, plus radio, for under $99. The $100 price-point is attractive to many, and the 3-months ensures that the radios are at the very least activated (unlike last year) and hopefully sampled by their recipients.

But is three months enough? Hard to say, I guess we'll find out in March.

XM Satellite Radio's holly-jolly channel, Holly (ch 103) is being extended through New Years Day.

Now you'll be able to hear contemporary holiday hits, sprinkled in with more traditional favorites, into 2007.

Right now it seems like this is the only holiday channel being extended, but if more follow Holly's lead I'll be sure to post it. 

Thanks Matt! 

Joan Lordi Amble, Executive Vice President and Corporate Comptroller for American Express, has joined XM Satellite Radio's board of directors.

Ms. Amble brings considerable financial expertise and insight to the board as she is responsible for all controllership finance functions across the four major divisions of American Express.

Prior to joining American Express, Joan Lordi Amble served as COO and CFO of GE Capital Markets,  overseeing securitizations, debt placements and syndication, as well as structured equity transactions for General Electric Company business.

Ms. Amble also served as vice president and controller for GE Capital, and as Chief Financial Officer for GE Commercial Real Estate. Prior to GE, she worked for Financial Accounting Standards Board (FASB) and Ernst & Young.

She obtained her undergraduate degree in Accounting from Penn State and attended graduate school at UCLA.