New services and products unveiled by the two U.S. satellite radio service providers – Washington-based XM Satellite Radio [Nasdaq: XMSR] and New York-based Sirius Satellite Radio [Nasdaq: SIRI] — could help them grab fence-straddling subscriber prospects.

But the key to success for both companies is their music channels intended to entice people who cannot satisfy their tastes on traditional radio, said Bruce Leichtman, president and principal analyst with Durham, N.H.-based Leichtman Research Group. Leichtman, who has conducted extensive market research in the satellite radio industry, said officials of both XM and Sirius seem to recognize that their core business is providing music and other programming.

“It’s not about the new products yet,” Leichtman said. “There is still so much opportunity out there for satellite radio in its core product of selling music to people who have long commutes.”

The potential market is much greater than the 1.5-million subscribers that the satellite radio operators collectively have tapped thus far. With 200 million vehicles in the United States, all the two companies need to do is to tap 10 percent of that prospective customer base to amass 20 million subscribers, he explained.

“I think the opportunity is there to do so much greater than that,” Leichtman said. To market products, the standard approach is to build sequentially with awareness, intent, interest and purchase, he added.

At the 2004 Consumer Electronics Show (CES) in Las Vegas earlier this month, XM and Sirius rolled out a bunch of new satellite radio services and products. One promising niche service is providing local weather and traffic information. Both XM and Sirius independently demonstrated proprietary weather and traffic services at CES.

XM is preparing to launch 21 channels – each one focused on providing timely weather and traffic information to a major city for no additional cost. Sirius, however, plans to charge a fee for its three-tiered weather and traffic service, ranging from simple information to advanced information and, ultimately, to personalized information.

The Sirius “simple” tier is expected to provide regional information about driving conditions, using text messages displayed by the Sirius radio units. The “advanced” tier would provide a fully integrated navigational system, graphically displaying traffic flow and data about accidents and construction. The system would graphically show alternate routes to a destination. The “personalized” service would offer local weather reports and provide predictive information based on real-time traffic to inform a driver about the best time to leave for work or a game.

“Traffic, combined with a navigational system, has always been the Holy Grail of driving enthusiasts,” said Larry Pesce, senior vice president of product development and strategic planning at Sirius. “With our tiered service offering, drivers will be able to enjoy the benefits of traffic information with or without a navigational system.”

Sirius also plans to offer a suite of data services as part of the satellite radio service package at no additional charge. Additional hardware would not be required for Sirius subscribers to access these data services — sports scores and financial information.

Sport score tickers would be broadcast on the company’s sports channels. The text-based financial information would feature key market indices and actively traded stocks. A stock quote would be shown for 10 seconds before it moved onto the next set of ticker symbols. Indices would be rotated with no more than 20 minutes delay.

“As a premium service, we felt it was necessary to provide our subscribers this added benefit to their Sirius experience at no additional cost,” Clayton said. “We will not stop at just sports scores and stock tickers, but this is an excellent first step to offering our subscribers an enhanced entertainment experience.”

At CES, XM also introduced a new wireless FM audio adapters for its Delphi XM SKYFi and Roady product lines. The SKYFi and Roady audio adapters, with MSRP of $29.99 each, deliver XM to any car equipped with an FM radio. These accessories plug into a vehicle’s cigarette lighter. The adapters then wirelessly transmit XM to a vehicle’s FM radio and provide power to the receiver.

XM also is aiming to expand its presence in homes by introducing the Roady home adapter, with a $39.99 MSRP. The home adapter connects the Roady to a home stereo or a set of powered speakers.

Also at CES, Delphi announced the introduction of the Delphi CD audio system as the first AM, FM, XM, CD and MP3-capable boom box. With an MSRP of $179.99, this product delivers XM programming through the Delphi XM SKYFi receiver priced at $99.99. The SKYFi is the best-selling satellite radio in its category with more than 500,000 units produced since its introduction in 2002, XM officials said.

XM also is enhancing its aftermarket car stereo product line with the recent introduction of the XMCommander, priced at $159.99. That XM radio works with any AM/FM car stereo, regardless of the brand. The XMCommander, distributed by Terk Technologies, has a two-line display and uses the smallest satellite antenna available. The device is intended for consumers who own luxury cars and want a sleek, elegant-looking system.

Last month, Alpine Electronics introduced the industry’s first in-dash stereo head unit with a fully integrated XM radio, along with AM, FM, and CD functions. This new receiver eliminates the need for a separate XM tuner box.

–Paul Dykewicz

(Bruce Leichtman, Leichtman Research Group; Jim Collins, Sirius Satellite Radio, 212/901-6422; Chance Patterson, XM Satellite Radio, 202/380-4318; Steve Blum, Tellus Venture Associates, 831/582-0770)