One of the keys to winning market share in what is becoming a very heated industry sector will be which company can get its receivers in the hands, or in this particular case, the automobiles of potential subscribers.

The latest deals to be announced in this regard were individual agreements between Toyota and XM Satellite Radio [XMSR] and Sirius Satellite Radio [SIRI] to install satellite radios into Toyota vehicles beginning next year.

On paper, it looks like XM got the best deal from Toyota. According to XM, Toyota selected XM as its supplier for satellite-delivered data services for its Toyota, Lexus and Scion vehicles. Toyota also will be offering XM receivers as a factory-installed option for new Toyota and Lexus vehicles beginning in 2006. In contrast, Sirius said its hardware will only be available as a post-production and dealer-installed option beginning in February 2005.

Wall Street Reacts

Upon the breaking news that each satellite radio services provider signed a deal with Toyota, Wall Street analysts offered some positive comments.

“We believe the deals will be viewed as good news for both companies, as XM was successful in getting factory options, while Sirius begins a relationship with Toyota,” Legg Mason said in a Dec. 7 research report.

The announcement “gives us another vote of confidence in the potential for the satellite radio industry,” Janney Montgomery Scott LLC said in a Dec. 7 report. The report added that it put Sirius on “equal footing with XM for the moment” in regard to Toyota offering its product since the auto manufacturer had, up until the announcement, been offering XM receivers as a dealer-installed option.

Bear Stearns reported Dec. 7: “this factory installation deal for XM is a big win for the company. However, equally important, we think that Toyota adding satellite radio to its offering underscores the validity and bright future of the industry.”

A casual observer could look at both Sirius’ and XM’s press releases and gain a sense of which deal was more important to Toyota by how Toyota was represented in each of them. In XM’s release announcing the deal, David Danzer, group vice president of product planning at Toyota Motor Sales said, “This agreement with XM is a key element of our plan to deliver industry-leading data services and programming as factory-installed features in our Toyota and Lexus vehicles.”

On the flip side, Sirius does not even get the benefit of a pre-packaged comment from someone at Toyota and has to rely on a quote from Greg Penske, president of Penske Automotive Group and owner of the largest Toyota dealership in the United States to tout the deal. In the Sirius release, Penske said “Penske Automotive Group and Sirius are 100 percent committed to making Sirius the satellite radio provider of choice for Toyota customers throughout the country.”

But beyond such surface level analysis, as more details came to light following the deals announcements, XM’s position as the winner became much clearer. According to a Dec. 8 follow-on research report issued by Legg Mason, based on its conversation with Toyota execs, “Toyota’s factory install and data services deals with XM are exclusive in long term agreements; so Sirius radios can only be port or dealer installed and its advanced services cannot be provided even in Sirius radios over that term.” Legg Mason said it believed the term to be at least five years.

Legg Mason goes on to suggest that Sirius was able to get onto the Toyota dashboard because of its relationship with Penske, as Penske has an exclusive deal with Sirius. The company noted that it expects Penske dealers, which it says accounts for about 5 percent of U.S. Toyota sales, to likely push Sirius radios due to special incentives, “but other dealers are less likely to do so given the extra cost associated with such orders and the fact that some Toyota vehicles will already have XM built-in beginning in 2006.”

At the end of the day, this set of deals means that satellite radio is for all intents and purposes available through either dealer or factory installation in addition to other aftermarket options. That availability on the dealer level lends a significant amount of credibility to the industry as a whole.

(Robert Peck, Bear Stearns, 212/272-6665; Alden Mahabir, Janney Montgomery Scott, 646/472-5216; Sean Buston, Legg Mason, 410/454-5917)