Jenny Neill assesses the satellite radio broadcaster's chances of becoming the largest telematics service provider in North America.
In this day and age, anything satellite seems like an anachronism, unless you live in some remote corner of the Earth, in which case having news and information beamed to you from space is still your only option. Not so in North America, where more than 25 million people are happy to spend $14 a month to listen to satellite radio, mostly in the car.
Now Sirius XM Radio (SiriusXM), the company that controls this lucrative market with two satellites covering the entire United States, two thirds of Canada and two thirds of Mexico, wants to become one of North America’s largest telematics service providers (TSPs).
The initial announcement, which was made in June at Telematics Detroit 2013, centered around the company’s plans to use its single-cell, six-megabit satellite broadcast technology to deliver over-the-air software updates to connected vehicles. And it was greeted with skepticism.
SiriusXM was too late to the game, argued some. “Connected services is a crowded field, and there is a food chain that includes equipment suppliers, information gatherers, information amalgamators and information distributors,” said Barrie Kirk, Partner at Globis Consulting.
Everyone wants to be the hub, and few will succeed, was another argument heard among the 1,800 or attendees to the flagship Telematics Update conference.
SiriusXM grows up
But that was before SiriusXM’s eye-popping, $530-million cash purchase of Agero’s connected vehicle services business unit. Overnight, the deal, which was announced last week, makes SiriusXM provider of connected services to more automotive manufacturers than any other telematics provider in the United States. They include Acura, BMW, Honda, Hyundai,
Still, a degree of skepticism remains. For one thing, it is not clear how many of the 75 million vehicle owners Agero claims to serve actually fall under the connected vehicle services business unit that SiriusXM acquired.
“The challenge is whether or not Agero currently has the responsibility for or control of the data services or whether this is handled by another telematics service provider,” says Roger Lanctot, associate director, automotive multimedia & communications service, Strategy Analytics. “The typical OEM implementation has multiple telematics service providers for such things as voice, data, call center, traffic information, weather, etc.”
Another challenge is for SiriusXM to successfully leverage its own and Agero’s relationships to achieve economies of scale across multiple OEMs that could use the same or similar hardware, according to Lanctot. “This is a very big challenge – maybe you could call it a gamble,” Lanctot says.
SiriusXM’s plan to dominate the TSP space in North America is simple enough: leverage the company’s deep knowledge of consumer behavior, far-reaching satellite coverage and experience working with OEMs to help carmakers and partners earn a profit. And it has a number of things going for it, in addition to Agero’s connected vehicle services business.
It has been delivering digital content on more than 175 channels to cars for years. Its hardware is factory-installed into approximately 70% of all cars shipped to North America – out of those, almost a half become subscribers. And no North American mobile carrier can guarantee 100% coverage in rural areas either. “They have a unique position in the market because they have satellites which can reach the entire country with a single signal,” Lanctot says.
Still, competition is going to be tough. Mobile carriers are also well-versed in subscriber behavior. Terrestrial networks are less expensive to operate. And, while not available everywhere, LTE coverage in the United States is growing fast, with Verizon and AT&T already deploying small cells to address service reliability issues in urban settings.
What's more, the potential competitors are no lightweights. They include OnStar, a subsidiary of General Motors, which signed a multiyear contract with AT&T that included access to the mobile provider’s high-speed digital networks, and Verizon, which bought Hughes Telematics last year to cement its leadership in bringing LTE connections to passenger and commercial vehicles.
Finally, SiriusXM’s ultimate success hinges on whether it can introduce a new telematics box that will include both LTE and satellite radio modules, and thus allow the company to establish a two-way communication link with the connected vehicle, a must-have for the delivery of interactive content.
SiriusXM CEO, Jim Meyer, has issued statements suggesting a 2017-18 timeframe for the new box, although it could be sooner.
In many ways, skepticism is nothing new for the now 23-year-old satellite radio company, which in 2008 merged with its biggest competitor, and survived numerous legal challenges and a brush with bankruptcy.
One throat to choke
Speaking at Telematics Detroit 2013, Stelios Patsiokas, the chief innovation officer and corporate vice president of SiriusXM, said the company aims to get traction by addressing two key problems for OEMs: providing coverage where cellular networks fail and acting as a one-stop shop for product and service delivery.
SiriusXM will essentially become the missing-link vendor for OEMs who, Patsiokas quipped, “want ‘one throat to choke.’” He went on to assert: “This is Sirius XM. By understanding and having these relationships with the OEM, we’re going to insert … ourselves through the entire ecosystem.”
Perhaps the biggest advantage Sirius XM brings to its “one throat” quest is the knowledge that the company has amassed on in-car infotainment subscriber behavior, as well as its ability to grow its subscriber base. On a July 25 earnings call, CEO Meyer said that the second quarter resulted in 715,000 net subscriber additions, marking for the highest quarter of subscriber growth since Sirius and XM were combined in 2008.
Another sign that the company has matured is that “while they’re pursuing this strategy, they’re porting their content over to IP delivery via LTE,” Lanctot says. “They’re hedging their bets even while they’re pursuing this proposition and preserving the existing feed.”
No TSP is an island
This, of course, cannot be done in a vacuum, and Patsiokas said as much at Telematics Detroit: “We’re not going to do this in a vacuum; we’re not going to reinvent the wheel; we’re going to partner with anyone that fundamentally invested in this technology; we’re going to filter out the better ones from the good ones … we’re going to go ahead and invest and develop that technology ourselves.”
Last fall, Nissan North America announced it selected SiriusXM to provide telematics services like stolen vehicle tracking and emergency support for accidents. Part of the value proposition for Nissan customers will be a “central site to manage subscriptions” and “a consolidated bill for audio entertainment.”
Add to that last week’s announcement with Agero, and it becomes clearer just how serious SiriusXM is.
Jenny Neill is a regular contributor to TU.
For all the latest telematics trends, check out V2V & V2I for Auto Safety USA 2013 on July 9-10 in Novi, MI, Insurance Telematics USA 2013 on September 4-5 in Chicago, Telematics Russia 2013 in September in Moscow, Telematics LATAM 2013 in September in Sao Paulo, Brazil, Telematics Japan 2013 on October 8-10 in Tokyo and Telematics Munich 2013 on November 11-12.
For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.