On April 2, 2005 XM will increase their monthly subscription fee by 23%. Their, very matter of fact, letter states that they have made “dramatic improvements” to their channel lineup. These improvements include 50 new channels, like: ACC, PAC-10, and Big Ten college football and basketball and traffic and weather channels covering 21 markets. Will having the ability to hear a college football game or knowing the weather and traffic conditions in Des Moines improve my XM experience here in midtown Manhattan? No, but I wasn’t asked. Would I have preferred to pay 23% less and give up traffic reports I will probably never use – again, I wasn’t asked.
So the strategy for XM is identical to cable television; more stuff, higher fees. On satellite radio, this strategy may well fail. In your car, as in your home, you have entertainment choices. If satellite radio becomes too hard to navigate or too fragmented or too expensive, your iPod or personal music choices will prevail. For information services, the Internet and some version of cell service, WiFi or WiMax are coming soon and competition for share of mind inside your automobile will be fierce. CE companies want your entertainment choices to start in your living room, Computer companies want those choices to start at your desktop. Technology notwithstanding, they all want a share of your wallet.
I am not suggesting that XM shouldn’t raise their prices. They should charge the highest price the market will bear. And, this may be the best strategy. Conventional consumerism says that people will pay more for more. But, the answer here may be counter-intuitive. Will consumers want a system that offers more programming than XM’s arch rival, Sirius Satellite Radio does even if they can’t use or don’t need the channels? Or, is this a gigantic inverted price war between two lemonade stands where the cost of lemons goes up and up and the price of lemonade must follow.
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