Sonos Gets Sirius About Internet Radio

The deal could widen the appeal of Sonos music receivers while helping Sirius win government support for its proposed merger with XM

Sonos is adding Sirius Satellite Radio to its music lineup. In a deal that could widen the appeal of Sonos music receivers while helping Sirius muster government support for a planned merger, the two companies will announce on Aug. 15 the availability of Sirius' Internet radio to Sonos customers.

Starting Aug. 15, owners of the Sonos ZonePlayer will be able to download software that provides access to 80 Sirius channels, including marquee content like Howard Stern and NFL football. After a free 30-day trial, customers who are already Sirius subscribers will have to pay $2.99 a month, while those who are not yet Sirius subscribers will pay $12.95 a month.

The deal comes as Sirius unveils its latest lineup of receivers at an event in New York in the face of renewed criticism from the National Association of Broadcasters against the proposed merger of Sirius (SIRI) and its rival XM Satellite Radio (XMSR) (see, 5/1/07, "An Uphill Climb for XM-Sirius Merger").

Focusing on Content Partnerships

Sonos' ZonePlayers let users play digitally stored music all over the house using wireless networking technology. Aimed at high-end consumers willing to shell out $999 to $1,149 for a starter kit, the ZonePlayer devices connect to existing stereo systems with external speakers and come with handheld remote controls that allow access to a digital music library from any room. But since the ZonePlayer devices are also connected to the Internet via a broadband connection, the company has in the last year focused increasingly on content partnerships with Internet music providers.

Sonos, a privately held manufacturer of hardware used for streaming digital music content around the home, has previously announced partnerships with RealNetworks (RNWK), the company behind the Rhapsody online music subscription service (see, 9/19/06, "A Real Rival for Apple's iPod?"), and with Pandora Media, operators of the streaming music service.

With the explosive popularity of digital music products like Apple's (AAPL) iPod, the sale of traditional stereo systems has been on the decline. Of nearly $10.8 billion spent in the U.S. on home audio products in 2006, $5.6 billion, or nearly 52%, was spent on portable MP3 players such as the iPod and SanDisk's (SNDK) Sansa, according to the Consumer Electronics Assn. That percentage will grow to 60% this year, the CEA reckons. Meanwhile, sales of compact stereo systems, stereo components, and home theater systems amounted to about $2.4 billion and are expected to decline to less than $2.2 billion this year.

Uphill Battle in Washington

Sonos co-founder Tom Cullen wouldn't disclose revenue figures, but said the business is growing fast. The company has sold more than 200,000 ZonePlayers since launching the product in 2005. "We doubled in size last year in an audio equipment industry that is shrinking," he says.

For Sirius, the step may represent an attempt to widen its Internet audience. The company already offers online subscriptions, letting existing subscribers listen online for free from computers. It also offers a high-audio-quality version of programming online for $2.99 a month for subscribers and $12.95 month for nonsubscribers. Sirius doesn't say what percentage of its 7.1 million subscribers are Internet-based, but Troy Mastin, an analyst at William Blair & Co. in Chicago, says that up to now, Sirius's Internet business has seemed more of a sideshow. "It's hard to justify an Internet subscription if you're not already a Sirius subscriber," he says.

Still, boosting its base of Web customers might help Sirius make headway on its plans to merge with XM. The companies need to convince officials at the Federal Communications Commission and Justice Dept. that a merger of the two satellite radio providers won't harm competition. The more Sirius competes on the Web, the more it can argue it's in the running with not only conventional radio broadcasters but with Internet broadcasters, says Mastin. "It might make it appear that the competitive set is broader if you were to define that as a music broadcaster with a potentially infinite number of competitors on the Internet," he says.

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