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Sirius Satellite Radio Inks VW-Audi Deal

By Reuters
Published | Updated

NEW YORK – Sirius Satellite Radio Inc. (SIRI) will be the exclusive provider of the pay-radio service to automaker Volkswagen AG's namesake brand and its premium Audi AG affiliate, starting with the 2007 model year, the companies said on Friday.

Sirius, No. 2 in the nascent nationwide radio market to XM Satellite Radio Inc. (XMSR), said Audi had previously offered both services.

Audi, in a separate statement, said it selected Sirius to reduce complexity in dealer ordering.

Both Audi and Volkwagen will offer Sirius through 2012. Terms of the agreement were not disclosed.

Volkswagen, the world's fourth-largest carmaker, expects to equip about 80 percent of its vehicles with Sirius radio receivers.

Volkswagen will offer customers three free months of Sirius radio. After that introductory period ends, consumers can choose to continue the service, which typically costs about $13 a month.

XM spokesman Chance Patterson said the expense of pursuing deals with these automakers was not worth the return.

"XM has long-term agreements with Toyota (TM), General Motors (GM), Honda (HMC), Nissan (NSANY) and Hyundai Corp. We evaluated the VW-Audi deal and determined the significant cost didn't justify the limited volume of vehicles produced," he said.

Automobiles are a major source of subscriber growth for the two radio providers. Sirius has long-term agreements with DaimlerChrysler (DCX), Ford Motor Co.(F) and BMW, and consumers can also have radios installed by local dealers or purchase portable units.

Germany's Volkswagen is Europe's biggest automaker, but in 2005 it produced only 1.8 percent of the automobiles sold in the United States.

Sanford Bernstein analyst Craig Moffett said that while the total number of cars involved in this new deal is relatively small, the pact may ultimately be positive for both XM and Sirius, because of the high percentage of units that will install the radios.

"This signals that Volkswagen believes that there is enough demand for satellite radio ... for it to put satellite radio in a very high proportion of its cars," he said in a note to clients. "It is yet another data point that indicates that ultimately the percentage of new cars that will have satellite radio installed is higher than consensus expects.."

Shares of Sirius climbed 4.7 percent to $4.72 on Friday on Nasdaq, while XM shares slipped 1 percent to $19.97.