Sirius XM Radio (SIRI) has often been criticized for its lack of marketing. The company is still supporting two separate brands - Sirius and XM - rather than a single recognizable brand more than four years after the merger of the two companies. It also hasn't done a very good job of promoting the brand and the website isn't particularly user friendly or easy to navigate.
I must have seen GM's Buick Verano commercial featuring Denver Bronco's quarterback Peyton Manning a dozen times before I realized Peyton was also promoting Sirius XM Radio's satellite service. It's the commercial where Peyton is driving the Verano while calling signals to the OnStar voice activated service, phoning "Papa Bear" to let him know he's going to be late and changing radio stations. I have become so used to thinking of Sirius XM as either "Sirius XM" (the designation preferred by Seeking Alpha in its articles) or "Sirius," I didn't realize Peyton was using voice activation to choose channel 60 on his XM radio as he was yelling out "Tune XM 60, Outlaw." I thought he was calling an audible at the line of scrimmage. After watching it a few more times on YouTube, while paying somewhat closer attention, I also caught the Sirius XM reference towards the end when the screen is filled with lease rates and disclaimers for a few seconds.
It's not just the lost opportunity of greater exposure that's troubling. CFO David Frear has referred to the company as a "large scale" direct marketing company:
Yes, it [investing in customer service] is most of what drove the increase [in costs]. When you think about the business we're running that we are sort of a fairly aggressive and large-scale direct marketer, right? We get all these names from auto dealers and from auto companies about who's bought new and used cars, and then we market to them with a variety of campaigns that are all oriented towards driving people to contact us, whether they come onto our online account center and serve themselves across the web or whether they call into the call center or are part of our outbound telemarketing campaigns that we have, as you should expect the customer service and billing costs to continue to rise as we continue to sort of grow the funnel of opportunities that we're after and grow the customer base that we are serving.
When I think of aggressive large-scale direct marketing companies, I have visions of late-night television info-mercials. There is Bowzer of Sha Na Na hawking Time-Life song collections, or older folks might remember Ronco products like the Veg-O-Matic or the Popeil Pocket Fisherman, or even the Ginsu knives... These infomercials are the epitome of direct marketing. Good or bad, at least America became aware of the products. How many were aware that Peyton Manning was tuning into his favorite Sirius XM station?
It's not as though Sirius XM isn't spending a lot of money on marketing. It spent nearly a quarter of a billion dollars last year, up 12% over the prior year. And that doesn't include the customer service expense Frear was referring to, which is part of a separate line item - Customer service and billing. It totaled nearly $295 million.
In previous articles, I discussed the size of the Sirius XM used car initiative and its importance to continued share price appreciation. Sirius XM has acknowledged that its current efforts with used cars fail to capture a large portion of the used car transactions. At a conference earlier this year Frear stated:
So for new car production we know exactly what's selling. But the used car market, 30% of it is private transaction, I sold a car to you, right and that doesn't get reported to us, and then there is a lot that are sold through independent dealers, we are trying to capture as much information as we can.
...We have over 8,000 dealers that have now signed up so that they send us their sales transactions and we in turn give them a free 90 day trial for their customer to the service. That's beginning to generate a lot of - what I characterize as hot leads, right. You really want to know who bought the car, you want to know quickly. And then we want to put them through what's been a very well-tested, well-proven direct marketing methodology that we have been employing in the new car segment, we want to roll it out to used cars.
Those 8000 used car dealers represent about half the used car dealers in the US.
Sirius XM has become increasingly dependent on the used car market for growth and has initiated a program to capture some of this potential market. However, there remains a large percentage of the used car market that is falling through the cracks - the 30% of sales that take place in private transactions and the sales that take place through used car dealers that are not yet in the program. And the buyers of those cars don't get a free trial, don't get incorporated into the Sirius XM direct marketing campaign and may not even know about the capabilities of the product sitting idle in their dashboard. It is a squandered opportunity.
Perhaps, the company could use a spokesperson on a late-night TV info-mercial to help create brand awareness. Ron "But wait, there's more" Popeil is still around. So is Bowzer. And, I hear that super-salesman and former Sirius XM CEO Mel Karmazin might be looking for a job...
Additional disclosure: In addition to my long positions, I have January 2014 $3.50 covered calls written against many of my long positions in Sirius XM. I also trade blocks of Sirius XM on a regular basis.