Sirius XM Finds A Way To Increase Revenue

| About: Sirius XM (SIRI)

Sirius XM (NASDAQ:SIRI), the satellite radio provider has proven itself to be quite adept at bringing in revenue. The company now has yet another way to exact even more revenue. The beauty here is that for most consumers it will not even be felt.

A typical promotional subscription to Sirius or XM costs $14.49 per month. This subscription gives a consumer access to either Sirius programming or XM programming (depending on which radio the consumer has). There is an upgraded "All Access" package that includes what is essentially the "Best Of" the other service and also includes access to Sirius XM Internet Radio. The All Access Plan costs about $16.58 per month, or $2.09 per month more.

For quite some time, when a consumer buys a new car that is equipped with a satellite radio, they receive a promotional subscription to either Sirius or XM. These promotional subscriptions typically range in duration from 3 months to 1 year. At the end of the promotional period Sirius XM markets to the consumer to see if they would like to keep the service. About 45% of those that come off of a free trial keep the service.

Last week Sirius XM announced a new deal with BMW that includes a couple of new facets that might have otherwise been lost on investors.

  • The deal expands the promotional period from 3 months to 1 year. This is important because it is guaranteed revenue for 12 months rather than just 3. Remember, 55% of those that are asked to keep the service after a promotional subscription expires say no. Sirius XM has effectively gathered 9 additional months of guaranteed revenue and likely, at the end of the promotional period, will still have about the same level of success in converting the subscriber.
  • The second facet of this new deal that is important is that instead of a 12 months subscription to the Sirius service, it is a 12 month subscription to the better and more expensive All Access Package. This will allow consumers to sample even more top notch programming, while at the same time allowing the company to start negotiations with the consumer at a higher level.

Consider this. The free promotional trial is over and the consumer gets a call. First is the old way, and after that the new way:


Sirius XM - Did you enjoy the service?

Consumer - Yes, how much is it?

Sirius XM - The service you got is $14.49 per month, but we do have an All Access plan with more channels and Internet for $16.58 per month.

Consumer -No, I do not need all of that. Just give me the same as I had during the promotion.


Sirius XM - Did you enjoy the service?

Consumer - Yes, how much is it?

Sirius XM - The service you received was the All Access plan and it is $16.58 per month

Consumer -Ok. That is fine.

Do you see the difference? Sirius XM no longer has to try to up-sell a BMW subscriber. The starting point was established during the whole promotion. Yes, some people will want a lower priced plan, but many simply want the same as they had during the promotional period and do not want to dicker around. Effectively Sirius XM has found a way to gather more revenue by simply changing the start point of the negotiation process.

BMW is not a huge seller of new cars, but buyers are likely not going to sweat the details of the price of the service as much as consumers buying less expensive cars. I feel that this upgrade to a promotional All Access Plan will, over time, become the standard moving forward. This should help the revenue line as well as the bottom line over the next couple of years.

Just when you start to think that the peak of revenue has been established this company finds a way to further add potential. I fully expect the company to phase All Access promotional subscriptions throughout its new car deals and then follow up with adding similar concepts to the used car channel where possible. It is important to remember that not all factory installed radios are capable of getting All Access.

Sirius XM is set to report earnings next week and I look at this as an opportunity for the company to announce good and solid numbers. Hopefully the company will highlight initiatives such as this so that the street can better comprehend the true potential here.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.