How Sirius Can Ensure Success for the New iPhone App

Investors and consumers of satellite radio are anxiously awaiting the Sirius XM (SIRI) iPhone application. Talk of a relationship with Apple (AAPL) has been on the minds of satellite radio fans for years. Each year as the MacWorld event approached, speculation would arise about a possible announcement of a great new partnership between Apple and either Sirius or XM, and each year, satellite radio fans would be disappointed.

Finally, Sirius XM is going to be launching an iPhone application. There is a lot of speculation about what this will mean for consumers as well as investors. With a weak OEM channel, and a sluggish economy, there is potentially a lot riding on this soon to be launched application.

Properly marketed, this application can help the bottom line in many ways. However, in this economy, even the best marketing plans are challenged when it comes to separating a consumer from their dollars. Thus, what can Sirius XM do to ensure massive exposure with this application? How can they make sure that as many people as possible get exposed to the service? Perhaps the best way is the simplest…

Give It Away For Free

I know the consumers are happy with that, but the investors may well be scratching their heads. Let’s consider the OEM model of attracting subscribers. When a consumer buys a car, they get 3 months of satellite radio free. Why not offer a free three month trial for the iPhone application?

Yes, it will push off potential revenue for a few months, and will have costs because of royalties, but free will bring many more people into the door than trying to sell a subscription, and at this point getting the most exposure is probably the most important factor. In addition, the “free” strategy does not have to go on in perpetuity. If it does not deliver results, the company can go back to the standard model.

As we are already aware, services such as Pandora, Slacker, and IheartRadio are among the most popular application downloads. Just the simple fact that these downloads are popular gives these companies added exposure on the web, and generates more downloads. With my Blackberry, I always refer to the “popular” applications, and often download them. Users of the iPhone are no different. By offering three free months, Sirius XM will get its share of that “popular” page.

Services such as Slacker and Pandora are competing for the same listeners and fans. If Sirius XM is able to demonstrate that it offers something that those services can’t, in the form of live content, news, sports, and talk, they will be able to demonstrate to the consumer why there is value in getting a subscription.

Part of the business model for Internet radio services is the “up-sale”. They get you using the free portion of the service and liking it. You then get “up-sold” to getting a subscription for even more benefits. The key to accomplishing an “up-sale” is having a customer in the first place. This is why a three month free promotion may be the best way for Sirius XM to market its service. Customers will enter in the door via the free promotion, and then up-sell them to a full subscription. Even if the take rate is 30% (as compared to an OEM take rate of 45%), it will be a substantial boost to the company going forward, because aside from more expensive royalties, the costs associated with the application are much more cash flow friendly.

Whether Sirius XM has this in mind for its launch of the iPhone application is unknown. What is known is that the company needs to make a splash with this from BOTH a consumer as well as investors perspective. Look for the iPhone application to be launched in Early June.

Position: Long Sirius XM Radio, No Position Apple.

Comments

[Neal Barkett:]

As I posted on this article @ Sirius Buzz, I think it's a great idea. You'll reach more potential customers and w/ the great content that's the bottom line. The more access to Sirius Xm the better. That's another reason to turn on all the idle radios w/ a free commercial based "limiteded" format. The simple idea is to try to raise advert. dollars and more important give a taste of the great content of Sirius Xm out there so create more opportunities to bring people on board as paying subs. You would automaticly be reaching 10 - 20 million people and that is what they call "marketing"! If you believe in your content/product, why wouldn't you want to get it out there to as many people as possible. God knows there is no marketing strategy, unless they are using "The Stealth Marketing Technique". They may think it's out there but it's not on anyones radar.

May 21 09:45 AM

[ScroogeMcduck:]

They could also generate more income by advertiseing on the app like pandora does.

May 21 11:07 AM

[woodcutterron:]

Magna, folks have been able to "customise" their music easily since the invention of the Cassette recorder, and it didn't kill radio. Think before your type please . . . .yawn.

Personally, I don't see any advantage to 90 days that 30 days couldn't do: Show off the service.

May 21 02:35 PM

[dead elvis:]

Customise FM?-Would be equal to sorting thru your garbage in you can- to make it more attractive- a new oxymoron here!

Two for Thursday Magna Billy Carta-we'll be right back after these 10 commercials-............. has the time to "customise"????-

Just work harder pay the money and enjoy the good stuff sirius provides

oh hum...............Pand...


On May 21 11:29 AM Magna wrote:

> Sirius and XM are already dead, they just don't know it. Free Pandora
> which allows the user to customize the music they hear is a much
> better deal. When Apple adds bluetooth the user can broadcast to
> thier FM radio while travelling. End of story for satellite.

May 21 02:51 PM

[an american:]

because people actually "want" to listen to FM commercials ... lol


On May 21 11:29 AM Magna wrote:

> Sirius and XM are already dead, they just don't know it. Free Pandora
> which allows the user to customize the music they hear is a much
> better deal. When Apple adds bluetooth the user can broadcast to
> thier FM radio while travelling. End of story for satellite.

May 21 02:53 PM

[holdon:]

418047, is that why i just added another another sub. ( 2 now) and upgraded to best of ?
it's here to stay!
i love the service and i'm a confident investor,i've never sold a share , i've only added.
right now this stock @ .35pps is a gift!

May 22 02:08 AM

[cos1000:]

I don't know that giving away the service for three months is all that great an idea.... Yeah it gets the "free loaders" exposed to the service but, where's the hook? In the end the company needs paying customers in order to succeed and their are ways to get those iPhone users to subscribe... How about this...

1. Existing SXM Subscribers get the app for free and thanks for being our customer. They can use their existing internet feed at the 2.99 rate to cover the royalties.
2. New iPhone purchaser / customer gets 3 months free, with apple paying a reduced sub rate to SXM, say 1/2 price for the "Promotional Sub", helps get more Apple subscribers to their products... Sign up after that and 15 months for a year and we credit the app cost back....
3. Existing iPhone / Apple customer, pay for the application and get 60 days free... Sign up for month to month get an additional month free after 6 months and we credit the App Cost.... Other incentive plans available for longer terms...

I am not saying these are the only way to go but, the Content needs to maintained as the "Gold Standard" for audio entertainment just like Apple products are to their users. You just can't just give it away without some commitment from the consumer.. All the company needs is another group of "free loading" Bashers, who refused to sign on after the trial period because they were too cheep, I mean couldn't afford the service and are now preaching the glory of the "free services" like Pandora and Slacker with even louder voices... Also don't cheapen the content by running commercials... run the same premium content in all promotional periods, with only Up Sell advertising for SXM....

Free services like Pandora won't be around if they include expenses on their income statement called Royalties Paid to Artists... It's only a matter of time before their business model gets an adjustment to it and they won't be free either...

May 22 04:09 AM

[woodcutterron:]

> PEOPLE DON'T WANT IT
> LET THAT SINK IN . . . . . . . . . .well . . . .except for the 18 million folks who want it, heheheh.

May 22 04:11 PM