'Free' Should Not Be a Sirius Business Model

by Brandon Matthews

There was chatter Thursday on the Satwaves Forums regarding perceived benefits of Sirius XM (SIRI) offering free trials and free Internet streams with the debut of their soon to be announced iPhone and iPod applications.

AM and FM radio is free, and yet 15 to 20 million people have fled that platform in favor of Sirius XM’s subscription based service. As the recent releases of Sirius XM’s Memorial Day weekend lineups have demonstrated, the service is simply superior to traditional radio.

In my opinion, providing free trials or similar free Internet streams will provide the company no benefit whatsoever, be they long term or short term. In fact, any current subscriber who happens to also own an Apple (AAPL) iPhone or iPod will gain the incentive of canceling their paid subscriptions to Satellite Radio in lieu of a free, albeit limited Internet offering available on this new medium. Consumers know how to save money, and even 3 month suspensions of service will hurt Sirius XM’s bottom line at a time when profitability is job one.

The application itself should be free, yet require a subscription to be useful.

The simple fact that Sirius XM’s exclusive content such as Howard Stern, Oprah, Opie & Anthony, Bubba, Martha Stewart and Chris “Mad Dog” Russo may be heard by way of these Apple devices, will drive new subscribers who do not need to purchase new equipment.

Content offerings such as these could be available on over 30 million devices, and will make Sirius XM more attractive to users already in OEM promotional periods, by adding value at the point of sale to owners of Ford (F), GM and Chrysler vehicles as well as the import lines.

Offering free music streaming requires royalty payments to be made whether a fee is charged or not. Where would the money come from for free Internet music offerings? Eventually, existing consumer prices would have to be raised to pay for any free trials offered, and a further loss of paying subscribers would result.

Free is not a business model. You get what you pay for.

Position: Long SIRI

Comments

[User 321:]

Get Sirus.......Then how come this stock can't make a penny all weeK.

May 22 01:36 PM

[c smith:]

I failed to re-up my Sirius subscription 6 months ago when my one year of "free" service expired. Much to my surprise, I continued to receive ALL the SIRI channels which carry advertising. Bottom line: they've guaranteed a certain number of listeners to their advertisers, and must deliver.

May 22 02:03 PM

[User 321:]

Sorry to say that "Another Screen Name"is correct. It doesn't matter if this company is a monopoly, has 15 million subs, a foot on the car industry,Howard Stern,and 600 Million dollars,....They can't make anything happen. Right Mel?........... Man, somebody is really getting rich in this company. 1 penny....this stock could not make 1 penny all week. This is my last post. I can't stand it anymore.

May 22 03:32 PM

[jmsithy:]

Where were you for the short squeeze on Wed when this was up by .38


On May 22 03:32 PM 123455 wrote:

> Sorry to say that "Another Screen Name"is correct. It doesn't matter
> if this company is a monopoly, has 15 million subs, a foot on the
> car industry,Howard Stern,and 600 Million dollars,....They can't
> make anything happen. Right Mel?........... Man, somebody is really
> getting rich in this company. 1 penny....this stock could not make
> 1 penny all week. This is my last post. I can't stand it anymore.

May 22 03:50 PM

[cos1000:]

WOW this place has really turned to shat..... not an intelligent Basher among them... no comments about the merits of the article, just a bunch of idiots saying things like: " why pay for what I get for free"... and saying: "he spent a Billion to get that 605M" Geez, thanks for the detail on the financial situation Einstein.....

This is exactly why they should not give away their content.... and I agree that "Free" should not be SXM's business model.... All free does, without a hook, is give rise to Bashers like these idiots, saying how they tried it, didn't like it, Pandora and Slacker are better, and why should I pay SXM for what I get for Free..... The Company will only damage itself by providing these "Free Loaders" and opportunity to listen for nothing and then Bash from their experience.... No Thank You.....

There are many ways to create opportunities to give Free Trials while getting an upfront commitment from a potential longer term consumer.... With the new iPhone app around the corner offering a "Promotional Subscription" to New iPhone purchasers / customers to assist in the generation of new subscribers for Apple Wifi Compatible products and SXM is one way for the Companies to Partner in both of their growth opportunities... Giving the app free to existing SXM and iPhone users is another, with the internet feed cost being the additions cost to pay... Attracting new subs with a variety of promotional memberships to existing Apple Customers who sign on is an easy mechanism the gives "free trial" with some upfront commitment..... All this lets give it away for free for exposure, or lets put commercials on the free content is not necessary and stands to hurt the brand IMHO....

May 22 03:56 PM

[tfw:]

I'm trying to buy a portable sirius radio to listen to the market when I'm outside working. Can anyone tell me which one is the best kind and where I can purchase one at the best price. I've tried to get one from sirius and they are out of stock. How do they expect to grow subscibers when you can't even purchase a radio from them.

May 22 05:15 PM

[Jerrold Wil...:]

A free trial period has already been offered by sirius and xm for a long time. The free period has always been I believe 3 days. The Iphone application should be at least that or maximum 7 days. Anything more is too much. The company needs to allow new listeners to hear the service and all the different chanels it offers. This is already done by having "commercials" to promote other chanels. The key is to allow new listeners to listen to the variety and see how much it is better than Pandora or the other free stuff. To have the thinking that the service is so great that it can't be given for free would be suicide. Many people still think paying for radio is insane. We need to show them otherwise. Kind of like how I convinced my Mom to get a HD tv. Some people have to experience something new to justify the added cost.

May 22 06:00 PM

[Jerrold Wil...:]

Above comment: free refers to online streaming without a radio. You could get 3 days free to listen online by providing an email address.

May 22 06:03 PM

[Mr. Stupid:]

Free Trials "DO" work that's why multiple companies do this. Blockbuster, Netflix, online security, Credit watch, and various other companies do this for a reason. It's better than advertising in my view. After I tried Netflix for a month for 'free" I subscribed. After I was a victim of identity theft I tried Credit Watch "free" one month and was hooked. Same for SatRad. I was hooked after I borrowed my friends car that had it.

Fact is and anyone with marketing intelligence knows that this works and it's a lot less costly than advertising. It doesn't cost SiriXM mucho amounts of money to beam a few more signals to earth for free.

Frank

May 22 06:16 PM

[tfw:]

thanks to another new screen name for your information about the sirius radios on ebay. I never thought of looking there. Lot. 's to choose from.

May 22 09:35 PM

[boston 1:]

correct me if I am wrong, but if an artist gets paid royalties on every sub that sirius has; then should not all the radio stations also pay for every listener they claim to have? If this is the case the music industry would have billionares, rather than millionares. Royalties are paid on the amount of times a song is played, not on how many people listen to the song. As I said please correct me if I am WRONG.

May 22 11:56 PM

[uncle mike:]

i don,t know about you guys but siri will only give me a 3day trial where do you get 30 days?

May 23 12:00 AM

[uncle mike:]

i don,t know about you guys but siri will only give me a 3day trial where do you get 30 days?

May 23 12:00 AM

[Mr. Stupid:]

I'm losing faith in this company but i'm in it for the long haul. .As long as they get back to .55 i'm fine and i'm selling for sure. Tired of SiriXM BS screwing with people and letting 'em down every quarter. Somebodies getting rich and it surely ain't the investor.


Frank

May 23 01:03 AM

[Mr. Stupid:]

Yep, largest in the world and trading at .34. Well I guess GM was the largest at one time and look at them now.

Frank


On May 22 01:21 PM Come on Guys Lein thts get Sirius! wrote:

> Sirius XM Radio Inc. chief Mel Karmazin said in an internal memo
> to
> staffers that the company now has the most revenue of any other radio
>
> company - not just in the United States, but in the world.
>
> "Based on revenue in the first quarter of 2009, SIRIUS XM is the
>
> largest radio company in the U.S., which means we are also No. 1
> in
> the world," wrote Karmazin in the memo to employees.
>
> Orbitcast has obtained Mel Karmazin's note to Sirius XM employees,
>
> read it after the jump...
> Internal memo:
>
> To All Employees:
>
> Obviously, we are very focused on continuing to grow our business
> in a
> very difficult environment. As you all saw with the release of our
>
> 1st Quarter earnings, the difficulty in the U.S. auto market is<br/>adversely
> affecting our subscriber growth. With that understood, the
> growth of our company, particularly since the merger, has been<br/>phenome...
>
>
> All of the major radio companies have now reported their first quarter
>
> results and I thought you would be interested in seeing the revenue
> of
> SIRIUS XM relative to the other large radio companies in the U.S.
>
>
> 1st Quarter Revenue
>
> SIRIUS XM $605 Million
>
> Clear Channel Radio $603.6
> CBS Radio $259.7
> Citadel/ABC $158.9
> Cox Radio $75.5
> Entercom $75.4
>
> Based on revenue in the first quarter of 2009, SIRIUS XM is the<br/>largest
> radio company in the U.S., which means we are also No. 1 in
> the world. Some of these companies have been in business for decades
>
> and we only began to generate revenue in 2002. Based on seasonal
>
> differences in the radio advertising business, I would estimate that
>
> Clear Channel will have greater full year revenue than SIRIUS XM,
> but
> I hope your efforts in growing our company will prove me wrong.<br/>
>
> Mel Karmazin
> CEO
> SIRIUS XM Radio

May 23 01:08 AM

[lmaze:]

TFW: I have stilettos, both the first and the second models. My stiletto1 is amazing and i take it everywhere, in fact I am listening to Bruce right now as I write this on the balcony of my home in Vermont looking at the slopes of Stratton Mountain.

It is durable and I take it with me as I run with my dog and I've dropped it many times and works with no problem. Sound quality is very good and it works great with the internet feed. I purchased the model 2 for a Christmas gift for my 18 year old and he no longer uses his IPOD since the Stiletto is better than the IPOD for downloading content.

As everyone knows from this and other blogs I have taken Sirius to task for the failure to promote and market this product which is truly amazing, especially to my sons generation who are as techno savy as it gets but I can't stop recommending the product and it has its own boombox and docking station.

I also recommend Tom Taylor and the boys and girls from his company TSS radio. Their customer service is outstanding and his is a guy that loves the product and supports Sirius and XM talent.
You can't go wrong with either calling them or checking out their website. I'm sorry I can't give you an opinion on the XM version of the stiletto because I'm a Sirius guy but I imagine they have a similar product, I think its called the XM3, but it would be on the TSS website.

I download and store my content then listen while I am snowboarding and battery life is very good which surprised me especially in the winter, can't say enough good things about it.

Have a nice weekend!

May 23 08:26 AM

[boston 1:]

Yes, but everyone here is making me believe that the royalties are paid for each listener not each time the song is played and broadcasted. If sirius has 19,000,000 listeners royalties are not paid individually for all those subs. Back in the 70s I heard artist were paid something like a penny each time their song was played. Now there are 50 states and various radio stations that was a lot of pennies. My question is wether the royalties are calculated in a different manner for sat radio then free FM or AM radio stations (land limited short distance stations)?

From the posts I get the feeling that sat radio has made few bad decisions when it comes to rayalties then. But if anyone has other ideas or has a better grasp of what the rate of royalties is please let me and everyone else know it.


On May 23 11:14 AM another new screen name wrote:

>

May 23 01:47 PM

[Isaac A.:]

On May 23 08:56 PM another new screen name wrote:

> I dont care what others are making you believe.
That's Brandon's job description.
Done. Period.
You can believe that Sirius is making money too if you want. . .
What you Believe and fact are two different things.
Sirius has to pay royalties because THEY CHARGE MONEY FOR WHAT OTHER RADIO STATIONS GIVE AWAY FREE.
Done. End of discussion.
Now, do you want an answer or do you want to argue?
I am capable of both.<

And yet you completely ignore the impending modifications to royalty rules that will make all broadcasters pay royalties.

Sirius pays royalties because they choose to do their part and follow things through legally.

Free radio stations get money from ad revenue as they provide content to freeloaders while paying ZERO to the Record Labels. Sirius doesn't collect ad revenue, instead they go by a subscription model to make up for the lack of ad revenue. There is little difference in royalty obligations between Sat and Free broadcasters Because they "Both" make money in some way due to their use of the underlying content.

If you want to use the "Sirius makes money off subscribers" argument to justify royalty charges, you better damn well apply it to free providers too cause they are making money off the content too.

To pretend that free broadcaster make no money off it so they should not have to pay royalties is stupidity. Ever heard of copyrighted Intellectual Property?

Since when is it "legal" to use someone else's copyrighted work for any service provided by you that earns you money in any way wether it be through subscriptions or through ad support revenue?

I can tell you that those free providers did not get permission to broadcast the labels content for free while they receive ad revenue.

Anyways this is all I'm posting to you because all I see is yet another person who acts like they know everything while insulting anyone about any view that conflicts with your own.

If you really were an expert on everything you'd be doing something constructive with your time rather than bashing everyone that has a positive outlook on this stock in the future. Perhaps even managing a company of your own. Although I doubt you would be hired in any position of importance to public view with the way you trash-talk people.

May 23 10:05 PM

[Mr. Stupid:]

Look for NICE numbers next Q. Chrysler dealer lots that are closing have to unload all their inventory. That means lots of cars sold with SiriXM free trial. Ford is also gaining ground with the new hybrid focus. It also comes with SiriXM free trial. This previous Q was a great example of what's to come as far as cost cutting and cutting the bottom line. We'll see a nice run up in a couple weeks when it's least expected. That's how this stock works. Don't sell your shares now. What do you have to lose??? The stock is trading at .34 so just stay with it. I wasn't expecting to get rich overnight with this stock. I'm buying and leveraging as it sneaks to a median price point. .33 should be a nice buy in point now that it's starting to stablize.

Frank

May 24 12:47 AM

[hernje:]

Great post,thanks.


On May 22 01:21 PM Come on Guys Lets get Sirius! wrote:

> Sirius XM Radio Inc. chief Mel Karmazin said in an internal memo
> to
> staffers that the company now has the most revenue of any other radio
>
> company - not just in the United States, but in the world.
>
> "Based on revenue in the first quarter of 2009, SIRIUS XM is the
>
> largest radio company in the U.S., which means we are also No. 1
> in
> the world," wrote Karmazin in the memo to employees.
>
> Orbitcast has obtained Mel Karmazin's note to Sirius XM employees,
>
> read it after the jump...
> Internal memo:
>
> To All Employees:
>
> Obviously, we are very focused on continuing to grow our business
> in a
> very difficult environment. As you all saw with the release of our
>
> 1st Quarter earnings, the difficulty in the U.S. auto market is<br/>adversely
> affecting our subscriber growth. With that understood, the
> growth of our company, particularly since the merger, has been<br/>phenome...
>
>
> All of the major radio companies have now reported their first quarter
>
> results and I thought you would be interested in seeing the revenue
> of
> SIRIUS XM relative to the other large radio companies in the U.S.
>
>
> 1st Quarter Revenue
>
> SIRIUS XM $605 Million
>
> Clear Channel Radio $603.6
> CBS Radio $259.7
> Citadel/ABC $158.9
> Cox Radio $75.5
> Entercom $75.4
>
> Based on revenue in the first quarter of 2009, SIRIUS XM is the<br/>largest
> radio company in the U.S., which means we are also No. 1 in
> the world. Some of these companies have been in business for decades
>
> and we only began to generate revenue in 2002. Based on seasonal
>
> differences in the radio advertising business, I would estimate that
>
> Clear Channel will have greater full year revenue than SIRIUS XM,
> but
> I hope your efforts in growing our company will prove me wrong.<br/>
>
> Mel Karmazin
> CEO
> SIRIUS XM Radio

May 25 09:40 PM