Are Sirius XM's Efforts To Segment The Market Falling Short Of Expectations?

| About: Sirius XM (SIRI)


Sirius hires top personality to penetrate Hispanic market despite allegations of sexual harassment.

Pairs content with low cost subscription.

No evidence that campaign worked.

Last Summer the popular Hispanic radio personality, Eddie "Piolin" Sotelo left his prior employer, Univision Communications Inc., under a cloud of sexual harassment allegations. That didn't deter Sirius XM Holdings (NASDAQ:SIRI) from hiring him or making him the cornerstone of a lengthy free trial targeted at Hispanic listeners that ran from October of last year until February 15, 2014. At the end of the trial, the Hispanic themed package of programs was available at a base subscription price of $5.99 per month.

According to the LA Times, Piolin's 6 to 10 AM show

garnered 4.1% of all listeners age 6 and older... Sotelo averaged 470,300 weekly listeners in June [of 2013], far from his audience totals even two years earlier.

Did Sirius make a mistake in focusing on Piolin? There is an old saying, "there is no such thing as bad publicity." Piolin has certainly had his share of bad publicity. First, six former employees of Piolin's show were considering filing a sexual harassment lawsuit. During discussions with Piolin's attorney, the group's lawyers were asked to come up with a figure that would make the suit go away.

Following those discussions, Piolin's attorneys filed a suit against the group in late August claiming they were attempting to extort $4.9 million. In October, the group's attorney filed a motion to dismiss the Piolin suit. By March of this year, Piolin's suit was dismissed, and in June the judge ordered Piolin pay the group's $100,000 in legal fees.

While there may be no such thing as bad publicity, Sirius has decided no publicity is better when it comes to discussing the results of its efforts to penetrate the Hispanic market. The success of the Hispanic trial and $5.99 plan remains a mystery to investors and analysts.

Following the February earnings call I noted the following exchange between Jessica Reif Cohen of Bank of America Merrill Lynch and Sirius management:

And maybe you can hone a little bit in on things like content costs. Will they go lower? Maybe Scott can talk about what he's doing here. And one of the offers you announced last year was this Spanish language offer. Maybe you can give us some color?

CEO Jim Meyer responded:

The Hispanic segment is one that I personally have had a bugaboo about why we can't do better. And over time, I think we can, and that opens up a different opportunity to us, that may be a lower ARPU, but certainly a profitable profile for us.

Scott, do you want to comment?

Meyer really didn't add much "color" and Scott Greenstein, Sirius XM Chief Content Officer wasn't too interested in commenting on the offer. Instead, he ignored the question about the trial program and the $5.99 package and talked about bandwidth issues and content costs going forward.

Earlier this week, Meyer was given another chance to answer a question about the Hispanic trial and low priced offer when John Tinker of Maxim Group raised the issue.

Tinker: Could you give us an update on how your targeted service to the Hispanic community is going?

Meyer: Well, so I would say we're still developing it. As you know, we ran a major promotion in a month in the second quarter in Houston that was 100% Hispanic focus. It involved a lot of talent. It involved a mix of car dealers and individual subscribers. I'd say it's too early to be able to give you any kind of meaningful data there yet.

That Houston show was hosted by Piolin. And, although it may be too early to give any "meaningful data" from the Houston event, it was certainly not too soon to discuss the earlier free trial program and whether there was any significant traction for the $5.99 subscription offer. The only reasonable conclusion is that the earlier trial and the low cost subscription offer hasn't been particularly successful.

One other data point about whether or not there may have been success with the $5.99 subscription offer could be inferred from the 10Q discussion of Average Revenue Per User, or ARPU. After discussing the gains in ARPU, the explanation noted

....The positive result was partially offset by growth in subscription discounts offered through customer acquisition and retention programs, lifetime subscription plans that have reached full revenue recognition, and changes in contracts with an automaker and a rental car provider.

There was no mention of the gains in ARPU being offset by a growth in low cost subscription offerings. And, while the statement uses the term "partially offset", it would seem reasonable to present the data in a more positive light if there had been an impact from a successful marketing campaign to garner Hispanic market share.


Sirius has been trying to grow its market share among Hispanic listeners. When Meyer was given the opportunity to discuss the success of the company's efforts, he made no mention of the number of $5.99 subscriptions or the success of the earlier free trial. Instead he discussed a more recent promotion and told us it's too soon to tell. That's disappointing.

Also disappointing is the use of Piolin as the focal point of its Hispanic marketing efforts. Maybe there is no such thing as bad publicity, but Sirius decided to terminate Anthony Cumia of the Opie & Anthony show following his "racially-charged and hate-filled remarks on social media. Those remarks and postings are abhorrent to SiriusXM, and his behavior is wholly inconsistent with what SiriusXM represents." Apparently the company does not find allegations of sexual harassment inconsistent with what Sirius XM represents.

Disclosure: The author is long SIRI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: In addition to my long positions, I have January 2015 $4 covered calls written against portions of my long positions in Sirius XM. I also trade blocks of Sirius XM on a regular basis.