Seeking Alpha
Growth, value, special situations, momentum
Profile| Send Message|
( followers)  

As an investor in Sirius XM (NASDAQ:SIRI) I have many times recommended that people spend time listening to some of the alternatives out there so that they can better understand the competitive landscape. I am a huge fan of satellite radio, and prefer their content and ease of use over other services, but feel it is always wise to know the "battlefield". In light of what I recommend others do, I took a self imposed 1 month hiatus from any satellite radio listening.

The purpose of such a long hiatus was to get an honest blush of what other services are offering as well as to see how much I missed the service after being away for a prolonged period of time. The test was quite revealing and here are some of my key take-away's:

  • Sirius XM's exclusive content is very important to the company. The content that I can only get on Sirius XM was the thing I missed most.
  • Terrestrial radio, even with a lot of advertising, has some compelling points that Sirius XM simply can not replicate. The local flavor provided by terrestrial radio DJ's has value and makes a connection with the audience.
  • Internet radio streamed over my cell is still a bit of a pain in the butt if you do not have wireless dashboard connectivity.
  • Internet radio's music offering is more than ample and the capabilities of skipping songs is a pure joy.
  • My iTunes library needed some updating, but catching up with some of my old favorites was fun.
  • During the first week I really missed satellite radio. The second week had me missing it less, and connecting with terrestrial DJ's more. By the third week I was actually enjoying my terrestrial radio listening (though there are to many commercials). The fourth week actually had me thinking that life without satellite radio was not that bad, and that I had plenty to keep me busy from other services.

So what does all of this mean? Will Sirius XM gain popularity? Do they need to?

  • First of all it is easy to see why people fall in love with satellite radio and often listen to it pretty exclusively once they become a subscriber.
  • It also means that the longer someone is away from satellite radio, the harder it will be to get them back.
  • The importance in getting people signed back up quickly, or converting them to self paying subscribers is paramount.
  • If someone learns that they can be satisfied from other services, they become less likely to pay for satellite.
  • Other service are indeed compelling enough to keep an audience.
  • Exclusive content is the differentiator.
  • Terrestrial radio, being free and ubiquitous, has all of the chances in the world to win and keep listeners.
  • You can ALWAYS tune into terrestrial no matter what. You can not tune in Sirius XM unless you subscribe or are on a free trial.

All of this got me to thinking. If, upon receiving the service for a trial period, 45% of the consumers elect to become paying subscribers, what marketing partnerships could Sirius XM do to try to get a second chance at those that have fallen away for one reason or another?

I immediately thought of the free trial periods Sirius XM does about four times per year, as well as the long term deals that Sirius XM has with almost every auto manufacturer and how there might be a better way to engage a consumer at times that a car is not being bought or sold.

The free 2 week trials are great, but the downside is that the word does not get out to consumers very well. This brought me to a potential solution that could benefit Sirius XM as well as their OEM partners.

Sirius XM has deals with manufacturers, but rarely does a dealer see any real financial benefit from these relationships. The OEM gets the benefits. How can you bring a dealer into the fold and not lose your shirt from kickbacks in the process?
My next step was to consider how dealerships make money. Yes, they sell cars, but the service they offer is also a major profit center. The trick for dealers is to get consumers to have their car repairs and tune-ups done at the dealership rather than with a local mechanic. Perhaps Sirius XM can be of assistance, and in doing so be better off themselves.

Consider this. All cars sold have a maintenance schedule broken down into minor items and major items. The 10,000 mile check-up might involve new oil and a tire rotation, while the 60,000 mile check-up might be changing of belts, brakes, and a full tune-up. What if a major service at a dealership came with three free months of Sirius XM? Think about it. The radio already exists in the car. The consumer probably would like satellite radio, but they are used to what they currently listen to. What if a second exposure to Sirius XM would convert some of these consumers? For those that already subscribe the three free months would be a welcomed bonus, and the likelihood of keeping these existing subscribers longer is even better. In addition you would make these subscribers more churn-proof than they already are.

The dealerships get the benefit of offering up an incentive for people to service their cars there, and Sirius XM gets the benefit of either getting a second chance with a consumer or making an existing consumer feel like they got a little bonus.

Taking it a step further, let's throw a bone to the manufacturers. Every once in a while we here about recalls happening (actually it is quite often). What if a satellite radio equipped car being brought in for a recall issue were to give the consumer a free trial to Sirius XM for 1, 2, or three months (depending on the length of time the recall takes to fix)? The consumer gets their frustrations eased, the OEM saves some face, and the consumer gets a bonus that they otherwise might not have had. The key is getting satellite radio more exposure, and by extension more subscribers.

I am not trying to tell Sirius XM what to do. They run a pretty smooth ship. However, sometimes you need to get outside the box to better understand the overall landscape.

In my month without satellite radio I listened to terrestrial, Pandora (P), Slacker, MOG, Spotify and my iTunes. All of these services have some compelling offerings that are attention getters. One key element I learned is that a combination of these services was much more preferable over exclusively listening to one service. That could become a major issue and a threat to satellite radio as smartphone integration and wireless connectivity into cars becomes more common. An advantage that I see with Sirius XM listeners is that they tend to be pretty exclusive to the company for their audio entertainment.

From an investor's perspective there are some valuable lessons here. First and foremost is that Sirius XM is not the solution for everyone, and there are compelling alternatives. The second is that the company has a difficult time getting consumers exposed to the service so that they can fall in love with it. It is great that Sirius XM is making money off of the current way they do business, but there is some extreme potential out there that, if the company explores it, could take Sirius XM to the next level.

The moral to the story is that being great is sometimes not enough to get people to even try your service. Sometimes you have to find a way to make consumers become compelled to try. Secondly, there are many services out there that can and do satisfy the desires of a consumer.

Disclosure: I am long SIRI.

Source: A Month Without Sirius XM - What I Learned