How Sirius Could Grow Its Bottom Line

| About: Sirius XM (SIRI)

While the debate rages over Liberty Media's (NASDAQ:LMCA) imminent 51% stake in Sirius XM Radio (NASDAQ:SIRI), I don't see the logic in Liberty doing anything that would hurt its own hefty investment in Sirius. However, I do think there's something Sirius and Liberty could do to improve their bottom line.

Recently, Sirius reported that it added 445,921 subscribers during Q3 2012. That's up 34% over Q3 2011. The company expects 1.8 million more subscribers by the end of 2012. Earlier in the year, the company only expected 1.3 million. That's a half of a million expected increase in new subscribers! Great!

But what about the high percentage of Sirius users who do not renew their contract? What if anything could Sirius do to change their loss of customers? Because if they did do something that bottom line would be significantly higher.

With these questions in mind, I thought about my own experience. I purchased two cars that came with Sirius radio for three months free.

I can imagine that the sales executives at Sirius think this is a great incentive. In one respect, it is. Anything that you get for free is awesome.

But in reality, Sirius is creating a crisis for car buyers. Why?

Because in about two months, the letters begin to arrive in the mail asking the new car buyer to sign up for long-term contract. Now Sirius executives probably think that they hope to get people hooked on their product, but what they aren't seeing is that along with the Sirius offer, the buyer's monthly car loan bill begins to arrive at the same time.

Suddenly, the excited buyer is faced with a new bill! Most likely, many car buyers have already stretched their budgets. Now they are being asked by Sirius to sign a new contract for money the car buyer may not have. If Sirius Chief Executive Mel Karmazin earns what is reported, he and his executives are so disconnected from the average American they don't understand the crisis they've created.

So is there a solution?

I think that there is and it's a simple one. If Sirius radio was rolled into the sales price of an automobile, then buyers wouldn't be faced with whether to buy a contract. More specifically, if buyers could roll the cost into their car loan, then the cost of Sirius radio would be buried in the price of buying the car. Furthermore, it could be argued that it would add value to the vehicle.

If Sirius can afford to offer new car buyers three months free, then why not work towards getting car dealers to package Sirius radio into the total car package? Surely Sirius executives could work out a plan with the automobile industry.

Looking back at the car purchase experience, imagine hearing the salesperson say, "Your car is equipped for Sirius radio. Here is a contract opportunity for one to three years that you can roll into your car loan or car purchase. As an incentive, Sirius offers three month's free. Which plan would you like?"

It seems to me that Sirius would retain more customers if the contract was initiated at the time of the sale of the car.

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.

Additional disclosure: Investors buy and/or sell at their own risk. I declare that I may trade any stock at any time mentioned in this article. For me "long" is until I sell. I do not "short" stocks. This article is for entertainment purposes only. You are duly warned not to use this article for individual investor advice and you should seek the advice of a market professional.