The Day My Satellite Radio Died

I wasn't the only XM Satellite Radio (Nasdaq: XMSR  ) subscriber to do a little head-scratching after my reception got a little spotty. I'm used to temporary outages when I pull into parking garages or drive under large bypasses. This was different. I was on the open road.  

XM had spoiled me for so long that my initial reaction was how much I would dread having to take my car into the shop to fix the problem.

That was until I got an email from XM this morning titled "Signal Degradation Alert" that spilled the skinny on the service outages that have been occurring since yesterday morning.

"You may be experiencing temporary degraded performance with your XM reception at the present time. XM is aware of the issue and working diligently to resolve it as soon as possible. We anticipate full signal strength will be restored by early Tuesday morning."

The XM website itself sheds a little more light on the subject. No, a meteor didn't smash into one of its satellites. It wasn't sabotage by disgruntled Opie and Anthony fans.

"The problem occurred during the loading of software to a critical component of our satellite broadcast system, which resulted in a loss of signal from one of our satellites. We expect normal service to resume midday today (eastern daylight time)."

Ahhh, let's blame the nerds then. And let's hear it for the "slow creep" as "early Tuesday morning" becomes "midday" for when normal service will resume. Which is funny only because a Reuters story yesterday quoted Chance Patterson -- the vice president of corporate affairs at XM and a great guy whom I have had the pleasure of speaking with -- as saying that the company expected to return to normal service levels by last night.

The proclamation of degradation
Companies are run by humans. Humans make mistakes. However, that didn't stop XM shares from opening lower today, with some media reports pointing out how a prolonged outage would hurt XM in terms of user cancellations.

I don't necessarily buy that. I pay far more for my cable television and broadband access and get momentary outages all the time. Customers are always welcome to call for outage credits, but you don't see a wave of cancellations when companies like Cablevision (NYSE: CVC  ) or DirecTV (NYSE: DTV  ) get buggy.

This is raising churn concerns because of the unfortunate timing of the mishap. Degradation took on a whole new meaning last week, when XM dished out a 30-day suspension to The Opie & Anthony Show after the company felt that the rowdy morning show hosts weren't taking an apology seriously after their questionable comments on the air.

This brings us to the XM customer promise. When XM announced plans to merge with rival Sirius Satellite Radio  (Nasdaq: SIRI  ) , it issued a promise in the form of an open letter to its subscribers.

The promise boiled down to three things:

  • As long as you are an XM subscriber, your XM radio will continue to receive XM's great programming. And following the merger, we expect that these existing radios will be able to receive a mix of programming from both services to bring you even more choices.
  • XM's programming, including Major League Baseball, Oprah & Friends, Bob Dylan, Opie & Anthony, and commercial-free music channels, will not be interrupted by the merger. In the future, we will be able to offer the best of both companies' programming.
  • As the No. 1 satellite radio service, XM is committed to providing the highest-quality audio entertainment and customer service available today.   

This week's outage makes the first point ring hollow. The suspension of Opie & Anthony renders the second point moot. Online anecdotes of long wait times and subscriber retention tactics during last week's deluge of angry Opie & Anthony fans call into question the third part of the promise.

So what's left, really? The outage itself -- as long as it's an isolated incident that ends quickly -- is no big deal. Great companies have them all the time. Don't believe me?

  • Research In Motion's (Nasdaq: RIMM  ) BlackBerry suffered an email outage for several hours last month.
  • Google (Nasdaq: GOOG  ) made headlines because of a brief outage two years ago.
  • If you're an old-time dot-commer like me, you'll remember the 19-hour service outage at AOL in 1996 and the longer eBay (Nasdaq: EBAY  ) downtime three years later.

A temporary outage is only dangerous if you're a weak company. Is XM a weak company? It will add fewer subscribers this year than it did last year, when in turn it landed fewer than it gained in 2005. Sirius may have some tough churn comparisons over the next few quarters, but it has closed the gap of total subscribers with XM for six straight quarters.

More importantly, the way that XM buckled under pressure last week, making it seem almost terrestrial, will sting far longer than this week's outage.

Signal degradation alert? Buddy, that's old news.

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Longtime Fool contributor Rick Munarriz is a Sirius and XM subscriber but does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. eBay is a Motley Fool Stock Advisor newsletter pick. The Fool has a disclosure policy.


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