Sirius XM's Trojan Horse Is a Genius

There are more cars out there with inactive satellite radio receivers than active ones, and Sirius XM Radio (Nasdaq: SIRI  ) wants to change that.

Starting tomorrow -- and running through Nov. 27 -- Sirius will be turning on all inactive radios. Listeners won't have access to all of the platform's content, but 60 stations of sports, news, talk, entertainment, and commercial-free music should give them a good taste of what they're missing out on.

Now, free previews aren't new. The cable industry and premium movie channels have turned to similar glimpses into their programming for years. Sirius XM has also offered limited access to dormant receivers in the past.

However, Sirius XM's timing is pretty brilliant for a few different reasons.

For starters, it comes at a time when the economy is starting to turn the corner. There's a reason that Sirius XM, which when the year started was looking to add just 1.3 million net new subscribers, is now expecting to close out the year with 1.8 million more accounts on its rolls. Drivers are more comfortable with their discretionary income to spring for Sirius or XM subscriptions, even after January's 12% rate hike.

These are also the two weeks ahead of the holiday shopping season. How many people do you think -- after driving around and rediscovering the advantages of satellite radio -- will make Sirius XM a holiday wish list item? You may laugh, but any number greater than zero is incremental.

Another reason for this being perfect timing is that it comes just as Sirius XM is gearing up to take a page out of the Pandora (NYSE: P  ) playbook and begin offering streaming subscribers customized radio. What's the connection between Sirius XM's flagship satellite service and the streaming offering that it sells as either a stand-alone platform or one that receiver-based accounts can pay a few bucks more a month to receive? Well, how many drivers with inactive receivers are bypassing the service because they just don't drive as much as they used to? How many drivers with dormant Sirius or XM accounts are simply streaming Pandora or Spotify through their cars? This is a way for Sirius XM to remind them all of its content just as it's about to enhance the value of its higher-priced plans that include both satellite radio and Web-served streams.

Sirius XM has gotten its subscriber acquisition costs down to $51, and that's a bargain considering that the monthly churn rate is just shy of 2% and the average revenue per user is up to $12.14. Getting new accounts by reminding those with inactive receivers what they're missing is an even bigger bargain.

Yes, Sirius XM is pretty brilliant wheeling in the two free weeks of content like a Trojan horse. Just wait until the troops inside start to attack.

Running of the bulls
With another solid quarter under its belt, and share buybacks likely in 2013, Karmazin appears to be ready to hand over the company in a few months while it's in its best shape ever.

I recently wrote a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors whether they're long or short the dynamic media giant. A year of updates is also included with the report. Click here to check it out now.


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