Firing DJs Will Eventually Doom SiriusXM

Getting rid of DJs, whether it's to save money or to focus on music, will ultimately bring about the downfall of SiriusXM.

Feb 10, 2014 at 2:28PM

SiriusXM (NASDAQ:SIRI), which has been steadily shedding DJs in favor of music-only channels since the two satellite radio companies merged, has dropped personalities on its '50s and '90s channels. The moves might make economic sense and they might even be what some listeners want, but ultimately, offering personality-free radio may doom the company's long-term prospects.

New York Daily News Columnist David Hinckley, who covers the radio and satellite radio business, wrote about the moves in his column Feb. 5, explaining that the service was becoming "music intensive -- a trend that has permeated all of music radio over the last 10 years."

The loss of DJs, however, makes the SirisuXM stations less distinctive and removes a differentiating factor between satellite radio and music services like Pandora (NYSE:P), Apple's (NASDAQ:AAPL) iTunes Radio, and Spotify.

End of the arms war

When Sirius and XM were competitors, the two companies spent tens of millions of dollars locking up personalities and brand-name content in an attempt to lure customers. With the companies no longer competing, SiriusXM has retained a few signature personalities (Howard Stern, Opie and Anthony, and Christopher "Mad Dog" Russo, to name a few), but with no direct satellite competitor, the company has let deals with Martha Stewart and Cosmopolitan magazine expire while also letting the other well-know personalities on Stern's channels -- Bubba the Love Sponge and Scott Ferrall -- leave.

Will people leave?

Despite the loss of hosts, Hinckley said in an email interview with the Fool that he does not believe subscribers will leave the service in any significant numbers.

"It's a nuisance to drop a subscription. You have to call and go through the whole ordeal of getting to a live person," he said. "More significantly, my guess is that relatively few people buy a SiriusXM subscription for just one channel, with the possible exception of some Howard Stern fans."

Hinckley explained that most people were buying because they like the package -- perhaps the sports channels, the news channels, or something else combined with the music offering. "Even if it's your favorite channel, my guess is that most people feel disappointed, but decide they'll give what's left a shot," he said. "This is a conditioned response, too, from 'regular' radio, whose MO has always been change -- change in hosts, change in playlist, change in formats. Radio listeners, on some conscious or subconscious level, are used to it."

Is it worth it financially?

Though some of the major deals like Martha Stewart's bring a considerable cost saving to SiriusXM, getting rid of individual DJs does not. According to Hinckley, most hosts are voicetracked and do a whole shift, or a whole week, in one session, for which they get paid scale.

"Back before the merger, when Sirius signed that first big contract with Stern, it cut a whole flotilla of its DJs loose. That, obviously, was a way of making up some of the cost of Stern's deal," he said. "Then more DJs were eliminated in the merger.  So most of the DJs on channels where jocks were considered superfluous or marginal had already been taken off. What Sirius XM is doing now, even with the occasional live jock like Norm N. Nite, feels more for strategic than financial purposes.

Can a competitor swoop in?

If eliminating DJs is not for financial reasons, you can assume the company is doing it because it believes people want only music on its music channels. That might be true. But with it becoming easier for people to stream Internet music services in their cars, not having DJs makes SiriusXM -- as a music service -- a less-effective version of Pandora. SiriusXM offers a lot of music for a radio station, but it does not take your input and let you customize the way Pandora does. It also does not let you simply pick what you want to hear the way Spotify and other streaming services do.

"I think it does become easier for a Pandora or streaming music services to poach consumers if SiriusXM doesn't offer something different. But I suspect SiriusXM looks at it from the other perspective -- that it also becomes possible for satellite to poach music service customers," Hinckley said. "I've heard satellite radio in a number of supermarkets, which clearly prefer an all-music feed to something with DJs."

SiriusXM, as a package, does still have differentiators in its news, sports, and talk programming. But as its music offering fades to generic, the company is dropping something that made it special -- something that made it radio, not just music.

And while SiriusXM offers a lot of value for the price, the company, if it stops being special, faces the same vulnerability the cable business does. At some tipping point, SiriusXM customers will realize they can bundle most of what they get out of SiriusXM for free or less money with not much more hassle.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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