Sirius XM Hops on the Free Way

Sirius XM hopes a preview of satellite radio on inactive receivers will help drum up subscriptions.

May 29, 2014 at 9:35AM

If you are driving one of the tens of millions of cars out there with inactive satellite radio receivers, Sirius XM Radio (NASDAQ:SIRI) wants to give you a treat. It's turning on those receivers, making 60 channels available for free through June 2.

The preview channels are mostly its popular commercial-free music stations, but there is also a handful of sports, entertainment, and talk content to convey a real taste of what's available on premium radio. 

To be fair, this isn't exactly news. Sirius XM kicked off the preview on May 20. This also isn't the first time that the media giant turns dormant receivers on for two weeks. It ran this promotional stunt four months ago. Shorter previews have been common in previous years.

It's easy to see why Sirius XM is going this route. Just like the chicken joint at the mall food court is handing over samples on toothpicks to woo hungry patrons with a full meal, Sirius XM wants to give you a taste of what's on the menu.

More than half of the cars out there with satellite radio receivers installed are inactive, and that's a ratio that's going to continue to shrink. It's not that Sirius XM is doing anything wrong. It's just simple math. More than 10 million cars will be sold with Sirius or XM receivers in this country this year, but Sirius XM expects to close out the year with 1.25 million more subscribers than it had when 2014 began. 

Where did the other 8.75 million drivers go? Well, it's not as simple as that. For starters, just 42% of buyers of new cars stick around as paying subscribers after their free trials run out. You also have the churn of existing drivers. Every month, we see an average of 1.9% of self-pay subscribers cancel their plans. The 1.25 million figure is net additions. The gross additions sum is naturally substantially higher before it's offset by folks nixing their service. Making matters even more complicated, the 1.25 million in net additions also includes folks buying used cars, where Sirius XM has been ramping up its marketing efforts. 

It works in the end. There have been just three quarters since Sirius and XM completed their merger in 2008 that Sirius XM has posted a sequential dip in subscribers. In short, Sirius XM knows what it's doing. If it's dangling free tunes and talk radio on a toothpick from now through next Monday, it's because it has worked in the past. Rock on, Sirius XM.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of 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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