Folks driving around in cars with inactive Sirius or XM radio receivers may want to give their dashboards a new look this week. Sirius XM Holdings (NASDAQ:SIRI)is turning on dormant receivers for the next two weeks, giving former subscribers and those who never bothered to turn on their satellite receivers a taste of what they're missing.
Listeners will be able to enjoy 60 of Sirius XM's more than 140 channels through Sept. 8 with no strings attached. These aren't free trials that folks need to register for or hand over credit card information in order to enjoy. If there's an inactive receiver in your car, or you have a portable unit collecting dust around the home, it'll just kick into action for the next two weeks. Unless it happens to be one of the earliest models you should be good to go.
There's no mystery as to why Sirius XM is doing this. It's the same logic behind the product samples you get in department stores or why mall food courts have armies of toothpick-wielding employees with samples try out. It's easier to convert someone who has gotten a taste of your product, even if it's a limited representation of the whole thing.
It doesn't cost Sirius XM anything to turn on the inactive receivers. It doesn't even run a tab on Sirius XM's mounting music royalties and fees, since what it pays the labels and artists is based on a percentage of revenue. This is a low-risk, high-reward operation. It also works: Sirius XM goes this route roughly twice a year, and even though it hasn't shared any data on the success of the program in the past, it wouldn't keep doing this if it wasn't at least somewhat successful.
The encouraging part of this promotional stunt for shareholders is that with every passing preview period there's a growing base of potential subscribers. There have never been as many dormant receivers on the market as there are today. That's not a knock. Sirius XM's churn is reasonable, as less than 2% of its self-pay subscribers cancel in any given month. However, more people cancel, let free trials expire, or don't bother to tune in at all.
Sirius XM has 1.2 million more subscribers than it had a year ago, but since Sirius and XM receivers are going into 70% of all new cars sold in this country -- more than 15 million cars were sold last year -- we're talking about more than 10 million new Sirius or XM receivers entering the market in any given year.
Turn up the radio
We don't need to guess when it comes to the number of cars with receivers turning on through these next two weeks. In June, Sirius XM's cumulative tally topped 70 million installations. In its second-quarter conference call, the media giant said it believes that 5 million of those cars are either part of unsold inventory or have been scrapped. That leaves 65 million vehicles out there with access to satellite radio, and Sirius XM has just 26.3 million subscribers. In other words, nearly 40 million cars have dormant Sirius or XM receivers, and for the next two weeks they will be able to experience dozens of the channels that Sirius XM offers.
That's a pretty good place to be. The real challenge is getting these tens of millions of drivers to know that they don't have to settle for ad-laden terrestrial radio.
I heard a Sirius DJ talk up the promotion over the weekend. It may seem like a case of preaching to the choir, but it's actually a free way to get the word out since subscribers obviously know nonsubscribers. Paying for terrestrial radio ads would make even more sense, but FM and AM stations won't want to promote the competition -- even if they are paid for it. Sirius XM has made the most of social media advertising in past campaigns, and there will certainly be cost-effective connections made that way. With more than 40 million drivers to sway, Sirius XM and its shareholders have a lot to gain and little to lose here.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple. 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.