From a marketing perspective, last week was pretty big for XM Satellite Radio (NASDAQ:XMSR). The satellite radio market leader broke out its national "Living Large" television ad campaign featuring celebrity host partners like Snoop Dogg, David Bowie, and Ellen DeGeneres. The move coincided with Thursday's episode of Donald Trump's The Apprentice, during which the remaining contestants had to try to break one of two unsigned musical artists on one of XM's commercial-free music channels.
I also couldn't have been the only one to see a full-page print ad touting that XM is the only satellite radio provider contractually committed to carrying Fox News come January. Sirius (NASDAQ:SIRI) and News Corp.'s (NYSE:NWS) Fox sparred last month when Sirius began to tweak its Fox News offering, and the parties have yet to renew their programming agreement beyond this year.
XM has gotten aggressive on the promotional front. With Howard Stern setting up camp at Sirius next year, it's a good proactive move. Even though XM expects to close out the year with two-thirds of the more than 9 million satellite radio subscribers out there, it realizes that it can't afford to let Sirius use Stern's publicity as a battering ram to nibble away at XM's initial success in this very promising field.
That's why XM got busy after Sirius issued a press release that had NPD Group claiming that Sirius had outsold XM at the retail level. No one has ever disputed that XM has the upper hand in the OEM (original equipment manufacturer) space, with a larger share of the new car market. If anything, the accusations have usually been heaved toward Sirius for how it reports new subscribers.
Looting the stores for profit
However, the retail front is the more compelling battlefront, since that's where the consumers are deciding which way to go, given a choice.
The NPD study had Sirius garnering a 56% share of new signups at the retail level. However, because the NPD findings didn't monitor all of the retail outlets, XM countered with a press release of its own, claiming that XM had won over 59% of the market share at the retail level during the third quarter. XM's source was a good one. It used the actual third-quarter reports put out by both companies.
The bickering between XM and Sirius has been civil for the most part. That's because they both realize that this isn't the time to sling mud. We're in the consumer education phase of this burgeoning industry's timeline. The public needs to know why they should pay for radio when the AM and FM bands have served them just fine gratis.
We know how this ends. Remember folks who swore off the cable television revolution? The ones who swore by their rabbit ear antennae and the VHF and UHF broadcasting bands? There aren't too many of them around anymore, are there?
So XM and Sirius have emphasized the merits of satellite radio in general over conventional terrestrial radio. Any shots at the other provider might lead a fence-sitter to abandon the pursuit of satellite radio if any negative knocks start to stick. It's too early for that. Besides, XM and Sirius have a lot in common right now. They're fighting the same enemy -- ignorance. Oh, sure, General Ignorance can put up a fight in the early stages -- especially when money is involved -- but eventually, logic prevails and buries it in its bunker.
Shake hands and come back fighting
I'm guessing that the niceties will come to an end, and soon. Stern has never been one to mince words when it comes to talking down his competition. It won't be long before he's shooting verbal spitballs at XM. Don't expect XM to just stand there and take it until it's a papier mache bust.
In a twisted way, the inevitable war of the words may be the best thing that ever happened to satellite radio. Over the past three years, XM and Sirius have featured too much overlap in programming content with minimal differentiation. That has started to change, with the companies carving out broadcasting rights for athletic events and signing away terrestrial radio's on-air talent.
It's going to take more than that to really get satellite radio into the homes of the not-so-early adopters. The fact that OEM auto deals make up such a large part of the satellite radio adoption process bears that out. Far too many aurally fixated listeners simply go with the platform that their new car dealer is pitching.
Again, that will change. Stern raises the stakes. Celebrity advertising is a decent start, but it hasn't been overly effective in the past. I remember John Madden and Tom Brady promoting Sirius as the exclusive home of the NFL two years ago, and XM still went on to widen the subscriber gap. Original programming, the type that will get folks talking at the water cooler about something outrageous that was broadcast, is what will make satellite radio a nonexpendable leisure appliance. In fact, since $12.95 a month is a pretty reasonable ransom, it may very well be the catalyst to get many born-again radio fans to sign up for both services. Yes, those receivers are coming sooner rather than later.
XM is already doing its part to stand out. It has capitalized on its deep musical playlist to launch music-streaming deals with Stock Advisor pick Time Warner's (NYSE:TWX) AOL, DirecTV (NYSE:DTV), and Napster (NASDAQ:NAPS). Sirius isn't exactly sleeping at the wheel, either. I'm guessing that as soon as these two start seeing each other as enemies rather than distant mercenaries fighting on the same side of this revolution that they will be differentiated even more.
Nice! Bring on the nastiness! Last month, I recommended XM to subscribers of the Motley Fool Rule Breakers newsletter service. My reasoning was pretty simple. Satellite radio as a business is expected to grow many times over during the next few years, and ultimate growth investors would be well served by paying attention. Yes, Sirius is working on something special, too, but XM offers the best bang for your revolutionary buck at the moment.
Living large? If XM's aim is true, it would be more than just a new ad campaign. It would be a mantra for the early believers in satellite radio in general -- and XM in particular.
Longtime Fool contributor Rick Munarriz is a satellite radio subscriber but he does not own shares in any of the companies mentioned in this story. T he Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
