Advertising on XM Satellite Radio (NASDAQ:XMSR) music stations? Say it ain't so. Although it's tempting to say that this new development isn't that big of a deal -- it pertains to only four XM music stations, after all -- the satellite service's lack of advertising on its music channels was one of the things that really set it apart from its terrestrial-radio rivals. No longer being able to tout its music as "ad-free" is a bit of a blow to XM's marketing scheme.
According to The Wall Street Journal, four channels that XM receives from traditional radio's Clear Channel (NYSE:CCU) will now feature ads, a result of a dispute between the two companies. The four music stations Clear Channel provides to XM include current hits, "second" hits, light music, and country fare. When the advertising commences, Clear Channel will get a share of advertising revenues.
The article pointed out that before the ads start running on those stations, XM will add four additional commercial-free music stations, so it can still claim to be the "leader" in commercial-free music, with the number of music stations that eschew ads to stay static at 69. Both XM and Sirius include advertising on some of their stations, such as talk radio and local weather and traffic; Sirius has 68 ad-free music stations.
There's little question that XM and its rival Sirius (NASDAQ:SIRI) have been able to make headway by tapping into consumer disgust over the ad-glutted terrestrial airwaves as well as narrow programming on the traditional-radio dial. (And of course, those same issues have had many people snapping up devices that allow them to pipe music from their Apple (NASDAQ:AAPL) iPods through their car stereos.)
My biggest question upon first hearing this news was why XM has a deal through which Clear Channel provides it with content in the first place. Why join up with one of the very dinosaurs you're ostensibly hoping to fossilize? The outcome of the arbitration between the companies may represent only four channels' worth of content, but it certainly brought to mind an attack from within.
Flash back to the late '90s, when a handful of companies, including DirecTV (NYSE:DTV) and Clear Channel, took a $250 million stake in the nascent XM. Both DirecTV and Clear Channel said they would develop differentiated entertainment services for XM, and Clear Channel's blurb in a related press announcement said it was looking forward to serving new listeners ... and new advertisers. It appears that the recent dispute with Clear Channel relates to its rights under that old agreement. In its infancy, XM had to take up with the enemy somewhat as it sought funds to start up its business.
One of XM's major marketing points may be slightly handicapped by this development, although the truth is, the lion's share of its musical lineup can still boast the "commercial-free" element. However, should the amount of advertising increase across satellite radio stations in the future, it will negate one of the medium's greatest selling points and increase emphasis on quality programming. For now, it's still business as usual, but of course, the talking points of this development are interesting for satellite watchers to contemplate.
For more on the industry, tune in to the following Foolish articles:
- XM marks the soft spot.
- Stern has a Sirius dilemma.
- Read all about the satellite radio race.
XM Satellite Radio is a Motley Fool Rule Breakers recommendation. To find out what other stocks David Gardner and his band of growth-oriented analysts have recommended to subscribers, take a free 30-day trial by clicking here.
Alyce Lomax does not own shares of any of the companies mentioned. She bought a new car in November, and she hasn't turned on the radio once -- she uses her iPod for all her car music needs.
