Duopolies are fun to follow, because the competition often takes on the appearance of a chess game or a military campaign: One player makes a move, only to be countered by its rival.
Sirius Satellite Radio (NASDAQ:SIRI) and XM Satellite Radio (NASDAQ:XMSR) are no exception. In this contest, Sirius' recent exclusive agreement with Volkswagen and Audi provides evidence that even though XM's strategy has given it a good lead, Sirius' game plan may help it win the match.
An essential component of XM's approach has been to get its product in front of consumers, and the company has done a terrific job of forming partnerships to accomplish that goal. In addition to exclusive deals with big automakers such as General Motors (NYSE:GM), Toyota, and Honda, the company has made more unusual connections with firms such as Starbucks (NYSE:SBUX), Time Warner's (NYSE:TWX) America Online, and United Airlines parent UAL to give consumers a taste of XM content.
To date, Sirius has been less aggressive in forging such alliances. The firm does have some arrangements, including its pacts with DaimlerChrysler (NYSE:DCX) and Ford (NYSE:F). Still, it's telling that while shopping recently for stereo components, I frequently encountered receivers that had XM built in, but not once did I come across a receiver that was Sirius-ready.
Until Sirius signed Howard Stern, XM's strategy made a lot of sense. Both satellite outfits had similar content, and as a first mover with a big lead in subscribers, XM could make an effective case to prospective partners that its offering was the VHS to Sirius' Betamax.
But now, XM's strategy could be in serious trouble. Because Sirius has fewer partners, it has less of a conventional marketing presence than XM, and it's harder to adopt because it isn't embedded in as many vehicles or audio components. Nonetheless, subscribers are flocking to Sirius, and this growth in turn will bring more alliances. The initial evidence of this dynamic is Volkswagen's and Audi's agreement; before, they had offered both XM and Sirius as options.
XM's strategy has been to build a brand and make it easy for consumers to sign up for its service. But Sirius is showing that compelling content may be able to trump marketing and convenience.
For related stories:
Time Warner and Starbucks are Motley Fool Stock Advisor recommendations; XM Satellite Radio is a Rule Breakers recommendation. Weoffer adviceto suit many investing styles.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
