I've said it all along. There are more revenue streams to the XM Satellite Radio
Neither plan is a get-rich-quick scheme. Alltel has more than 11 million wireless customers, and it's hard to fathom too many handset jockeys putting up $7.99 a month for unlimited access to 20 of XM's commercial-free music channels. As for the compilation CDs culled from XM's Artist Confidential for Hear Music, I can't be the only one unlikely to order a double latte, a muffin, and some live Coldplay the next time I walk into a Starbucks. That's not the point, though. Piece by piece, all of these bunt singles will make XM a more powerful and diversified company than the market is giving it credit for.
Shares of XM are trading in the pre-teens, but it's hard to classify the satellite-radio provider as a failure. It recently topped the 7-million-subscriber mark. That's pretty good for a company in its first few years, especially when you compare the conquistador's performance with that of other mainstream consumer favorites, like TiVo
Yes, Netflix is profitable, and XM is still losing gobs of money, but XM and rival Sirius
This makes exploring the possibilities beyond monthly subscriber fees that much more tantalizing, because the company's high fixed overhead makes anything above that the high-margin gravy that Wall Street seems to be glossing over.
The marketing of marketing
Advertising is a logical revenue stream for satellite radio, since it's the lifeblood of terrestrial radio. Naturally, that's a delicate issue as well, because one of the greatest advantages of XM and Sirius over the FM band is the nearly 70 commercial-free music channels available through each of the two satellite-radio providers.
That doesn't mean the opportunities aren't there. XM and Sirius watch over dozens of content channels that do feature the occasional sponsored spots. As each company shores up its proprietary programming, the expanding content will open up possibilities for a wider assortment of advertisers trying to reach the perfect demographics of an on-the-go audience with disposable income to burn.
For now, XM is generating an average of only $0.45 a month off each subscriber in ad revenue. Thanks to the marquee Howard Stern attraction, Sirius is doing a little better, at $0.62 a month.
Those sums keep inching higher with every passing quarter. There is still potential for more, as original content offerings widen, and even the commercial-free channels can warm up to corporate naming rights for popular shows.
But we can't limit the potential of XM and Sirius to just more ad revenue and the inevitable $2 to $3 rate hike in the next year or two. There's a wide world out there, and the companies are just starting to skim the surface.
Satellite radio, version 2.0
XM has been able to extend brand awareness through deals with everyone from airlines to AOL to retailers like Starbucks. The one partnership that really intrigued me was last summer's pairing with Napster
As a subscriber to both XM and Sirius, I love to be blown away by a band I've never heard before. I'm quick to either bookmark the track or peek at the artist information on the receiver. In theory, the Napster deal facilitates the convergence of the platforms by allowing XM listeners to purchase digital downloads of desirable songs they come across. The technology is still nascent, but it's really just a matter of time before XM and Sirius get paid to deliver leads to advertisers or generate affiliate royalties from related merchandise sales.
It doesn't end there, of course. Both companies have been testing video content delivery. Granted, this may be low-grade stuff, but how much more valuable would XM or Sirius be if a driver knows that fresh animated cartoons are being streamed to his or her bored kids in the backseat?
What about online advertising? For now, XM and Sirius are relying on their websites as recruitment tools, and understandably so. However, there's plenty of room for high-margin interactive marketing on user pages like programming guides, or even via Internet streaming ads.
Since I singled out XM as a worthy growth stock in the Motley Fool Rule Breakers newsletter service late last year, I've been humbled. XM shares have taken a mostly well-earned beating, as the company has allowed Sirius to take serious nibbles at its market share. Investing is about more than rearview mirrors, though. Yesterday was awful. Today is pretty good. Tomorrow can be spectacular if XM plays its cards just right.
There's a great big world of opportunity out there. I've said it all along.
XM is an active recommendation in theRule Breakersnewsletter service. You're welcome to swing away at Rick with a free 30-day pass to access all of the newsletter's content services, including a lively subscriber-only discussion board. TiVo, Starbucks, and Netflix areStock Advisorselections.
Longtime Fool contributor Rick Munarriz has been a Sirius satellite subscriber since 2004 and an XM subscriber since this spring. He does own shares in Netflix.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.