Retaining Subscribers
While the two companies are touting their additional subscribers gained via OEM deals, the real key is holding onto the listeners after any free trial periods expire.
Lucas Binder, an analyst at UBS, says that XM is the leader in the market now by virtue of their OEM agreements but noted that Sirius is quickly narrowing the gap in the number of subscribers. “Churn has plagued other subscriber industries, such as the cellular market,” Binder said. “Sirius has been successful at offering longer trial periods than XM (three to 12 months for Sirius versus three months for XM), and ultimately holding onto their subscribers for a longer period. I am not making a call on who will be the winner and looser right now. Both companies have challenges ahead of them.”
“We’re increasing our direct marketing to OEM trial subscribers and adding new targeted promotional offers to better communicate our value proposition,” says Davis. “For example, together with one of our OEM partners ,we used a five-year history of OEM factory installations to create a predictive model that allows XM to target the customers most likely to convert into paying subscribers. Throughout this year, we expect to maintain and improve on the conversion of trial subscribers.”
“… What we’re trying to do is elongate the time frame that customers have when they first get XM, but not as a promotional service, more as a paid service,” says Davis. “So instead of three months of promotional service, what I would rather do is have you sign up for a one-year plan. The way we do that, of course, is to try to get the car manufacturer to include that subscription somehow in the car, whether it is financed or it is included in the price of the car or as an option. We’re getting more and more OEM partners, whether it’s a leasing program or a car that is purchased, to include the one-year subscription or maybe even a two-year subscription of XM into the car.”
Sirius CFO David Frear also notes the major difference between Sirius’ and XM’s OEM marketing plans. “We have a big distribution partner who bundles in 12-month subscriptions,” he says. “We have another big distribution partner who uses six months. We have got guys coming online in the course of the next year or so that will be at three months. So as we look at the conversion rate, we do not have a bundled subcategory that rolls up for renewal at a predictable and consistent pace the way that our competitor has.”
XM also is trying to increase the features included in its car deals, says Davis. “We recently tapped into a new segment, the certified pre-owned market through new deals with Honda and Acura,” he says. “Our strategic partnerships with Honda, Toyota, Nissan and GM have expanded beyond just radio service. Our exclusive XM Nav Traffic real-time traffic information service will be standard on all 2007 Acura vehicles equipped with the Acura-link satellite communications system. Nav Traffic is also an option on the 2007 Infinity G35 sedan, the Lexus LS sedan and every Cadillac CTS that has navigation.
“We’re obviously pleased with our progress at OEM and thanks to our growing relationship with these automotive partners, we’re confident in our ability to increase additions from OEM,” says Davis. “We’re becoming less vulnerable to the short-term fluctuations in the retail marketplace. As our OEM partners ramp up their XM factory production in the latter half of 2007, our OEM subscriber count will continue to build with the biggest impact coming in 2008 and beyond.”
XM also is trying to develop other services such as providing drivers information on the occupancy rate of parking garages in major metropolitan areas, and both companies envision the delivery of video information to the car in the future.
No Change If They Merge
The proposed merger will not have a negative impact on the OEM deals, says Davis. “Our OEM partners and subscribers can be assured that XM will support them, their equipment and their technology platform for years to come,” he says. “This is important and I want to be clear. Any XM Radio with a paid subscription in any car will continue to work in the XM Radio network, period.”
Some of the OEM’s may even be looking forward to a merger of the two satellite radio operators, says Sirius CEO Karmazin. “We have a contract with Daimler-Chrysler. They are a very important partner,” he says. “We are an important partner to them. Certainly we touched base with them since our merger and they were very enthusiastic for us and we will just wait and see what happens with them. But you should rest assured that we have a long-term contract with them and there is some very attractive economics for that contract to go on forever because of the fact that they receive a revenue share for the life of the vehicle. If in fact we were not involved with them, they would have significant shortfalls from what they would expect to have received from us. We are working closely with them, and we are excited about their commitment to satellite radio.”
A twenty-year veteran of the satellite industry, Greg Berlocher helped pioneer the Ku Band VSAT market. He owns Berlocher & Co., which provides sales and marketing consulting services to the satellite, technology and energy markets.
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