Over the years, I have seen many ideas brought to the table regarding satellite radio. Some are business friendly, others are consumer friendly. One idea that has been bandied about a few times over is the idea of having national sponsors for channels.
The concept seems sound, but there are many variables to consider. Would a channel named Pepsi infringe on the consumer perception that satellite radio is commercial free? Technically, station bumpers (the voice-over that tells you that you are listening to Sirius XM) and DJ chatter involving information about the BEST OF service, the family plan, etc. are not considered commercials, but do too much of this, and consumers may feel that the promise of commercial free is not being met.
For many, and in particular the investors, the idea of channel sponsorship is not terribly infringing. Some say that the "ad" can simply be displayed on the screen, rather than spoken. There has to be some value in this concept right?
While I have not seen the music channels employ some of the philosophies, I have seen an entire hour of a Stern replay with an ad on my Stiletto. But there are 69 channels of music that could have a sponsor. Why not do it?
The answer may be as simple as supply and demand. There is an abundant supply of ad space, and demand is on the downside. Advertisers across the media spectrum are cutting back on expenses, and this would also impact satellite radio. Sirius XM still has ad space available on non-music channels. How prudent would it be to implement station sponsorships when there is still advertising real estate elsewhere within the service?
Another issue may be that a channel sponsor would want a certain level of control. Pepsi has had their issues using certain singers in their ads. In fact, they have suffered boycotts. What if Pepsi demanded certain language standards? what if they did not want to allow certain artists or songs to be on a channel they are sponsoring?
Consumer backlash may be another reason the company has not taken this step. With the recent channel shuffle, there were numerous complaints. Even with the existence of a similar channel, people were ired at the loss of their favorite. We already see the four Clear channel stations on the XM dial relegated to second class citizen status because they have commercials. would sponsored channels suffer the same fate? Commercial free music is one of the sole differentiators between terrestrial radio and satellite. if you remove that separation, people may begin to wonder why they need satellite radio.
All of that being said, if the dollars are right, this is an option that the company needs to consider. A lot of careful consideration needs to go into the process though. While every million dollars counts, the benefit vs. the backlash must be weighed.
Should the company explore the idea of sponsored channels? Sure. They already have over the years. XM's original business model involved commercials. Their initial sales pitch to OEM's was that they would share a bigger piece of the subscription revenue pie than Sirius because they would make up the difference in ad dollars. The ad dollars never rolled in, and ultimately, XM switched to a commercial free format. It could be argued that there was not the critical mass of subscribers at that point that exists today, and likely that thought needs consideration, but is now the time to make the move?
Some feel that with the current situation, that the company needs to make bold moves. Still others feel that the merger was too bold a move, and there has been enough change. early on Mel Karmazin wanted advertising to make up 10% of revenue. Thus far, the company has never reached that goal. In the current economic conditions, and with ad sales down across the media landscape, perhaps now is not the time to dilute the market further.
The national sponsorship idea has merit, but implementation of it does carry risks. Without having the ability to see the sales stats, it is hard for any investor to grasp the benefit vs. the impact, but rest assured, this concept has been on the radar screen for quite some time. While we may not know the exact reason it has not been done, we can can put forth some educated guesses.
At this point I feel there is plenty of ad space to sell on Sirius XM without impacting the music channels. Only after all of those ad slots are performing as needed should the advertising supply pool be increased. That's my opinion on the matter. What is yours?
Position: Long Sirius XM