Keeping Subscribers Is About to Get Easier -- and Cheaper -- for Sirius XM

By Markets Fool.com

IMAGE SOURCE: SIRIUS XM.

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When Sirius XM Holdings finally rolls out its much-anticipated SXM 17 technology, the company should be able to deliver new features to listeners, such as on-demand programming.

It should also give the company its clearest picture yet of what subscribers are tuning into and what their listening habits are. That's something that should benefit Sirius in a variety of ways, from making programming decisions to negotiating contracts with on-air talent.

But those aren't the only benefits the two-way interactivity is expected to provide -- and some others may have a more immediate and direct impact on the company's bottom line.

Sirius thinks the direct, two-way connection will both improve its subscriber retention and boost its rate of converting free tryouts into paying subscribers.

Streamlining customer service

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Customer service and billing make up about 11% of Sirius XM's overall operating expenses. And it's an area that's been growing faster than others,up more than 56% between 2010 and 2015. That outpaced the company's overall expenses, which grew by 44% over that period.

Sirius expects this new technology to help improve aspects of customer service.

Speaking to analysts in June, Sirius CFO David Frear gave an example of a subscriber whose credit card expires. When that happens now, customer service has to start the process of trying to contact the subscriber. It may do that via email, snail mail, phone, or all three, depending on what kind of success the reps have in making contact.

Frear contrasted that process to how it will happen with SXM 17, when the customer turns on the radio and is greeted by a message letting him or her know to provide an updated card for billing.

The company knows it's reaching the customer, and it knows it's letting that person know about the problem at the right time, when the customer is tuning in to the service that the credit card pays for.

"And it is a contextually sort of relevant and resonating way of communicating with a customer," Frear said, adding, "they are sitting and they are listening to their radio and something pops on the screen."

A lot remains unclear about SXM 17

Exactly when we'll start to see the SXM 17 service rolling out in cars is unclear, but it probably won't be for at least another year. The company says some automakers are expected to begin testing the technology later this year, but we probably shouldn't see the features being offered until late 2017 or 2018.

The company has been pretty reluctant to release details of just what the service will provide, generally doing more hinting than defining. That should change as the platform gets closer to launch.

As noted earlier, there should be other benefits to the two-way connectivity it will provide, not the least of which is the ability to see what people are listening to. How many people really listen to Howard Stern every day? The 20 million figure Stern has counted as listeners in the past, or the much smaller 3 million that one survey estimated his audience at? It's almost surely somewhere in between, but where? We may soon know.

Making measurable improvements

Having a crystal-clear view of what people are listening to should provide long-term benefits to the company in making decisions about programming and talent, from channel lineup decisions to live event broadcasting to negotiating contracts with on-air hosts and talent.

But it will be tough to measure the impact in the company's financials to determine what the benefits really are.

That won't be the case with the benefits that SXM 17 delivers to subscriber-retention efforts and billing services. Those should be clearly quantifiable.

Frear didn't say what level of improvement the company hopes to see in terms of retention rates, conversion rates, or cost savings. And although the company could start to see immediate results for some customers, the larger improvements undoubtedly would be gradual, since the technology would not immediately be available in all subscribers' radios.

But over the long term, the connectivity should improve Sirius XM's efficiency, allowing it to keep more customers paying their monthly bills, keep more customers happy, and convert more free listeners to paying subscribers.

The article Keeping Subscribers Is About to Get Easier -- and Cheaper -- for Sirius XM originally appeared on Fool.com.

John-Erik Koslosky has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.