The Detroit News published an article today, Ads invade satellite radio, that talks about commercials being played on satellite radio. Specifically commercials on XM's music channels... ok you say, last year's news.

And indeed it is, the article gives us little in 'news' other than it irritates some subscribers and doesn't irritate others. Wow, earth shattering revelations. But the fact is, advertising revenue is something that will feed both satellite radio services' bottomline. Even Mel Karmazin predicted that Sirius will reach $100 million in ad revenue in 2007... that's not small potatoes.

One key difference between terrestrial and satellite radio is that the satellite model will never be dependent on advertising as it's sole source of revenue. So you won't reach the situation where genres are axed in favor of more ad-friendly genres.

But then there's this post in Hear 2.0 about how XM should run commercials in their XM Radio Online internet radio service (uncanny timing there Mark). Rather than giving away a 3-day trial, they should give XMRO away for free, but instead run commercials in the online stream. Curious thought. Let's entertain it for a bit.

Under this concept, the online stream would run commercials in the music channels - and rather than losing marketshare/mindshare to other Internet radio stations - they would be a player among them. Exposure to the product would skyrocket, because... well, it's free for an unlimited time. Mark suggests that subscribers won't care about this change because they're two separate brands.

Ok, so that last point is where I disagree. We subscribers are paying for the content, whether it's online or not, we don't care. There's a monthly charge, and we want what we're paying for. BUT, that doesn't mean there can't be a free Online Satellite Radio radio service with commercials.

(Keep reading, I'm developing an idea here.) 

So in "the beginning" when XM and Sirius developed the 3-day online trial, it had a two-fold purpose. One was to get people to experience the product (a key to converting to satellite radio), the other was to get people to hand over their email address for lead generation.

But is 3-days enough? Is one-month even enough? I think there's a reason why the OEM trials, at their minimum, extend for 3-months. Satellite radio is an immersive process. Get the consumer to hear the content and they eventually subscribe.

Also, back "then" there wasn't nearly enough advertising inventory to fill up all the online channels, and to make it a profitable undertaking. It's easy to just say "dude, just add commercials!" but there's a whole eco-system that needs to be nurtured in order for that to pull in a decent amount of revenue.

And then there's cannibalization and attrition. How many people would rather listen to a free commercial-laden version, over those who pay for the online-only versions? I'm not sure, but I can bet that the revenue driven by XMRO and SIR is meager at best. And would churn increase if a free version was available? Quite possibly. There's a value-added by being able to access XM and Sirius everywhere (i.e., via satellite), but there's probably a large number of those who listen over the computer at work. You will most definitely see those who pay for the online-only versions leaving for the free version in hoards.

Ok, so we need to keep churn in check. Here's how:

Create two online services. One is the commercial-laden free version. The other is the subscriber-only, commercial-free version. The free service may even exclude some premiere content that is only available to subscribers. In addition to increased advertising revenue (greater reach = high asking price, more sponsors, etc), both services have the ability to run spots touting the benefits of becoming a subscriber. It's like an online infomercial.

Add to that the exposure to the content. Shows that otherwise wouldn't see the light of day outside of the services would get exposure - and a following. Want to get it in your car? Pay up cheapskate.

Not sure if it would work as obviously the bean counters have a greater sense of the numbers, but while it's true that satellite radio is in the subscription business, they're also in the content-business. And getting that content heard by as many people as possible, with the tease of exclusivity, is the road to conversion.

Thoughts?