By Brandon Matthews

About a year ago, I asked an analyst why he felt Sirius XM Radio (SIRI) did not advertise more aggressively. His understanding was that the company had made the decision based on market research, that indicated that the return on ad spending did not justify an aggressive marketing campaign at the time. Typically, he said, most companies look to generate 2 dollars of revenue for every ad dollar spent. As we look back at the economy over the past 12-18 months, we can see how this makes sense. Last week, Sirius XM Radio announced the November 15,2009 launch of the most aggressive ad campaign in the company’s history.

Needless to say, this caught my attention as it signaled to me a major change in direction. The company made clear that this is to be a branding campaign rather than a product campaign. As an example, Apple (AAPL) brands itself rather than any specific product. Microsoft (MSFT) on the other hand tends to promote specific products such as Windows 7 rather than its brand. Branding campaigns are commonly used by companies to establish themselves as “Best of Breed.” Product advertising will occur from retailers such as BestBuy (BBY) and RadioShack (RSH), leaving Sirius XM free to reinvent itself in the public eye.

Even now, there are many people that have no idea of what Satellite Radio offers over competing products and services. Many do not know that Sirius and XM merged and still others believe that Satellite Radio went out of business last year. A properly executed branding campaign has the potential to bring a new awareness and excitement to consumers. According to The Martin Agency which handled a past ad campaign for Sirius, the “Dominoes” campaign helped the company increase its subscriber base by 38% on a year over year basis. This campaign was launched at a time when retail growth accounted for most of Sirius’ subscriber growth. I would argue that even greater potential exists now.

A branding campaign at this time has the potential to not only increase retail sales, which many will no doubt be focused on, but on every platform in which Sirius XM adds and retains subscribers. There are millions of vehicles on the road with deactivated satellite radios already installed in them. An ad campaign of the magnitude promised has the potential to bring back many of those lost subscribers. It can help to increase penetration rates in both the new car and certified pre-owned markets. It has the potential of giving a boost to the penetration rate of cars sold under the cash for clunkers program, as those free trials expire in the coming months.

As awareness and excitement build, churn is likely to decrease substantially as well. All of this comes in addition to the expected rise in fourth quarter retail sales due to holiday sales and the award winning XM SkyDock’s increasing popularity. There is an old ad slogan that states “a business without a sign, is a sign of no business.” Look for Sirius XM Radio to unveil its new sign this weekend that I suspect will feature a wide array of its star lineup and exclusive content offerings.

Position: Long SIRI

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