Sirius XM Radio Subscription Service To Be Offered In Mexico

By Relmor Demitrius -

Sirius XM Radio (NASDAQ:SIRI) filed its 10-K Annual Report on Thursday, February 25th.  It was another strong quarter for the company, improving further on their operating income and free cash flow year to year.  Also reporting this week was Liberty Media, which owns 40% of Sirius XM, within Liberty Capital (Nasdaq:LCAPA).  They also mentioned all the positives about the company, and that they may seek to add more shares in it as well.  Not many I’m assuming, as they cannot add more than 4.9% more right now, according to their own agreement with Sirius XM.  They could add more than that after 1 more year, but more likely 2 years would be the target time frame for anything to happen in this area.

Highlights include:

• Positive Free Cash Flow for the entire 2009 year.
• Have had two consecutive quarters of positive subscriber growth.
• Reported that almost 100 percent of the royalty rate charges had hit subscribers, of ones that could possible be charged.
• Positive Operating Income
• Beat EBITDA estimates and guidance for 2009.
• Reported Break Even Earnings, beating the street consensus by 200%.

Despite paying down outstanding bonds, huge interest payments on their debt, and it being one of the worst economic years in decades, Sirius XM left 2009 with around the same amount of cash on had they started the year with, and even added 3 million to their totals in Q4 from Q3 of this year.

Also reported in the filing was news that Sirius XM was involved with discussions to begin offering the subscription based service to Mexico.  This is apparently the company finally adding specifics to this past mention in other reports from the company:

“Other regions . We are in discussions with various parties regarding possible joint ventures in other countries.”

Steve Garcia, of Kingofalltrades.com, offers a more detailed look this morning at what Sirius XM may be referring to here in this sentence.  Please visit the site for other articles concerning Sirius XM’s global plans.

Written on the current 10=K report just above this line that also appeared on the 10-K report from 2009, is this added paragraph:

“Mexico . We have entered into a letter of intent with a Mexican company, ACIR DARS Mexico, S. de R.L. de C.V., to pursue a license to offer satellite radio in Mexico. ACIR DARS Mexico has filed an application for a license to offer satellite radio with the Mexican government. The letter of intent contemplates us receiving a royalty from ACIR DARS Mexico as well as an option to acquire an equity interest in such Mexican business. ”

This is apparently the first written added detail to their expansion plans.  They entered into agreements to service Canada and now of course Mexico is the next logical choice, as their satellite coverage already covers this area.  This is also why they are working on beginning service in Puerto Rico as well.  With Sirius 5 launching successfully in 2009, Sirius XM has expanded coverage, and has a much more reliable signal.  They also expanded their reach on this side of the hemisphere.  XM 5, which is set to launch this year, will add further ability to cover other areas, and strengthen existing areas as well.

Lets have a look at what this business model with the Mexican company, ACIR DARS, might look like.

According to their website, ACIR DARS, has been in business for 40 years.  They reach 19 cities in Mexico, and they are industry leaders in wireless transmissions and data processing.  They have deals with Clear Channel and other large media companies.

This company will probably handle the sale and distribution of retail radios, as well as maybe offering it as a package at the new car level.  Knowing the radio market in Mexico, I’m assuming they will handle the details of this.  If they get a Mexican subscriber, I believe the costs to bill that subscriber, upkeep his service locally (within Mexico) and marketing costs will be their reliability.  If they get a subscriber, we will get a royalty payment for that subscriber.  If conditions ever prove fruitful, there will be a clause or a way in the contract for Sirius XM to actually own a piece of the entire action, similar to how they own part of Sirius Canada and XM Canada.

This is obviously a win win for Sirius XM, as they will have limited risk, and will be able to add revenue outside of their existing business model.  As investors know, any changes to an existing business model is huge news, if it’s positive of course.  This is of course only possibly the beginning to Sirius XM’s global plans.

Disclosure: Long SIRI