By Relmor Demitrius
Sirius XM Radio (NASDAQ:SIRI) is a huge revenue generator for car manufacturers. Every year Sirius XM pays out over 200 million dollars to their OEM partners to keep their radios flowing into the new car market, at around a 60% penetration rate. Of these 60% who buy a car with satellite radio, 46% of those people choose to keep it after the promotion trial runs out. As you can see by these percentages in the OEM market adding subscribers in this method is very efficient. To get 46% of people exposed to your product who end up paying for it is very impressive, especially when considering the penetration rate as well. The money spent to car manufacturers is money well spent and necessary for the exposure and sustainability of the product. General Motors and some other car makers actually get a small portion of the OEM radio lifetime revenue generating ability. As long as that radio GM installed is in use and being paid for, GM makes money every month on that subscriber. The only companies that we know what exactly is paid to them are the companies that are also considered insiders, and hence full disclosure is in order. This will change however in Q3 of 2010, as GM will no longer have a director on the board, and will no longer be considered an insider.
In 2009 Sirius XM announced they reworked the GM contract.
“We entered into an agreement with General Motors to extend the term of XM’s distribution agreement to 2020, to improve the economic terms of the arrangement….” From Q1 2009 10-Q.
We should see some noticeable benefit from this deal by now. If we compare percentage of GM revenue and royalty sharing costs to their overall revenue percentage, we can see if any improvements are being made. Going with percentages removes fluctuations in total revenue, and we will assume steady GM sales throughout. There will be of course some degree of error as GM sales are not static. But compared to overall percentage of cars sold by all brands, the difference should be negligible.
In Q1 of 2009 before the GM contract was reworked, 2.9% of total revenue went to pay GM revenue sharing agreements.
In Q2 of 2009 it dropped to 2.2% of total revenue.
In Q3 of 2009 it was 2.3% of total revenue.
In Q4 of 2009 it was 1.8% of total revenue.
In Q1 of 2010 it was only 1.3% of total revenue.
Looks like the effect is indeed noticeable. This is a nice cost savings on this OEM contract, one of the first to be reworked, and one of the huge synergies of the merger finally coming into play. By the time all OEM deals are reworked with only one negotiator, instead of two (Sirius versus XM instead of now the combined company) further improvements in the line item of Revenue Sharing and Royalties should be forthcoming. It is nice to see Sirius XM is delivering on promised synergies and will be proactive in improving the company metrics.
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Disclosure: Long SIRI
first
buy buy booey!!!
Short intrest well isnt this a fun category to look at. Lets see 160 million shares short as of now. Hmmm Yesterday volume of 35million give or take. Its after lunch and we are at what 14 million. Now every blog and anyone with a share in sirius seems to comment on it. Very passionate group we aren’t we. And we do hold 78% of the shares outstanding correct (before you say it liberty, but they cant do anything right now except a tender offer)? So pass on the word to retail investors we have the power at the moment. Short intrests can be squeezed if we continue to hold. Dont buy and Dont sell. Just hold. 160 million gets called and they will scramble to cover correct. 35 million shares a day would take them 4 and change days to cover. Now say us little retail investors dont move. We dont even breath. Say we get that number up to 6 or 7 days to cover. Where would our price be than. Dont sell, dont buy, dont even breath. Lets put a little squeeze play of our own on now. Just an idea let me know what you think.
Good article. I agree we have not yet seen all the benefits of the Siri-XM “synergy”!
Of course like many articles this one is seriously flawed. If revenues go up then the percentage goes down. It does not mean they are paying less to GM and does not prove it is paying off since they have agreements with other car companies driving the revenue up. This does not prove what is paid to GM is better now than it was before, it proves that as other lines of potential revenue increase GM is a smaller % which means absolutely nothing. For instance, if Toyota increased its sat radio sales 100% and GM actually went down, the amount paid to GM would be a smaller % of revenue as you are outlining.
Nice job filling up more cyberspace with drivel though.
Actually you have a point, but not in this case. The time study will show GM with consistant market share, and sub totals are almost level from Q1 to Q1. Only revenue increases come from royalty rates, and removing these shows very little difference in the percentages. Lets put it this way. We paid GM 17 million in royalty revenue in Q1 of 2009, we paid 9 million in 2010. You tell me that GM market share dropped in half in 2010 vs. 2009, or difference in total revenue minus royalty charges are 605 to aroudn 610 million. So yes, the article is effective if unefficient in its method.
Jeff
you’ve got lots to learn about markets and how they work. Here’s a glass of koolaid.LMAO
yes, there is only one satrad, however, wouldn’t it be prudent to keep in mind that pandora hired the very person who set up satrad’s initial OEM contracts? he knows what the car companies want and will be trying to set up similiar contracts, yes?
Well Bubba enlighten me.
Hey Wiseone i mean “Bubba” why dont you get lost?…… Seriouslly…. Dont pay attention Jeff shes not to be taken seriouslly shes a SHORT run shortie run shortie LMAO!!