Media Companies Archive

By Relmor Demitrius

     Sirius XM Radio (NASDAQ:SIRI) is the king of the dashboard.  No other company has a greater presence there.  Ford Sync and other automaker gadgets that allow easier access to the internet isn’t really designed to benefit any one company.  AM/FM radio in the car benefits a large multi company conglomerate of terrestrial radio stations, but no one company.  Sirius XM has much of their success tied directly to the automobile dashboard and the “drive time” consumer.  Sirius XM is in over 60% of every vehicle sold in the USA and has deals with every major car manufacturer.  This is all great and good for the new car market, but what about all those used cars on the road and on lots with radios in them that are not activated.   Can Sirius XM create a “second net” to catch even more subscribers than simply from a new car purchase?  Can we start to see proof of success in the Q2 filings?

A few years ago Sirius XM began directed their efforts to what is called Certified Used Car Programs, or CPO’s.  These are usually from new car dealers themselves.  CarMax and other larger companies are also easily targeted, as they are national companies that deal with a large volume of yearly sales.  It is a lot easier than attempting to contact individual used car lots and deal with the Ringo and Butch Used Car lot.

Sirius XM has most CPO programs up and running now, recently adding a very important GM one that allows all GM dealers in the country who sell used cars access to this trial offer.  There is motivation from the dealer to promote our product.  It helps sell a used car versus another guy who isn’t offering 3 month free satellite radio. Almost everyone likes satellite radio versus terrestrial radio; the difference is those willing to pay for it.  I think we can all agree if it where free, no one would turn it off.  So getting people exposed and addicted to it is vital.  In this “second net” situation, Sirius XM has another way to generate new subscribers were in the past the only real way was over the counter radio purchasers or the smart phone (which is also relatively new and expanding with recently adding Howard Stern and the NFL to is lineups).  Also, this line item does include all internet only subscribers and smart phone only subscribers as well.  However, we can assume any strength here is directly tied to the area Mel Karmazin, CEO of Sirius XM Radio, discusses the most.  One can also use logic considering how many potential used car promotional trials could be in play right now.  A point to consider is the GM deal would not have any benefit on self-pay numbers as of yet.  So we can look forward to Q3 and Q4 for maybe even further signs of improvement.

As the used car industry becomes more and more consolidated, Sirius XM gains a big advantage in communicating their product again to those who may have turned it down before, or the consumer who never buys a new car.  These dealers will now give a promotional trial with the used car purchase and can activate the radio at the end of this trial.  Since this is not a new car situation, there is no initial cost to turn this radio promo on and possibly no revenue sharing that would be required.  Some radios have life-long contractually revenue sharing obligations if that radio were to become a self-pay subscriber (permanent month to month paying customers not on a promotional offer).  These CPO subs wouldn’t be counted as a promotional subscriber at any point in the process.

CPO subs, in past filings, would have been counted in the “retail” side of the subscriber totals, which has been a negative on subscriber growth for at least as long as 2008.  Basically if Sirius wasn’t adding subscribers from new car sales, they weren’t adding them.  After their latest filing this may soon no longer be the case.  When I say they aren’t adding them, I mean they are adding retail subscribers, yes, but not as fast as they were losing them.  The “net additions” on the retail side was negative.  Only OEM additions were consistently positive.  Now to focus on this trend to this date, what we have to do is add back information that Sirius XM removed.  They stopped us from noting the trend continuing to improve or not.   Here is a chart of the missing data and the trend I was following closely.  That’s ok.  I will fill in the blanks for Q2 2011 and see if retail line item is still causing the company to lose subscribers or not.

	Q2 2011	Q3 2010	Q2 2010	Q1 2010	Q4 2009	Q3 2009	Q2 2009
Gross Sub Additions	2,179,348	1,952,054	2,020,507	1,720,848	1,882,590	1,606,446	1,380,125
Deactivated Subs	-1,727,201	-1,617,327	-1,437,258	1,549,407	-1,625,922	-1,504,151	-1,566,124
Net Additions	452,147	334,727	583,249	171,441	257,028	102,295	-185,999
Retail Ads	?	-188,884	-142,757	-305,547	-200,154	-309,972	-301,295
OEM Adds	?	529,798	709,226	460,487	442,422	407,131	123,165
Net Additions	452,147	334,727	583,249	171,441	257,028	102,295	-185,999
Self Pay Ads	362,663	258,105	304,043	69,739	247,182	35,405	-14,996
Paid Promo Ads	89,484	76,622	279,206	101,702	9,846	66,890	-171,003
Net Additions	452,147	334,727	583,249	171,441	257,028	102,295	-185,999
Monthly Self Churn	1.9	1.90%	2	2	2	2	2
Penetration Rate	65	62	60	60	60	58	55
Vehicles Sold in Q	3259046

As you can see by this chart it was trending down anyway, much before this quarter.  I had noted in the past that it would be a game changer for their metrics if they could ever add significant subscribers through the now removed retail subscriber line item.  Was Q2 the first Q this went positive?

Using subscriber OEM deactivations of 1.65 million based on lagging 3 to 6 month average vehicle sales (here is where you use the take rate), I determined that OEM additions for Q2 were around 468,379.  This is using 64% penetration rate and 3.25 million cars sold.  So if total additions were 452,147, then we know total retail additions were (16,232).  Very close and very exciting to see this metric is still improving.  This is a guess actually of course.  It could have actually gone positive by a few subs.  As you can see it is no longer hindering subscriber growth.  The trend more than likely is improving and I have attempted to prove that here.

Now with the coming of Sirius XM 2.0 later this year, retail subscriber growth may accelerate before the new radios even have a chance to be added to the OEM dashboard lineup, which will begin being sold in cars in 2013.  With 2.0 adding personalization features, on demand ability, pause, rewind, and replay functions, as well as WI fi and increased channel capabilities, there is now an actual reason for retail customers to update their radios.  This should further improve the retail subscriber numbers.  Heck, we might even be able to get some OEM radios out that are paying revenue sharing and replace them with 100% revenue sharing free radios.  That would help ARPU.

Another factor in retail subs possibly reversing is the decreasing number of retail subscribers turning into OEM subscribers.  This was happening a lot from customers who had traditionally used a retail radio, but preferred keeping the OEM installed radio instead with the free trial attached.  When the promotional period is ending, a lot of retail subs are simply converting to the OEM side.  This is going to start phasing out now as people become twice exposed to the product and simply are converting now one OEM sub for another.  New customers exposed only through the OEM side will now stress the original retail subscriber’s numbers who didn’t have the option of an OEM entry to the product.

The major reason and why I think going forward subscriber totals can even accelerate their current growth, is the CPO channel.  With GM dealers across the country and most other makers offering used car programs as well, Sirius XM has found another way to reach a consumer base that is drive time oriented.

Disclosure:  Long SIRI

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