Sirius XM Radio Returns to Subscriber Growth During Brutal Economic Conditions
By Relmor Demitrius -
Sirius XM Radio (NASDAQ:SIRI), which is 40% owned by Liberty Media (NASDAQ:LCAPA), achieved something few companies in their industry, if any, did in 2009:
They came out of 2009 in better financial shape and returned to subscriber growth during one of the most difficult economic periods possible. 2009 was a troubling time for the newly merged radio companies. Huge debt obligations were due, the economy was in shambles, and the auto industry wasn’t selling enough cars.
What a difference a few quarters can make.
The satellite radio company entered the year with 19 million subscribers. After losing 500,000 subscribers in Q1 and Q2 combined, they regained 105,000 back during Q3, reversing the trend. That leaves them with around 400,000 subs under what they started the year with as of Q3.
Let’s run the numbers and see what Q4 will probably look like:
October through December auto sales totaled around 2,593,000 for the United States. Penetration rate of the company’s products in these vehicles was going to be in the high 50’s, according to Mel Karmazin, CEO of Sirius XM Satellite Radio. Im going to assume 58%. By this figure they should be adding (from the OEM channel) around 1,503,940 new subscribers, while losing around 1,053,000 from deactivations (assuming a 1.9% churn rate, lower than last quarters, but higher than Q4 of 2008). Im giving credence to improved economic conditions, but also still accounting for a supressed economy. 1.9% churn should work for this calculation. During the last 3 quarters churn has been 2.2%, 2.0%, and 2.0% respectively. Assuming 1.9% in a traditionally strong churn quarter is fully reasonable given the conditions.
So from the OEM channel alone Sirius XM Radio should gain approximately 450,385 new subscribers in Q4.
Retail subscribers will affect this total however. Last quarter SIRIUS XM Radio lost around 400,000 retail subscribers. This is due primarily to line up changes, lag in new radios, switching to OEM promo subs, upset over royalty fees, internet charges, and confusion with the merger and bankruptcy scare.
This caused distribution, innovation, and huge marketing delays. Sirius XM has now corrected all these problems.
In the 4th Quarter, Sirius XM Radio launched an advertising campaign to sell the brand more aggressively to consumers. Also heavily advertised were a slew of new radios, including the Skydock, made by Audiovox Corporation (NASDAQ:VOXX), which just noted strong satellite radio sales in their quarterly report. Reports had been circulating that Audiovox had possibly 300,000 units into the market, and expected these units to move quickly. The Skydock appears to be a strong seller, as reflected by interest in the Skydock’s software application, which is showing high download rates. It was in the top 50 free applications from Apple for months. Every download of this application would be for the sole purpose of activating the radio, so these numbers directly reflect an increase in subscriber numbers from Skydock alone. Some internet sites and retailers completely sold out of the Skydock itself.
This unit allows satellite radio to play with Apple’s (NASDAQ:AAPL) Ipod and Iphone products. Also factor in another 3 months of the iPhone/iPod application, more time removed from all those mentioned negatives to consumers, and I believe retail will finally start to settle down. This would be huge to their subscriber totals because the OEM channel is now a plus again due to auto sales rebounding nicely by the end of the year.
However, trends are trends for a reason. Until I actually see this trend reverse, I cannot assume it will simply on improving conditions of the retail market. Best Buy, Radio Shack, and other retail outlets have been aggressively marketing these products, including the Apple Store.
With all that in mind, I’m going with a loss of 100,000 retail subscribers, a huge improvement from Q3.
Economic conditions seem to be improving, and Sirius XM Radio has weathered 2009 far better than most, with almost the same number of subscribers it went into with.
Q4 total Subs. : 18,865,000 subscribers
Total gain : 350,385 new net additions
Churn : 1.9%
Penetration Rate : 58%
Self-pay subscribers will probably uptick slightly as well. These are the permanent customers who pay monthly for the product, and are not counting promotional subscribers in this total. I’m looking at still under 16 million here, but with small improvements. I am using improved economic conditions, less confusion about the company and product, and a host of new and exciting products from the company, like the recently announced XMp3i, which is a portable Mp3 player and satellite radio, the Sirius Stratus 6, which can host the a la carte packages from Sirius XM, a new Garmin/XM radio for the motorcycle, and of course the XM Skydock for the Iphone/Ipod. Audiovoxx reporting strong sales supports this theory. These are the same reason I expect the retail sector to lose less subscribers than last quarter.
My next article will be for earnings projections on Q4.
Disclosure: Long SIRI
