Mel Karmazin has a way of sneaking information into presentations. In the Sirius XM (SIRI) annual stockholder meeting, many picked up on the line in the Power Point presentation that states “Launching Apple (APPL) iPhone/iPod Touch and Smart Phone Applications“, which makes it apparent that other programs are in the works for Research In Motion’s (RIMM) Blackberry, Microsoft’s (MSFT) Windows based phones, and other PALM (PALM) based mobile phones. That is definitely opens up the doors for more potential subscribers.
It has been a few weeks since the Q1 Conference Call, and one thing that I realized is that nobody caught Mel’s reference to a subscription rate increase. For those of you who missed it (like most apparently did), I will quote it for you. From the Seeking Alpha transcript on page 9:
Mel Karmazin
“Yeah, and the only thing that you should also be aware of, and it was in the FCC order, that the company until the first anniversary of the merger, would not be in a position of passing along any costs connected with those copyright royalties and the first anniversary of that royalty is, call it August 1st, but again there is nothing else new to report.”
If you go back and read that section of the transcript, you will realize that Mel went out of his way to interject this fact as an aside after the question that was asked had already been answered by David Frear. Could Mel have been hinting that this was something that was already in the works? I believe he did.
Going back to the 2008 Memorandum Opinion and Order and Report and Order, page 93, Appendix C, paragraph 2 states:
“After the first anniversary of the consummation of the merger, the combined company may pass through cost increases incurred since the filing of the combined company’s FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees.”
Basically, as of August 1st, Sirius XM has the ability to raise rates in order to cover costs associated with royalty rate increases (finalized December 4th, 2007) as well as contractual agreements related to sound and device recording fees. (Remember all of the lawsuits XM settled right before the merger was finalized?)
Granted, a price increase at this time is risky. They have already enacted a similar, royalty induced price increase on Family Plan subs and Internet listening, not to mention the fact that we are in a major economic slump. Would adding an increase to the cost of the base rate infuriate many people?
I think a rate increase would generate more revenue than would be lost, and would be a positive addition to the bottom line for the company.
- David “Newman” Phillips
Disclosure: LONG SIRI & RIMM. No position in any other security mentioned.
Great point…. and good pick up…. I agree with your take and remember arguing the 3 year freeze on pricing concession from the FCC wasn’t so bad as long as they could pass on expenses. Passing on these costs improves margins and if “Marketed Correctly” (here we go again) could have a positive impact by “advocating” that Artists get their FAIR SHARE. Most price increases for services are about passing costs through that are beyond the company’s control anyways. Maybe getting a chart out to show what SXM pays to Artists compare to the “so called” competition would help, having a group of Artists present it in a commercial for Satellite Radio. Even a $1 a month or $12 per year would be a nice offset of expenses with minimal loss in self paying subs IMHO
Revenue and royalty share expenses went from 42,320,000 in the first quarter of 2008 to 100,466,000 in the first quarter of 2009.
Maybe getting a chart out to show what SXM pays to Artists compare to the “so called” competition would help, having a group of Artists present it in a commercial for Satellite Radio. Even a $1 a month or $12 per year would be a nice offset of expenses with minimal loss in self paying subs IMHO
cos 1000…that is a great way to present it. I have to believe many Artists would be on board and do that advertising for the company.
It was odd when Mel Karmazin interjected that into the Q&A. This was the hint of what’s to come. My prediction is a base sub raise to $14.95. This will impact the bottom line much more positively than the family plan increase, as family plan subs are a much smaller percentage of the sub mix.
I don’t think that $1.00 and month or less would have any great effect on the subscriber count. The only bad thing that I see is the bashing that would happen if they usesd Brandon’s headline with a !!!!!!!!!! instead of a ?.
Sirius XM To Raise Rates?
Sirius XM To Raise Rates!!!!!!!
@Brandon Matthews
Brandon…. good info and those numbers do reflect their annual expense because they pay the fees in February of each year, not quarterly….
$42M to $100M how much is ROYALTY vs REV sharing? I still am completly confused how Pandora Payed $17M in royalty’s in 2008???? If Internet royalty’s are higher then SIRIXM AND Slandora plays MORE music per hr then SIRIXM (skips,automated, and who knows how many individual channels per listner) How the $$^$#^%$#^%$#!^T is it only $17M YES it is much higher % vs total REV ($25M) but with Pandora expecting $40M in Rev in 2010 it is beyond me how royalties are not 3X that #?????