By Brandon Matthews
I recently wrote an article regarding the futility of estimating potential subscriber numbers when it comes to Sirius XM Radio (SIRI). For years, Sirius XM inflated its subscriber numbers by reporting OEM promotional subscriptions and self paid subscriptions as a single, all inclusive barometer of Satellite Radio’s growth. As auto sales have slowed, that strategy has come back to haunt the company. Promotional subscribers peaked in the second quarter of 2008. A weaker auto environment in the second quarter of 2009 all but guarantees a loss in promotional subs year over year when the company reports its second quarter results in early August.
None of this is a surprise, however, because none of this is important in that the promotional sub “yardstick” was always a flawed measure of success. The true measure of any company’s success or failure has always been and should always be, its potential and actual revenue growth. Everything else is just smoke and mirrors. As an example, Wall Street does not particularly care how many people clicked or placed a Google (GOOG) ad last year so much as it cares how much Google realized in actual sales.
In the past year, Sirius XM Radio has managed to engineer some ingenious methods of growing revenue as it controls costs. One example can be found in the recently imposed $2.00 royalty fee. This modest increase although less than consumer friendly, is applauded by Wall Street. That small $2.00 fee alone can mean $30 million a month or $360 million a year in increased revenue based on only 15 million subscribers. Premium Internet streaming, which is required for iPhone users carries a $3.00 charge. Other upgrades can cost 4.00 per month or more.
None of these new revenue streams were available last year and all of the preceding are reasons to expect significant year over year revenue increases when Sirius XM reports its second quarter results in the coming weeks, which could result in the company posting a first ever E.P.S. profit despite a weak economic environment.
Position: Long SIRI
Absolulety on the money. 100 million subscribers does nothing if you can’t turn a profit off them. This should be the focus going forward. Once costs are cut and an operating profit is achieved new subscribers are that much sweeter.
Funny. Ive actually seen enough to be convinced the business model will now work. Its evolved just enough to give me hope and have faith that an economic rebound might help Siriusxm a bit more than a normal company. Lets assume 2 straight years of auto sales back over 12 million.Once the worst quarters auto numbers “work through” the company, and it reverses, we are going to see a sub explosion again. They have proved with just 15 million self pay, and a higher ARPU and SAC they can become profitable right now, minus one time charges and CAPEX. So either best against the econonmy or for SiriusXM, because they seem tied together now.
While I agree with you in principal about revenue…you can’t keep trying to squeeze blood from a stone. Without continued growth, there is only so much Sirius can keep charging extra for. Because if growth is slowing, you don’t want to bite the hand that feeds you or you’ll lose even more subs.
And like you said, the bashers will keep trying to shift the focus to slowing growth and lost subs. They’ll spin the focus away from revenue again and again….or even turn that into a negative like I just did above.
Sirius CANNOT be content with squeezing their current base for more money…that is RIDICULOUS. They have to balance it with more AGGRESSIVE growth plans. They have to really go after the internet market by creating a direct Pandora/Slacker type feature to entice more people to chose Sirius over those two. They have to begin marketing their product and service more.
If they don’t do this. If they don’t balance the revenue growth and merger synergies with more aggressive growth plans, it’ll be an example of diminishing returns. If subs keep dropping, and they keep raising rates and adding fees to compensate without further growth, they’ll be dead in the water.
Sirius has to be DOMINANT in the internet and in the car. They have to become the MUST HAVE AUDIO app. They need to attract more ears and eyes to their product. To increase it’s “COOL” factor. Some of these merger synergies and revenues have to be used to market their product better. Yes, it was good to finally see some print ads promoting the iphone app. But they have to kick it up a notch now. They have to IMPROVE the iphone app. Not just trying to cut a deal with Howard to get him added….or to expand the current app to blackberries and other smart phones….but rather to IMPROVE the app itself. Add more features to it….the most important of which I mentioned above by adding a Slacker/Pandora feature where people can create their own radio stations. By doing this, they remove slacker and pandora as a threat. Sirius can EASILY mimic them….but it’d be IMPOSSIBLE for pandora and slacker to mimic Sirius’s unique content. NOW is the time to strike. To put a stake thru the heart of the internet competition which just got hit with a 25% of their already small revenue to go to royalty fees. Hit them NOW while they are weak. Steal their eyes and ears away from them. Make it pointless to choose them when Sirius offers ALL that they do and SO much more.
Anyway…I’m on a roll. My point is Sirius has MUCH work to do and cannot rest on increased revenue alone.
If they do, they’ll risk losing even more subs.
No, they have to make the product even BETTER, and they have to then MARKET that product better.
A creative and aggressive ad campaign must be one of the top priorities as they add the features I suggested above. We need a nationwide tv campaign that is creative, fun and MEMORABLE. Sirius has a HUGE pool of talent to use in their ads, from musicians, and comedians and talk personalities. Sat radio is a cool product. They just need to let the nation(and the world) KNOW it!!!
About the tv ads….Sirius can start now with small teaser ads on tv….leading up to the Mac daddy of tv ads…the SUPERBOWL.
But they need to start now. Get a group of young creative advertising types to really let loose and create something exciting and fun and fresh that will stick in the nation’s consciousness.
I’m telling you, it’ll work if they do it right.
Right on bubba…..something akin to the classic Apple-Big brother ad…
Exactly Skyking. Something. ANYTHING.
They’ve got a great product. They’ve got the unique talent. How hard can it be to create a memorable ad? Until they do this, they’ll just be relying on their loyal base. And if they keep raising rates and not improve their service, they’ll slowly lose that base.
How cool would it be to see a Sirius tv ad that wasn’t just a voice over mention in a car ad????
I want to see a solo….stand alone friggin SIRIUS XM ad dammit. As popular as the iphone app was….there are SO MANY people who have NO idea what Sirius is, or how COOL it is.
Sirius just needs to market that coolness better.
Bubba..
I have another article coming out at 11 am that I think you’ll enjoy.
Sounds good. I look forward to it. Cheers!
Well once again Brandon, you prove your extreme bias and inability to face reality.
You claim the $2.00 royalty fee as revenue growth, but the fact is this is immediately paid out to cover that fee. Thus, this fee is a wash and does nothing to help the company turn a profit. So in your usual fashion you look at half the picture to continue to convince yourself you’ll get back to your $7.50 shares.
Another pathetic example of extreme bias refusing reality.
knowitall, you are wrong here….brandon is right. while the revenue here merely matches these costs here, these costs previously were not paid, but were instead just going into the expense line item. now there is an expense AND REVENUE line items. therefore, this is in fact REVENUE GROWTH!
I think knowitall should change his name.
Might I suggest knownothing?
@Knowitall
Where do you think the money came from before? Correct! Other revenue! Duh…
@relmor2003
RELMOR, I agree with you 100%. This company took a hugh hit from this economic downturn, mostly from the car industries free fall. They were right in the mix with other auto parts suppliers,if you will. But in the mean time they have been stream lining their cost of doing biz while also putting the expensive & succesful merger behind them. As I have stated many times before, they have positioned this company to be in the fore front of an economic turn around. I may not agree w/ everything they have done (looking from the outside) but they are doing a lot of good things.
@Knowitall
Well Knowitnot,actually the royalty is already factored into the sub price and paid directly out of the general fund,so that $2 for month to month sub and .97 for second sub goes directly to the bottom line,to the tune of about $300 mil a year..Anyone on a year or longer subscription plan pays nothing until they renew..
One of the possible LARGE revenue streams is still the likely possibility of beaming the signals to Mexico, Central America and South America and selling subcriberships to the potential Mexicans (109,955,400), South Americans (382,000,000) and the Central Americans (41,135,300). I don;t think the population count has been missed by Sirius XM. Remember – two antennae ( not one as reported here) – one new geostationary satellite 18KW of power available. This satellite should bring a large amount of new commercial and consumer customers to the fold. This satellite and the next FM-6, both with the added “video” bandwidth opens a whole new world of finacial rewards for Sirius XM.
Indeed. This stupid fee is not the way to growth–it’s basically a wash. That is the difference in vision and short sightedness…pumping up a fee as great revenue growth is ignorant at best. Revenue growth is about bringing in another 20 or 100 million subs….rookies & newbies..of course they pump up EVERYTHING they read as their way to riches..
the best thing about this site is that I can simply ban idiots like knowitall…GONE…LMFAO!
It really turns me off to hear about new fees and increases. Like bubba says, that’s no way to increase subscribers. The $2 is 3 times what their royalties are. They were paying those royalties already out of existing fees. People have value judgments about price, and I don’t like their fee level now.
How many of the iPhone downloads turned to activations?