By Brandon Matthews
As the week begins, we at Satwaves are looking forward to reporting from Sirius XM Radio’s (SIRI) holiday hardware and accessory event this Wednesday, August 26,2009. Already the excitement is being felt around the world as news of a new dock that will convert nearly 40 million Apple (AAPL) iPhone and iPod devices into fully functioning satellite radios begins to radiate throughout the world wide web. Although the stock of Sirius XM Radio has been on a tear recently which has investors giddy over their above average gains, the real winner is the satellite radio consumer.
Investors and analysts alike tend to focus on certain numbers with a tunnel-vision type of mentality. As an example, let us assume that the acceptance rate of those people that are first exposed to Sirius or XM through a promotional subscription stands at 50%. Investors and analysts are all too happy to completely discount the 50% that decided against the service and focus on the 50% that subscribed to either service. This is due to the fact that the revenue is of course generated by the subscriber rather than the non subscriber.
Sirius XM seems to have instead decided to focus on the potential consumer that did not opt for service, as it is this segment of the market that provides the feedback necessary, to guide the relatively young company on improving the product in such a way as to increase the acceptance rate in the future. Most investors are aware that higher OEM penetration rates can help to offset slowdowns in new car and truck sales. Likewise, a higher acceptance rate can do the same.
In the beginning, satellite radio was a product that made its mark predominately in cars. The focus was content exclusivity. Unfortunately, many potential subscribers do no not spend enough time in a car on a daily basis to justify the expense of a satellite radio subscription, even at under .50 a day. Separate home audio and portable units made their way into the market, but in most cases the cost of hardware was too expensive for both the consumer and company itself to justify any cost of promotion.
With online offerings, Sirius and XM succeeded in adding value to the subscriber experience by allowing subscribers to listen to their favorite music, news or entertainment stream while sitting at their computers. This meant that people could now listen to Sirius XM while at work and not just in their car on the way to the office. Recently, the company began offering an app through Apple’s iTunes store, which enables subscribers to listen on the go, and the new dock for Apple devices provides a means for potential subscribers to add the satellite radio function to any car or boat at a minimal hardware cost.
New plans provide for a la carte offerings also, which means lower priced consumer options are available also. All of these moves should begin to pay dividends in the subscriber acquisition rates as 2010 and a yet uncertain future economic climate loom. Investors will always have ups and downs to endure, but for the satellite radio consumer, the experience just keeps getting better. Sirius XM continues to add value by continually offering more listening options to both its subscribers, and potential consumers.
Position: Long SIRI
i think many have forgotten it was XM that has always been OEM driven with their GM initial deal–When Sirius started to add subs, it was their receivers purchased in Best Buy, Circuit City etc as the bulk of their sales came from that area, especially after Stern was signed–Go look at the figures
Only later did Sirius OEM sales catch up to XM and then it seemed like they forgot how they got on the map originally, which was thru the store/direct internet sales–If they only could rediscover that ON TOP OF the Oem sales would the subs really start to rocket up–New Products sold at Xmas at Best Buy, Crutchfield, Radio Shack etc. with jazzy cool portable displays that got this ball running intially would really go a long way to adding to the bottom line–When i go to BB now, they are tucked away in the back with everything else–This was not the case a few seasons ago–
By the way, i havent seen any NFL promo for sat radio yet
How about a cash for clunker am-fm radio’s thru the dealers for a holliday special.
Why not add the price of a lifetime sub into the MSRP for new cars equipped with sat. radio? The money is paid upfront to SIRI and the customer makes the monthly payment to whoever finances the deal. I would think subs would increase if new buyers could roll this cost over into their monthly payment.
What do others think?
Sirius XM Radio seems now to be on a path of finally doing everything right. Senior executives at the company have substantial option grants at .43 that vest into the future – completely aligning their interests with those of shareholders and indicating that downside potential from current levels is really limited. Any holder of long positions can view the .43 level as a true “floor” under the stock – as these executives most certainly view safeguarding and building against this level to be the major part of their “nest egg” into the future. Given the great potential for subscriber growth that Sirius now holds – with the ageing U.S. auto fleet in need of replacement and upgrade in future years, and new wireless platforms that are being developed for satellite radio – upside potential for SIRI far exceeds this limited downside risk into the future. Normal backing and filling to consolidate measured gains along the way should not be interpreted as any shift toward weakness; The technical framework remains dominantly strong over an intermediate to longer term horizon.