Sirius XM: Long Term Gain Will Follow Short Term Pain

May.14.09 | About: Sirius XM (SIRI)

Sometimes I think that there are media elements at work that exist for the sole purpose of creating fear and doubt among Sirius XM (NASDAQ:SIRI) investors and consumers alike. This fear tactic works in two ways. It first creates a negative sentiment in persons invested in the company. This negative sentiment grows like a cancer as more and more individual investors take losses on the equity, and simultaneously causes these now former investors to develop a dislike of the company's products and services.

The second function of these negative media attacks is to create doubt regarding Sirius XM's future viability. In doing this, they dissuade would-be consumers from making the required initial hardware investment and becoming long term subscribers.

My case in point would be the negative media attack on Sirius XM since last Thursday. Article after article has been written regarding the loss of subscribers reported by Sirius XM. They use headlines of General Motors (NYSE:GM) and Chrysler bankruptcies as ammunition against Sirius XM's future growth.

Sirius XM had already responded to these attacks before they had begun, yet few people have cared enough to pay attention to the brilliant way in which the company has prepared itself going forward. I am again referring to the recent conference call in which the company reported promotional and self-paying subscribers separately. This is a completely new concept as the company had never done this before, yet the benefits are many.

The recently released 10Q reports that year over year self paying subscribers increased from 14,313,406 subscribers to 15,436,410! This represents a gain of nearly 1.1 million subscribers who have chosen to pay for Satellite Radio and the programming it offers in the last 12 months. The drop in year-over-year subscribers occurred only in promotional subscriptions. Sirius XM had previously counted any paid subscription as a subscriber, even if that payment was part of a free OEM trial program.

Despite the fear-mongering of GM and Chrysler bankruptcies as well as weak auto sales news, Sirius XM is positioned to eliminate promotional subscriber reporting altogether, if it becomes necessary based on market conditions. Sirius XM appears to now be divesting itself of its OEM dependence by returning consumer and investor focus to the much more important, self paid subscriber number.

Position: Long SIRI