Is Sirius Going to Raise Subscription Rates?

By David “Newman” Phillips

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 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.

Disclosure: LONG SIRI & RIMM. No position in any other security mentioned.

Comments

[jmsithy:]

it was plan buying to reap the profits on Monday with everything else that will be down. The market had a Rally going last week so this will take a few hits. Plus there was no news on Sirius stock Friday so nothing really driving it up except low price to gain some gains after .03 to .05


On May 31 08:18 PM relmar2003 wrote:

> I disagree. You turn off too many potential full priced customer
> by doing that. Just keep increasing the value, and adding content,
> adding internet options, and ways of accessing the service, and they
> will be fine. It might get some month to month on the fencers to
> cancel, but long time users will lock in rates, and avoid if they
> want the service long term. The new subs will come in paying more.
> Win win. Street always likes it when you raise rates. They will then
> wait to see if it has any negative effects. Usually in these cases
> you get the benefit of the doubt, and potential revenue increases
> are focused on more than sub loss will be. But this is SiriusXM ,
> so the "usual" is sometimes irrelevant with this stock. We will see,
> I think it was why we didnt tank Friday, and actually went up( or
> it was simple planned buying,) but I still like that the GM news
> is baked in now.

Jun 01 12:18 AM

[Mr. Stupid:]

Siri seems to be maintaining now after notching up to .367. I went ahead and sold a couple k at .366. Looking to buy back if it drops.

Frank

Jun 01 12:09 PM

[Hawk180:]

I like the idea of an entry plan at say $1.00 per month for a few stations. Advertise heavily on those stations for the rest of the sub package. Direct TV could also take advantage of the lower subs for ad space. This would pique the interest of those who are on the lower subs to upgrade. You may lose a few of the cheapskates who want to get something for nothing, but overall, I believe Sirius/XM would gain subs. It works for Satellite and Cable TV, why not for radio? XM does this for their XM weather works. So far they are being quite successful. With the right packaging and ad campaigns, they could increase their subs substantially in a relatively short time.

Jun 01 12:29 PM

[noffke3000:]

why not just increase the price for the new customers. Then you are showing your loyal listeners that you appreciate them.

Jun 01 01:00 PM

[jmsithy:]

it might not drop really all that much it has been pretty stable today even with the news


On Jun 01 12:09 PM Mr. Stupid wrote:

> Siri seems to be maintaining now after notching up to .367. I went
> ahead and sold a couple k at .366. Looking to buy back if it drops.
>
>
> Frank

Jun 01 02:57 PM

[Hawk180:]

With a plan of low monthly rates for a limited service to attract new subs, the rate should not have to be increased for anyone. That would not only be good for the loyal subscribers, but for new subs as well.

Jun 01 03:11 PM

[Buffetphan:]

Off topic but why doesn't anyone speak of SIRI going international? Please correct me if i'm wrong but It is my understanding that they have extended their service to Canada with a little over a million subscribers already and Mexico. Doesn't this open the possibility of an additional 140 million potential subscribers? One would think if it is beginning to catch on in the above mentioned countries what about South America, Europe and Australia? I think that when we think satellite radio we should look beyond the U.S market because there may be a day when some little polynesian kid is listening to the surf report courtesy of Sirius XM radio.

Jun 01 03:27 PM

[jmsithy:]

wel that was a fun rally lol

Jun 01 03:40 PM

[Mr. Stupid:]

They (Siri) hasn't tapped the global market due to different tax laws. Yes, Mexico and Canada but Europe and Asia have different tax laws that Siri would have to conform to.

Frank

Jun 01 04:03 PM

[R A F:]

SIRI trading appears to be manipulated. Over the last 16 sessions, 679MM shares have changed hands (averaging 42.43MM/day), with 90% of this action holding within excessively narrow ranges of .03 per day and closes holding around .34 - .35, 50% of the time. It is simply implausible that this massive volume - giving any legitimate investor more than ample opportunity to take a view on either side of the market - would not have resulted in wider divergence over a three week period. Technically the stock appears to be holding well and likely to break 200 day moving averages on the upside over the near to intermediate term, but current trading certainly appears to be manipulative.

Jun 01 05:56 PM

[jmsithy:]

its not manipulated if someone buys 200K to sell within .02 period

its called a penny stock


On Jun 01 05:56 PM R A F wrote:

> SIRI trading appears to be manipulated. Over the last 16 sessions,
> 679MM shares have changed hands (averaging 42.43MM/day), with 90%
> of this action holding within excessively narrow ranges of .03 per
> day and closes holding around .34 - .35, 50% of the time. It is simply
> implausible that this massive volume - giving any legitimate investor
> more than ample opportunity to take a view on either side of the
> market - would not have resulted in wider divergence over a three
> week period. Technically the stock appears to be holding well and
> likely to break 200 day moving averages on the upside over the near
> to intermediate term, but current trading certainly appears to be
> manipulative.

Jun 01 06:33 PM

[Neal Barkett:]

Relmor, I'm puzzled why having a very low tier inexpensive commerial based format is going to upset people like myself that have a couple of subscriptions. Your not comparing apples to apples. When you go the low end format you would not be getting nearly the content plus you would have commercial interruptions. The idea is to use this low end format to give people a taste, like they do at Sam's club with free samples on tooth picks. How many times do people try something because it's free and they discovered that they like it. So they know do what?.........They wonder if they should buy a box of the goodie they would of otherwise never tasted. If subs get offended that Sirius Xm is giving away some samples and feel they are not going to buy anymore boxes of goodies, then they can have fun hanging around Sam's club sneaking samples. If people are that shallow they wouldn't have ponied up as a sub from the get go. How many millions of idle radios will there be pilling up over the years to come? Little disciples with no tongues to spread the word of Sat. Radio.........So sad. Alright everybody quit crying (I'll stop) I'm just making a point. Relmor, get a tissue and blow your nose (boy are your eyes red)!

Jun 01 07:30 PM

[Mr. Stupid:]

Ah, Jsmithy, it may be legal but it IS manipulation. Hedge funds or other large institutions buy huge, millions of shares, notching the stock up couple cents then sell bringing it back down to where it was. That is manipulation and it's legal. They routinely make hundreds of thousands a day doing this. It's manipulation since the increase in price is not representative of anything except large shares being purchased in order to boost the stock.

Frank


On Jun 01 06:33 PM jmsithy wrote:

> its not manipulated if someone buys 200K to sell within .02 period
>
>
> its called a penny stock

Jun 01 08:16 PM

[Mr. Stupid:]

Here's an example of Hedge fund doing this. They buy........

5,000,000 shares @ .34 comes to $1,700,000

Purchase of this nature may send it up to .37 and let's say they sell at .37.

.37 * 5,000,000 = 1,850,000

1,850,000 minus 1,700,000

= $150,000 profit

Not bad for a days work

Frank

Jun 01 08:26 PM

[jmsithy:]

Yeah I did that twice today



On Jun 01 08:26 PM Mr. Stupid wrote:

> Here's an example of Hedge fund doing this. They buy........
>
> 5,000,000 shares @ .34 comes to $1,700,000
>
> Purchase of this nature may send it up to .37 and let's say they
> sell at .37.
>
> .37 * 5,000,000 = 1,850,000
>
> 1,850,000 minus 1,700,000
>
> = $150,000 profit
>
> Not bad for a days work
>
> Frank

Jun 01 11:06 PM

[jmsithy:]

it is still listed as penny stock so this will always be done unless there is more buys than sells / many players are happy that this stock is not going anywhere


On Jun 01 08:16 PM Mr. Stupid wrote:

> Ah, Jsmithy, it may be legal but it IS manipulation. Hedge funds
> or other large institutions buy huge, millions of shares, notching
> the stock up couple cents then sell bringing it back down to where
> it was. That is manipulation and it's legal. They routinely make
> hundreds of thousands a day doing this. It's manipulation since the
> increase in price is not representative of anything except large
> shares being purchased in order to boost the stock.
>
> Frank

Jun 01 11:08 PM

[jmsithy:]

The only way this will ever be at the lvl it should be if they do a reverse split and the rate it is going with being rated down looks like might be the only option because with the market going up as it is for recovery the stock is still having issues which is rated so basically if the stock does not rise enough times as the market is the stock becomes D-listed

Jun 01 11:11 PM

[Mr. Stupid:]

Siri is waiting on Nasdaq letter for D-listing. This would just be a warning and then they would have at least a month to get it above $1. Until then I don't see them doing a reverse split. I have to admit I hit a nice one today with CTIC. They are looking really appealing with their drug pipeline. Take a peek.

Frank


On Jun 01 11:11 PM jmsithy wrote:

> The only way this will ever be at the lvl it should be if they do
> a reverse split and the rate it is going with being rated down looks
> like might be the only option because with the market going up as
> it is for recovery the stock is still having issues which is rated
> so basically if the stock does not rise enough times as the market
> is the stock becomes D-listed

Jun 01 11:33 PM

[Mr. Stupid:]

Can I have a low-interest loan?

Frank


On Jun 01 11:06 PM jmsithy wrote:

> Yeah I did that twice today
>

Jun 01 11:37 PM

[I'm Not Jim...:]

A little off topic. Maybe 18 months or so ago I wrote on the boards about why satrad has no long term future. (yes, I'm still trading in the meantime) One of the reasons I gave was that the internet had superceded satellites. Mostly, I was told that vehciles made the difference, that internet reception in a moving vehicle was technolgically not reliable, and wouldn't be for years.

This, from today's MSNBC:

"Autonet Mobile sells its $499 routers through Chrysler and Cadillac dealers as manufacturer-endorsed, dealer-installed options for those cars, branded as Uconnect Web and Cadillac Wi-Fi, respectively. Its routers can also be added to any car after a vehicle is purchased."

So this is a small company, that if successful will be taken over by someone larger, and the economies of scale will drive the price down. The economy will eventually recover, and those families who now put Disney videos in their in car video players, will be delighted to have internet access in their cars when those kids become teenagers. Mobile web is still expensive for cell phones, and this company's rate is comparable.

So, as I said then, and I say now, Sirius future is totally dependent on content providing, not car instalations. With that in mind, watch for two key sequences. Howard is still a draw, so they HAVE to reup him. Sports are the only other key driver of exclusive content. Sirius contracts are only exclusive to satrad broadcasts, not internet streaming. Therefore in some sense, major league sports are not only Sirius partners, but their competitors. There is a tipping point at which major league sports demand more money from satrad than is profitable for Sirius to pay, because at some future point the consumer usage of streaming broadcasts, will intersect with those of satrad.

The length of time it takes for that to occur may determine how Sirius has as a business.

Jun 02 02:51 AM