I received a letter in the mail this weekend from Sirius (NASDAQ:SIRI) indicating that my bill would increase by over 15% from here on out due to a "U.S. Music Royalty Fee". This is an increase of $1.98/month on top of the $12.95 per month I had been paying. While the extra $24 per year won't break the bank, it's just one of many small nickel and dime increases that seem to pop up over and over - from fuel surcharges that popped up last summer (which took a surprisingly long time to elapse after oil retreated to $30/barrel) to food price increases (which again, did not subside when the price of corn declined again) to fees and taxes that are blatantly hidden from plain view...like today's oil change at Meineke that had a hidden couple bucks in "environmental waste" fees that were tacked on to the $19.99 oil change advertised on a huge sign in front of the garage. Somehow, even though I received no extra services, $19.99 turned into $24.50.
Sirius claims that the additional monthly fee will be used to "directly offset" payments to the recording industry. First of all, I'm confused why they owe the recording industry anything. If it weren't for radio stations playing the crappy music that the record executives push and "payola anyone?", it wouldn't translate into sales. What ever happened to musicians earning money from live shows and promoting their CDs at concerts? Oh, I forgot, most of today's pop "musicians" are now lip-syncing and don't even write or play their own music - or sing for that matter...but I digress (old guitarist reminiscing about Metallica, Pantera and 311 shows that blow away most of the garbage out there today).
What Sirius offers as a mea culpa I guess (even though this offer seems familiar, perhaps it's nothing new, but just a reminder) is that if you prepay, you can receive the following discounts:
1 year = 1 free month
2 years = 5 free months
3 years = 9 free months
Obviously, even if you're using a high discount rate for your Net Present Value model (which I recommend everyone ALWAYS uses when confronted with financial "options" to evaluate), each deal has a positive NPV and you should take advantage of it. But wait. There is a solvency risk here. If you assume that Sirius-XM stays in business and will be able to honor these commitments, then it's a great deal. If they go out of business, it's akin to when we had our gift card bankruptcy experience and found that paying up front doesn't always pay off when a company goes bankrupt.
Personally, I think with the cash for clunkers incentive (as misguided and pandering as it was) and a partially recovering economy, Sirius will stick around. So, I'll probably just take them up on the 3 year deal to optimize my NPV.