What the Sirius XM Radio Future May Hold 83 comments
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Now that the merger between Sirius and XM is complete, it is now time for everyone to focus on what what will happen going forward. For those that listen to SiriusBuzz Radio, you have heard me discuss some of this potential before. This piece will focus on the OEM potential.
Each year 15,000,000 cars are sold in the United states. Some manufacturers have satellite radio as standard equipment, while some are barely getting started with SDARS installations. Up to this point we are familiar with promotional periods, take rates, and OEM subsidies.
The basic structure of satellite radio deals with auto manufacturers involves satellite radio subsidizing the radios as well as installations. In return, the OEMs for the most part pay part of the promotional period subscription. The consumer is exposed to satellite radio for “free” for a period of time. Half of those exposed to the service elect to become self paying subscribers. Those self paying subscribers generate revenue, and a portion of that revenue is shared with the OEM.
One of the problems with this business model is that all of those consumers that elect to forgo satellite radio represent costs for subsidies, etc. and no revenue for either the satellite radio company or the OEM going forward.
What if there were to be a shift in the OEM business model?
What if the price of a five year subscription was built into the price of the car? The first year delivers the standard $12.95 satellite radio service. Years 2 through 5 deliver the “Pick 50 Channels” service at $6.99. This represents a value of about $500.
If that $500 value were put into the price of the car, the consumer would see about a $10 per month difference in their monthly payment month, but would never really equate it with satellite radio. From the perspective of the consumer, the satellite radio simply came with the car.
Benefits of Such a Shift
1. All radios would generate revenue. As things are now, only half generate revenue.
2. Better churn metrics. These will be 5 year subscribers. They will not churn, and the churn metric will improve dramatically.
3. Everyone wins. 100 installs with the current business model gets 50 subscribers paying $12.95 per month for a total monthly revenue of $647.50. Using a general assumption of 40% revenue share, the OEM gets $259 and Sirius XM Radio (SIRI) keeps $388.50. This is virtually a month to month (consumers can churn any time) business model and means that cash flow can vary as projections become more difficult. Assuming these subs stay on for a full 5 years (they wouldn’t), the OEM will collect $15,540. Sirius XM Radio would get $23,310, and this is the best case situation with no churn.
100 installs with the new method gets 100 subscribers that in the first year generate revenue of $1295 per month. Years 2 through 5 generate $699 per month. Using the same 40% revenue share, the OEM gets $518 per month for the first year, and $279.60 per month for years 2 through 5. For the Sirius XM Radio, the first year would bring $777 per month, and years 2 through 5 would be $419.60. Over the five year period, the OEM collects $22,992, a minimum of a 48% improvement over the existing business model. For Sirius and XM the revenues are $29464.80.
4. Consumers who get used to the full lineup can upgrade the service delivering even more revenue.
5. The subscriber numbers will bolster, meaning that Sirius XM radio can charge more for advertising.
This type of business model delivers direct benefits from costs that already exist. The company invests dollars into every radio. To have radios that are not delivering revenue is a waste. If Sirius XM Radio were to establish this type of program, the bottom line would benefit on almost an immediate basis. If OEM installations were to reach 70%, there would be over 10,000,000 new subscribers per year coming out of the OEM channel instead of just 5,000,000. All of this by simply getting the OEM to build the price into the car.
Position: Long Sirius XM.
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This article has 83 comments:
I notice that the radio shows that Sirius XM programs that are direct from cable or AM band all have gaps of time because they need to run paid commercials. When this happens, Sirius XM makes non-paid announcements to fill in those minutes. For example, I listen to CNBC (127) and Fox Business News (128) channels. These two programs regularly run their own paid commercials. Sirius uses this time to make non-paid announcements about their own program schedules. Since these gaps of time must be filled, why not offer commercial advertising time for which payment will be made. Sirius XM could still boast that they offer non commercial music programming and that a certain percentage of their programming is commercial free.
Just a thought.
KaptKos
in the end, you have to make the case to the OEM that satellite radio is something that pushes a purchaser more towards one label or trim level more than another...otherwise, why inflate the costs? "if it doesn't increase the propensity to purchase, then i'll just keep the lower costs and maintain the conversion model we have today, thank you..."
to date, the auto mfrs aren't any different than anyone else...always looking for something for nothing. the game's changed a little...with SIRI acquiring a little more muscle at the negotiating table post merge. they might now be more interested in entertaining higher bundled pricing, but we're still a ways away from bundles being the predominant subscription method in the automotive space.
;)
Imagine the dealers point of view. Buying a $20K + vehicle from the OEM, then sitting on it for 90 days or more (paying interest after the first 21 days) then making $450 to $900 profit (if you sell it for sticker!). Adding more to the cost is not going to happen.
if you believe in the product, we need to help grow this. I just bought six subscription for my family and friend.
Chapter 11-its been 3 days at least give it a month to get everything in order before you flip out and sell you work for the NAB
I propose a split format of advertised radio with pay-for.
Mr. Savery's proposal of building five year subscriptions into the price of the car demonstrates a profound level of ignorance of the realities of manufacturing, economics, and politics. Make the vehicle owner buy the service whether they want it or not? Great idea, let's shove the product down their throats since they won't buy it themselves.
Given the fact that automakers have precious little pricing power to begin with, The Vicar sees this proposal as DOA. Besides, even if this ill-conceived proposal were placed on the table, it would cause a clamor among all other suppliers to the auto companies for price hikes on their own components. Read your Econ 101 textbook Mr. Savery. Your disservice to readers continues with the prolific nonsense that emanates from your column.
When a merger is going to be announced there is always a pop.But this one never had legs.It's like in baseball when you know that a fast ball is coming to you,you get ready for that pitch and drill it out of the ball park.But this one had a sinker and the only people who seen it ,are the one who understood the situation.And I'm so glad I sold my 3790 shares at 2.70 before the merger was announced.Made about 150.00 profit in my 6 long months of waiting.When we all knew tate was going to say yes and there was no significant pop.I knew this was a sinker too.THANK GOOD.....
July 30th, 2008 at 11:37 pm, john Says:
I just have one problem Tyler, you just increased the car by 500 dollars that is not a concept that the OEMs are going to be to keen on. They are already giving rebates and lowering the prices to sell them now. While I dont think the down turn will last, I do think it is going to be hard to try and get the OEMs to tack on another 500 dollars. It would most likely work for the higher priced models but SIRIXM, most likely would get those people anyway. I just saw an article several months ago about how they were taking out extras that were standard like ash trays, lighters, cup holders, and others to bring down the price of the car. Now I also am aware of the NY Times, article that extras are in more of a demand in the smaller cars. But those are not things that are just standard people are asking for them. I some how think it is going to be a more difficult row to hoe trying to get the OEMs to add 500 dollars to the price of a car. There is the other problem of competetion. I dont think GM is going to want to add 500 dollars to a car that is competing with a simular Toyota model and price. Unless both are willing to do it for those models. Do you see what I am saying or do you have any ideas to get around these problems.
Now I know that the OEMs make alot of money off this idea. I just think the OEMs are going to, want to make a little more off it before they go this way.
RReagan, while I thought it would go up to at most 3.8 to 4. I also said that there would be no short sqeeze just as Tyler has said. I also said that it would go back down to 3 to 3.5 and be there for some time, till at least the end of 2009 then it would be at 4.5 to 5 and by the end of the next year (2010) it would be around 10. I and cos1000 and some others never said that it was going to go that far that fast. I also told people that said it would go up big, that they were crazy. While I did expect a small pop That was not to far out of the park. Considering that has been what has happen almost everytime a merger such as this, that will save the combined companies major cash. Then again while I knew that the financing had to be done and that was not going to be pretty in this market. I did not expect almost all of the articles to get the SIRI part of the financing wrong. While I have seen some get it right and some corrections the damage was done. Cramer also was a surprise For him to do a total reversal in a month and a half as he did also did not help. (if I did not know better it looked like Cramer asked Mel to do his show and Mel said no.) All the problems that he used to say why he changed his mind, were there from the start or at least of them were. They were at least all there 2 months ago (hell 6 months ago).
So the thing that has not changed is there are going to be major sinergies. Look at SIRI last two quarters, most of the revenue gos to the bottum line, the cost for the most part have stayed the same or come down. Content cost will go down even more now. The only reason XMSR had a few bad quarters was because of capex, that is gone for them. SIRI is going to launch one in 2009 but pushed the 2010 launch back to 2015 now that is 60 million a year savings on that satellite alone. (900 million divided by 15 year life span).
I wrote this before:
Going into a little different direction. I will agree O&A will be offered something to stay, lets not forget they were supposed to be the direct competetion to SIRI and Stern. I believe that many forget that while the codec's are different it would not be that hard to put Stern on XMs codec. I think there is no reason they will not start to cut many things that each did to compete with the other. As an example Martha Stewert and Oprea. You dont need both, or Barbra Walters you absolutly dont need all 3 espeacially when the company now has access to all of it but cant give it to all their customers (13 channels is only so much). I think at least until the interoperable radios are totally out (up to 6 or 7 years) we will see many cuts of double content and a copy run on the other codec. We know there are things such as simul cast that exist.
I hesitate to comment on Tyler's idea because of the down turn in the auto manufacturing sector. Pricing power with auto makers is non existent and and the reaction by open access manufacturers for price gouging is to tempting when buried in the price of the car. Simply put their are to many variables to be able to say this is the future business model that will work. It's a good idea untested, and without feedback from the OEM's. So I have abstained from much of a view.
Rawblurt, I am so glad you sold your shares and made some money. Only someone with your foresight in "seeing" ability could of called that refinancing the way you did to make $150. Mel is the only one that was smart enough to do it so that my new company will have a stronger balance sheet in the future by lower financing costs for our newly acquired asset XM. I know its painful now but as I said, I really don't care about stock price for the next two weeks to two months. But I am glad you out.
hair pie LoL in typing the name again. This article was on Sirius Buzz yesterday, as are all of Tyler's articles. With time being what it has for me lately I have been posting on SiriusBuzz.com rather than here. My position has not changed and I am very much looking forward to 3rd quarter numbers, the Fall Retail line up, and a great 4th quarter execution of the companies marketing plan, which I know has not been release yet.
Everyone forgets that Mel has just gotten access to XM's books, contracts, and employees and Talent. O & A have 62 days left in their contract, a full evaluation of duplicative channel programming which is wasting Spectrum must be performed. Consolidating talent on those channels that remain for each genre, will open up Spectrum for "The Best of Both" offerings in two months for an addition $4 for existing subscribers. There is so much happening to solidify the Merger Operationally, that its hard for the company, 3 DAYS SINCE THE DEAL WAS INKED, to give us all the details.
Saturday, 7/26/08, I wrote the post bellow. I want to say that the first line to me is still the most important and sometimes most difficult to remember. Here's what I know now that I didn't now then.
1. Sirius didn't close the deal over the weekend because they had financing issues to work out and probably new NAB wasn't running to file an injunction.
2. XM's shares are still trading and Sirius sold shares in it's assisting of XM Note offering that includes an Arbitrage play that has shares being shorted to lock in the share purchasers profits. Minds greater than mine have tried to explain this "dilutive" offering of colarateral shares of Sirius to XM's Notes, so I'm not going into it here. I know it puts a lot of downward pressure on Sirius shares until their sold, and helps XM get a better cost in their Note Offering. This was planned by Management and not Announced until Monday. Long term its good for the merged company and sucks for common stock share holders in the "short" term. (PUN INTENDED)
3. The Market in General took a bath on Monday and Cramer pulled a "JUDAS" act on Sirius, stating that it was like playing a $2.00 Lottery ticket. Oh which way is the wind blowing today Mr. Cramer.
This is why my first statement below turns out to be the most important and the rest will follow when the Sh*t gets better defined.
Pop or Drop on Monday?
Not that I think what happens to the stock is all that important in the next two weeks, but I know a lot of folks do. The stock can only move up. Why would you dump shares now? That happened last week. A little patience even in the short run will get us to 2.90- 3.10, an old technical channel (4 -6 months ago). Then the company will let out the PR dogs, retaliate against legal issues (because now they can), give meaningful future guidance, introduce new products and details on what you'll be able to do with existing equipment, and report good third quarter "retail" results because of all the pent up demand. The fourth quarter will be all about Inter-Operable Radios and "Where can I get One?". I would not be surprised to see 4.65 - 5.25 by the end of the year. For those wanting to get out you'll probably get 3.72 -3.90 (roughly 2 x the 1
1.86 - 1.95 low recently set) in mid November. Just my opinion, patience here will be nicely rewarded. For those who have been in for a long time you don't need anyone to tell you that now is not the time to be Weak-In-The Knees.
Its going good, I saw you over there at Sirius Buzz and was going to ask why you were posting there only. But it was not that important.
Oh its not that hard to hold anything.
You are right though because if it did pop then we would not be dealing with this because they would have sold and been gone. So excuse me for not caring if they feel they got screwed because I dont. I cannot count the times I have told people that there was not going to be some big pop and that 3.8 (and that was when it was trading at 2.6 and 3.2 like 4 months ago) is what I would expect. Hell how many post did I do, debating people, that time I said there would be no short sqeeze, 4 months ago. They were saying it would go to 5, 6, 7, and 8, I said noway 3.8. The reason is (as you recall) that is what it got to after the DOJ approval. I have not change a thing since then I still think 3.8 is what it will get to it will just take longer but dont expext it to go higher until at least the interoperable radios are out. That as I have said many times will be the big driver of subs. That will take around 9 months, I some how think Mel will get them out sooner (just a feeling).
LONG WAY LONG
What if the integration in announced officially. Once retail users get used to it then sky is the limit for growth. Think about "Top Christmas Gift" for 2008 "iPhone with SAT Radio"
I do understand why Mel has not come out, with to much yet. I should have known better also. I gave it as one of the reasons that Mel low balled the 400 million, which was he has not been able to see the internal workings of XMSR yet.
Where's my dog whistle.
We need to stop thinking guys because more we think more the stock is going lower and lower.... $1.46 after hours something to think about with a Volume: 139,365,914.
I decided to add also my thoughts about this stock is going to be under a dollar within next couple of weeks, then Mel going to come out and reverse split the crap out of it soemthing like 1 to every 100 of your shares and you are going to see your dream shathered in front of you. Because short seller will go after it again and again to get richer and richer.
Well that is my thinking.
We need to stop thinking guys because more we think more the stock is going lower and lower.... $1.46 after hours something to think about with a Volume: 139,365,914.
I decided to add also my thoughts about this stock is going to be under a dollar within next couple of weeks, then Mel going to come out and reverse split the crap out of it soemthing like 1 to every 100 of your shares and you are going to see your dream shathered in front of you. Because short seller will go after it again and again to get richer and richer.
Well that is my thinking.
You want to trust Sirius as honest.
How has this investment worked out for the loyal investors ?
Sirius loves your money. Buy more shares.
Never admit a mistake. Just buy more SIRI.
$ 1.46 tells a story
Radio Uganda will be huge.
Sports is also great
I love listening to SKI RACING on the radio.
NEVER SAY A BAD WORD ABOUT SIRIUS.
Siri has made millions. For Mel and Howard.
Didnt Cramer pump this stock $5 on the Merger Approval ?
Mel was smart to NOT tell anyone about the planed dilution.
Retail investor might have sold, BEFORE it crashed.
$1.46
Siri investors are rich
Do not sell your stock - Hold all the way to zero
A reverse split is simply an open admission from management that the underlying business is so profit-depraved that the only way to increase the stock price is through artificially-imposed financial engineering measures. If the business has real, tangible profit potential, it doesn not require a reverse split to make the stock price appreciate. I run, rather than walk away, from the stock of companies engaged in reverse splits.
A reverse split is just one more symptom of the poor performance prospects SIRI has as an investment. Best case scenario, it lures more sucker individual investors to buy more of a penny-stock because it creates the appearance of appreciation.
Successful, profitable companies buy back their shares. They don't execute reverse splits.
Before you excoriate me for saying the obvious, ask yourselves this question: If all of you are such successful investors, then why aren't you rich?