Jeffrey Mettel's  Instablog

Much has been written about how Sirius’s pass along of the $2 Royalty fee will affect customer churn. However, not much has been written on the actual affect on Sirius top and bottom lines. The amount of additional churn that is created by the royalty fee pass along is up for debate and we will only know with time. But we can look at the general financial consequences and come up with a prediction on whether this is a smart move or not. (Assuming this is not a smart move assumes that Mel K and his finance staff are not smart enough to have figured this out already).

 

Assume that all subscribers are single subscribers and thus for those churned subs the $10.66 ARPU a month is lost. This is conservative given that some churn may result from multiple subscriber plans being disconnected which carry lower average ARPUs. I will also assume that 7 million subscribers will not have to pay for the $2 increase as they are on lifetime subscriptions. (As there is no detail in the 10Q I can not confirm or deny whether this is accurate or conservative.) The basic math is $2 extra per month for every subscriber that stays and a loss of $10.66 per month for every subscriber that leaves. With, 18,413,435 million subscribers, I assume that 7 million subs are not subject to the charge as lifetime subs are not having the charge passed thru. The change in Monthly and Yearly revenue at different Subscriber Retention levels is as follows:

The chart above shows that affected subscriber churn would have to be 16% for this Royalty Pass thru to negatively affect Sirius top line. At 10% additional churn Sirius would make rough $100 million more in revenues than otherwise. More importantly to the company all of this money falls directly to the bottom line. We won’t know what the level of churn is until the next two quarters are reported. And we have not taken in to account that all new subs will be hit with this fee. My own opinion is that it will be a lot less than 10% and the royalty pass thru will be a boon to both the top and bottom lines. Mel K and his crew probably did the same math and came up with the same conclusion! This is a Siriusly good idea for the profitability of the company.