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Time For A New Beginning

People are adverse to change. We get stuck in the familiar and the comfortable, even if it's unpleasant. The same can be said for Sirius XM and the manner in which the company calculates its subscriber numbers. For years, the competitive spirit between Sirius and XM forced the two companies to be "slightly creative" in the way they reported subscriber growth.

As I was researching past reports from Sirius and XM this weekend, I realized that the all too important total subscriber number was for the most part, a bit misleading. The merged company may boast over 19 million subscribers but that is not and never was completely accurate. Both Sirius and XM have been reporting for years a combined subscriber number that included free trials for new car buyers as well as other promotional subscribers.

As US auto sales peaked several years ago, this added to both Sirius and XM's total subscriber numbers. As US auto sales have fallen, the now merged company is faced with a scenario in which less free trials are being activated. Simultaneously, the recession has no doubt  created less conversions of preexisting trials to self paid subscriptions.  An example can be found in XM Canada's report that it lost 5,800 customers compared to a gain of 45,400 customers in the same quarter a year earlier. Ironically, XM Canada reported self paying customers actually rose by 66,100.

As I have stated, no one expects stellar first quarter subscriber numbers from Sirius XM to be reported. Sirius should take advantage of such a quarter to recalculate its subscriber totals. With most of the churn expected to come from the auto sector, it would be wise for Sirius XM to separate promotional subscribers from self paying ones. Still a better idea may be to stop counting promotional subs at all.

Position: Long SIRI