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Sirius XM Holdings Inc. shares rose 2% in premarket trade Wednesday after the company reported a first-quarter profit beat. Earnings for the latest quarter rose to $289 million, or 6 cents per share, from $207 million, or 4 cents per share in the...
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The satellite radio giant gears up for its tell-tale first-quarter report, weeks after hitting a new 12-year high.
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The short interest ratio for the satellite radio provider is at its lowest level in more than a year.

Sirius XM Radio (NYSE: SIRI) has 20.1 million subscribers and is the only satellite provider in the United States.[1] The high costs associated with satellite radio programming and subscriber acquisition cost (the price of recruiting new subscribers) are the real culprits of Sirius XM's negative margins.

Sirius XM is dependent on the automotive market because some auto makers include satellite radio units in their cars, which adds to Sirius XM subscription revenues. SIRI has partnerships with notable car companies such as Ford, GM, and Toyota. The company's heavy ties to the automotive market gives it big exposure to the health and cyclicality of the automobile industry.[2]

Sirius XM's major competition comes not from other satellite radio providers but from other producers of mobile entertainment devices: MP3 players, the iPod and iPhone, internet radio stations, and traditional AM/FM radio are all challengers to satellite radio. Sirius XM relies partially on major celebrity endorsements (Howard Stern for $500M, Oprah, Martha Stewart)[3] and also on sports broadcasting, including MLB and the NFL to distinguish itself from many of its competitors.

Company Overview

Sirius and XM merged in July 2008 to form the only satellite radio provider in the United States. The new company offers about 300 channels and has deals with Howard Stern, Oprah, Martha Stewart, the MLB, the NFL, among other major partners. Sirius XM radios are distributed by original equipment manufacturers (OEMs) as well as retail channels. Sirius's primary source of revenue is subscription fees;[1] therefore the company focuses on constantly increasing the number of subscribers as well as lowering the churn rate (turnover rate). Lowering the churn rate is significant because there is cost associated with acquiring subscribers (the cost of advertising, for example), thus, if a person subscribes but quickly unsubscribes, SIRI loses revenues.

Business Segments

  • Internet Radio Sirius offers subscribers the ability to listen to music channels and select non-music channels over the Internet as part of the base subscription price. now $2.99/ month extra
  • Commercial Accounts SIRIUS Music for Business, is a music service for commercial establishments, and is available through Applied Media Corporation, Dynamic Media, Turn Key Media and Info Hold Inc. Subscribers to commercial accounts are included in subscriber counts.
  • SIRIUS Backseat TV SIRIUS Backseat TV is a television service offering content designed primarily for children from Nickelodeon, Disney Channel and Cartoon Network in the backseat of vehicles. Subscribers to SIRIUS Backseat TV are not included in subscriber counts.
  • Travel Link Sirius Travel Link is a suite of data services that includes real-time traffic, tabular and graphical weather, fuel prices, sports schedules and scores, and movie listings. Subscribers to SIRIUS Travel Link are not included in subscriber counts.
  • Traffic and Weather Sirius offers a service that provides graphic information as to road closings, traffic flow and incident data to consumers with in-vehicle navigation systems.

Business Growth

FY 2010 (ended December 31, 2010)[1]

  • Net revenue increased by 14% to $2.82 billion.
  • Net income increased from a $352 million loss to a $43.1 million profit

Trends and Forces

Auto Maker/OEM Contracts

Sirius generates 94% of its revenue through subscriptions, mostly through deals with automobile manufacturers which install Sirius radios pre-sold in cars.[1] Approximately 53% of Sirius's subscribers were from OEM automobile sales.[1] Sirius has contracts with many major automobile manufacturers to include Sirius radios either as a standard feature or option, some including limited or lifetime subscriptions. The company shares a portion of subscription revenue with the automobile companies.

  • General Motors: Sirius has a deal with GM extending until September 2013 to install XM radios in GM vehicles.[4]
  • DaimlerChrysler (DCX): Sirius has a contract with DaimlerChrysler to offer Sirius service as a factory-installed option with its automobiles.
  • Mercedes Benz: Mercedes Benz has agreed to include Sirius radios and service as a standard feature in many of its models, including its upscale SL and CL class sedans. Mercedes includes Sirius in 90% of their production.[1] The contract runs through September of 2012.
  • Ford (F): Sirius has an exclusive deal with the Ford Motor Company and its brands, including Ford, Lincoln, Mercury, Volvo, Land Rover, Mazda, Aston Martin, Jaguar, and Mazda, until the fall of 2016.

Other Partners:[1]

Trucks: Freightliner, Sterling, Peterbilt, Kenworth, Volvo and International offer SIRIUS radios as a factory-installed option on the trucks they manufacture.

Boats: Various recreational boat builders, including Sea Ray, Four Winns, Chaparral, Larson, Glastron, Ranger and Formula, offer SIRIUS radios and a prepaid subscription to their service as a standard or optional feature on their boats.

Recreational Vehicles: Several leading manufacturers of recreational vehicles, including Fleetwood, Monaco, Winnebago, Coachmen, Tiffin and Alfa Leisure, offer SIRIUS radios as a factory-installed option.

Subscriber Acquisition Costs vs. Revenue Per Subscriber

Since its inception, Sirius and XM have operated with significant losses.[5][6] SAC is mostly composed of subsidies and commissions paid to its manufacturers, distributors, and partners in the automobile manufacturing industry for the sale and installation of Sirius radios. SAC also includes other costs such as those related to product warranty, but does not include other costs such as pure production costs or marketing expenses.[7]

Low customer retention rates

Lowering SAC must be done in conjunction with maintaining a customer retention rate high enough to move the company to positive operating margins. When customers deactivate early, Sirius loses money. Sirius calculates churn by taking the number of deactivated subscribers divided by the average quarterly subscribers. This gives Sirius a average monthly churn calculation.

Conditions of the merger

Sirius XM had to agree to certain conditions so the merger would be approved. The most notable conditions include:[8]

  1. a cap on subscription prices for 3 years post transaction
  2. both XM and Sirius compatible receivers within the first 9 months
  3. no exclusivity for equipment manufacturers
  4. new programming packages including a la carte and family friendly options.

The cap on prices presents the largest potential danger as Sirius XM will lose pricing flexibility and limit its ability to respond to market conditions.

Programming content quality

A crucial facet of Sirius's satellite radio service is the programming content with which it provides its subscribers. Sirius has a wide range of audio content - including sports broadcasts, Howard Stern, and Oprah - that attracts consumers to its service. The quality and diversity of its programming is integral to Sirius in its quest to gain new subscribers and keep its current subscribers from ending their service. Content additions such as the NFL and Howard Stern correlated with a significant number of incremental subscriptions.

Sports coverage
  • NFL: Sirius broadcasts play-by-play commentary for all pre-season, regular season, and post-season NFL games as the official satellite radio partner of the NFL. The NFL is one of the most popular sports in America, drawing over 120 million viewers for televised games throughout the season and with over 140 million viewers tuning in for the most recent NFL Championship Super Bowl game.[9]
  • MLB: Through 2012, Sirius has rights to both the regular season and post season of Major League Baseball. This also includes the World Series.[10]
  • NBA: Sirius broadcasts play-by-play commentary for over 1,000 NBA games and is the official satellite radio partner of the national Basketball Association. Sirius' NBA coverage also includes all playoff and the championship games.[11]
  • NHL: Through the 2014-2015 season, Sirius has rights to the regular season, post season, and Stanley Cup of the National Hockey League.[9]
  • NASCAR: Sirius is the official satellite radio partner of NASCAR and provides coverage of all NASCAR Nextel Cup Series, Busch Series, and Craftsman Truck Series races. NASCAR has been growing quickly in popularity across the US in recent years, with its most-popular race, the Nextel Cup Daytona 500, drawing over 12 million viewers for the television broadcast.[12]
  • Soccer: Sirius is the exclusive partner to Barclay's English Premier League soccer. The relationship gives sirius the ability to broadcast matches from the top 20 teams including Manchester United. Additionally, Sirius broadcasts Chelsea Football Club Premier matches, the UEFA Championship League, and the Celtic games from the Scottish Premier League.[9]
  • NCAA: Sirius broadcasts many NCAA football,basketball and other sports from schools in 18 Division I Conferences. Sirius is the exclusive provider of the NCAA March Madness College Basketball Championships.[9]

Other Coverage:

  • Indy Racing League
  • PGA Tour
  • US Open Tennis
  • ESPN
Other Celebrities

Sirius also has radio talk show host, Howard Stern, one of the most popular media figures in modern history, with his terrestrial radio show being ranked #1 in many major cities throughout the country. They also have an exclusive contract with Martha Stewart, on the Martha Stewart Living Radio, which is dedicated to all things Martha and features shows hosted by Martha herself, Alexis and Jennifer, Dr. Marty Goldstein, Tracie Hotchner, Greg Kleva, Dr. Shawn Messonnier, and Sandy Gluck.[13]On the Oprah &Friends channel, Oprah Winfrey hosts her "Soul Series" program. The channel features highlights from the Oprah Winfrey Show and includes regular guests, Gayle King, Dr. Maya Angelou, and Dr. Robin Smith.[13]


Terrestrial AM/FM Radio

Terrestrial AM/FM radio has had a well established market for its services for many years and offers free broadcast reception paid for by commercial advertising rather than by a subscription fee. Many radio stations offer local programming, such as local news and sports, which Sirius does not offer as effectively. On average every U.S. household has five AM/FM radios, and radio comes as a standard feature in every vehicle manufactured without an additional cost to the consumer.[14]

HD Radio

While most traditional AM/FM radio stations broadcast by analog signals, the radio industry has made significant strides in rolling out advanced digital transmission technology. Digital broadcasting offers higher sound quality than traditional analog signals and has multicast of as many as five stations per frequency. Digital radio broadcast services have been expanding, and an increasing number of radio stations in the U.S. have begun digital broadcasting or are in the process of converting to digital broadcasting. Over 1,500 radio stations in the United States currently broadcast digitally.[15] Digital radio is generally offered to subscribers without a service charge. BMW offers factory-installed HD radio receivers as an option across all of its models, Ford offers HD Radio as a dealer installed option for the Ford, Mercury and Lincoln brands and recently announced the availability of factory installed HD Radio technology as a standard or optional feature on Ford, Mercury and Lincoln vehicles, and retail HD radios are available nationwide at many large retailers. A number of leading radio broadcasters have joined together to form the HD Digital Radio Alliance to accelerate the successful rollout of digital radio.

Digital Music Devices such as iPod and MP3 Players

Sirius faces stiff competition from various digital music devices and their associated services. The Apple iPod ®, a portable digital music player, allows users to convert music on compact discs to digital files and to download and purchase music and video through Apple's iTunes ® Music Store. iPods ® are compatible with many car stereos and home speaker systems. Apple has reached agreement with automobile manufacturers to pre-install equipment in vehicles which allows users to play music from their iPod through the automobile sound system. Many MP3 players can be connected to online music subscription services, such as Real Network’s Rhapsody and Napster 2.0. Slacker, a recently launched private company, has introduced a device and music service that continually updates the device based on a user’s preferences, serving algorithmically determined playlists that are direct substitutes for radio programming.

Internet Radio

Consumers are increasingly turning to Internet radio. Internet radio broadcasts have no geographic limitations and can provide listeners with radio programming from around the world. Improvements from higher bandwidths, faster modems, wider programming selections, and industry consolidation have made Internet radio a more significant competitor for listening in the home and office. Technologies like WiMAX will also make Internet radio more pervasive. In addition to the many free Internet streams offered by radio companies like Clear Channel, CBS Radio or other smaller companies, subscription Internet music services, such as Rhapsody and Pandora, offer unlimited and fully-customizable play lists for a small fixed fee per month. These services may be used for listening at PCs or home media centers.

Wireless Phones

Several of the largest wireless providers currently offer music to mobile phones. Additionally, many phones now contain FM radios. Sprint Nextel currently offers streaming music from a variety of providers plus a music store for purchase. Verizon Wireless offers the VCast music service that can be played directly on a phone. AT&T offers a variety of streaming content and has also partnered with Apple to offer the iPhone. Several subscription music services, including Rhapsody and Pandora, are offered over mobile phones.


  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 [http://files.shareholder.com/downloads/SIRI/1233826641x0x449922/54DA2052-9D0C-43D9-AED1-0E9C7DF91C40/SIRI_AR.pdf SIRI 2010 Annual Report
  2. SIRI 2008 10-K pg. 6
  3. Lorne Manly (2/10/2006). For Oprah Winfrey, Satellite Radio Is the Newest Frontier. Retrieved on 4/18/2009.
  4. 2007 Annual Report pg. 4
  5. SIRI 2009 Q1 10Q page 4
  6. SIRI 2009 Annual Report pg. F14
  7. Matthew Lasar (2008-07-28). Sirius/XM merger approved with new conditions (updated). Retrieved on 04-27-2009.
  8. 9.0 9.1 9.2 9.3 SIRI 2009 Annual Report pg. 5
  9. Sports programming and Satellite Radio – now it’s going to get “Sirius” accessdate=4/18/09 (2/21/07).
  10. NBA gets officially official on XM (and Sirius) (10/28/08). Retrieved on 4/18/09.
  11. NASCAR SELECTS SIRIUS AS NEW HOME ON SATELLITE RADIO (2/22/2005). Retrieved on 4/18/09.
  12. 13.0 13.1 Lorne Manly (2/10/2006). For Oprah Winfrey, Satellite Radio Is the Newest Frontier. Retrieved on 4/18/2009.
  13. Radio in the United States. Retrieved on 4/21/09.
  14. NPR, Harris Corporation & Towson University Launch Global Effort To Make Radio Accessible To Hearing & Sight Impaired (1/8/08). Retrieved on 4/18/08.