[opendtv] News: Sirius XM Battles for Subscribers
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Fri, 7 Aug 2009 08:35:11 -0400
http://www.businessweek.com/technology/content/aug2009/tc2009086_835663.htm?site=cbs&campaign_id=djm
Sirius XM Battles for Subscribers
The satellite radio company lost fewer subscribers in Q2. But
competition from Internet radio and the possible loss of Howard Stern
could stymie a turnaround
By Olga Kharif
When Erin Patton, a 39-year-old branding consultant in Dallas, traded
in his Cadillac Escalade for a Porsche Cayenne in May, Sirius XM
nearly lost a subscriber. The Caddy had satellite radio; the Porsche
didn't.
So Patton downloaded Sirius XM (SIRI) software for his iPhone. "It
was convenient," he says. "I was extremely impressed by some of the
functionality," like the ability to buy songs from Apple's (AAPL)
iTunes store. Now he's back in the fold. But Sirius hasn't been so
lucky with a lot of its customers.
The company reported Aug. 6 that it had lost nearly 186,000
subscribers during the second quarter ended June 30. That was an
improvement from the 400,000 subscribers lost in the first quarter,
but still not a hopeful sign. Awful car sales during the past year
have eaten into the company's subscriber base, as have
recession-bitten consumers cutting back. And despite a foray into the
world of iPhone software, Internet radio services may eventually make
satellite radio superfluous.
Sirius narrowed its second-quarter loss to $171.3 million from $203.5
million a year ago. Revenues grew 1%, to $608 million. But a return
to vigorous growth could take a while.
DWINDLING EXPECTATIONS
Listeners who downloaded Sirius XM's iPhone app have been mostly
existing subscribers who got to use the app for free; the software
drew in few new customers. "Cash for clunkers" car buyers aren't
getting satellite radio pre-installed in great numbers. And radio
personality Howard Stern's contract runs out at the end of 2010,
which may take away a key reason many subscribers have for keeping
the service. "The outlook for Sirius hasn't changed substantially,"
says Susan Kevorkian, a program director at market researcher IDC.
James Goss, an analyst with Barrington Research Associates, estimates
Sirius could lose 1 million subscribers this year, ending 2009 with
18 million.
Tuna Amobi, an analyst with Standard & Poor's, which, like
BusinessWeek.com, is owned by The McGraw-Hill Companies (MHP), says
"expectations are going to come down" for Sirius' subscription
growth. Wall Street analysts expect the company will lose 9¢ per
share this year, on sales of $2.45 billion.
The second-quarter results could splash cold water on investors'
hopes that the company had turned a corner after a $530 million round
of financing from Liberty Media in February staved off the threat of
bankruptcy. Shares of Sirius XM had risen 54% since early June. But
the shares closed down 1.7%, to 53¢, following the earnings report on
Aug. 6. Sirius XM stock fell another 2% in extended trading.
Sirius management was hopeful the worst was behind it. Chief
Executive Mel Karmazin told analysts during a conference call that
the company can return to rapid subscriber growth. Losses tied to
slower automobile sales "appear to have bottomed out," he said. The
company is restructuring its advertising department to increase ad
sales and preparing to debut a new show from comedian Rosie O'Donnell.
Sirius increased its full-year 2009 guidance for adjusted income from
operations to more than $400 million, from $350 million, on account
of cost-cutting. "They've exceeded our expectations on expenses,"
says David Bank, an analyst with RBC Capital Markets, who has a
"sector perform" rating on Sirius shares.
While the iPhone app has been a hit with existing users of the
service, some of whom have had to buy pricier plans to get it, it's
brought in few new subscribers, Karmazin said. The app also lacks
such key satellite radio content as shock jock Stern, whom many
listeners crave.
CASH FOR CLUNKERS HITS SUBSCRIBERS
The federal government's cash-for-clunkers program, which gives
consumers who trade in old cars credit for new, more fuel-efficient
ones, may also have a muted effect on satellite radio sales.
Most trade-in buyers have opted for smaller, less expensive cars that
don't come equipped with the radios, according to Efraim Levy, an
automotive analyst with Standard & Poor's. Car sales in 2010 should
increase 15%, to 11.6 million passenger vehicles. But new auto sales
won't start delivering paying subscribers to Sirius until early next
year at the soonest, since Sirius offers many car buyers six-month
free trials.
What's more, as some Sirius subscribers trade in their cars, the
company may actually lose paying customers, at least for a while.
Take Rick Wamre. In July, the 51-year-old Dallas neighborhood
magazine publisher used the clunkers program to trade in his 1995
Ford (F) Explorer for a new Volkswagen (VOWG.DE) Jetta. That means
his old paid subscription turned into a free six-month trial.
Prices are going up, too. This summer, Sirius began tacking on a $2
monthly fee for most subscriptions that covers royalties to the
recording industry for songs Sirius plays.
Another wild card: Stern's lucrative contract will run out in 2010.
If Stern retires, as he's threatened to do, some of his faithful
listeners could drop Sirius' service when he leaves. "I'd make sure
that Howard is there," says Sean Ross, who writes a column for the
online radio industry newsletter Radio-Info.com. "He is their calling
card and the closest thing they've got to a killer app."
More Howard won't come cheap; Sirius paid Stern $500 million for his
initial five-year contract, signed in 2004.
Then there's the threat from Internet radio services such as Pandora,
which can stream music into wireless-enabled cars, such as certain
Ford models.
"They have a lot more competition," says Ross. "I expect they will
continue to grow, but it will be modest. They are in a rapidly
changing world."
Kharif is a senior writer for BusinessWeek.com in Portland, Ore.
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