Wednesday, December 28, 2005

Upbeat or Upside Surprise?


In the “no surprise to anybody” category, Sirius Satellite Radio yesterday announced it will have added more than one million net new subscribers in the fourth quarter of 2005.

The recent new-subscriber momentum at Sirius is, as we have discussed here, is a result of the “Howard Effect”: the legions of primarily young, primarily white, primarily male listeners now signing up to receive Howard Stern’s radio program when it begins digitally beaming from space on January 9th.

Most analysts expect similar upbeat news from XM Satellite—the Hertz to Sirius’ Avis—shortly, even given the fact that the “Howard Effect” has provided Sirius with a meaningful advantage in the near term. (The historic 3:1 XM-to-Sirius sales ratio at retail locations which I monitor has been reversed in favor of Sirius in recent months.)

But I wonder how “upbeat”—to use one of Wall Street’s Finest’s most hackneyed expressions—XM will really be when they report their Q4 subs.

My rhetorical question is based less on in-store observation of shoppers picking one versus the other and more on an XM email that recently bombarded friends who had purchased a car with the XM radio or just a plain old XM radio, but had not activated it:


If you received or purchased another XM Radio during the holiday season and haven't yet activated the radio with service, what are you waiting for? Activate your new XM Radio online by December 31, 2005 and we'll waive all activation fees (up to a $14.99 value.) Get started with XM today by activating online. Happy holidays from your friends at XM, and happy listening!

Translation: “We want to hit our subscriber numbers really, really badly.”

Now, perhaps I am over-thinking this one. Perhaps XM has its new sub growth in the bag, and the activation-free incentive is merely a way of ensuring what, to Wall Street’s Finest, is even better news than being merely “upbeat.”

Which is to say, “an upside surprise.”

Any first-hand observations of the efforts by Sirius and XM in the market place are welcome.


Jeff Matthews
I Am Not Making This Up



© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

12 comments:

jucojames said...

I am one of the new Sirius subscribers - received as gift from my wife. I am a Stern fan but was surprised at how little I missed his show when it went off in my market over a year ago. I would probably not purchased service on my own, but I am enjoying it very much so far. The major issue I see that investors may not be accounting for is some potential negative news on the churn front over the next few months. Many people get these radios expecting that they are a replacement for terrestial radio, but they are not. The antennas must have a clear line of sight to the N or NW or a repeater to get a signal - and even then service can be choppy at times. This is more of a problem in buildings - i.e. homes and offices. I wonder how many new Stern fans will be pissed when they find out that they cannot get his show in their home in the morning while getting ready for work and/or at their workplace? I know that I was pissed when I went to set mine up in my office on Monday only to find out all of the issues I stated above! Stern fans are not known for being subtle, so I wonder whether a backlash is possible? Also, whether online streaming will be considered for his show and other non-music content....

Bill said...

XM offered the same deal last year to subscribers. The goal is clearly to get the radios activated as people put it off often into the first week of January or later which is partly what leads to January being good for both companies.
The other thing XM has been offering current subscribers is direct email offering radios for around $25. These are radios that would be put on the family plan at $6.99 a month.
What's interesting is how low the SAC on these would be. XM currently has a SAC around $60. By selling these radios directly they avoid having to spiff the retailer ($20-30). The SAC on these subs would probably be around $10 at most. As the base of XM subscribers grows I would look for XM to expand these sorts of direct marketing efforts.

Bill said...

Jucojames,

That home reception problem is specific to Sirius. Because they use 3 satellites that are continously moving you may get dropouts from having the antenna in the same location in your home. XM does not have this issue due to it's satellites not moving. If you place the antenna in a location where it gets reception it will always get reception in that spot.

BelowTheCrowd said...

I recently deleted my email address from my Sirius profile, as I detailed in my blog. http://www.belowthecrowd.com/archive/2005/11/why_sirius_cant.html I got so much marketing spam that I decided that whatever actual information they wanted to send me wasn't worth the trouble. Like many subscription services (including, for example, the online service Jeff used to write for) they seem to think that such abuse of their subscribers is acceptable.

Some of what I was getting was related to buying a second receiver and activating it before the end of the year, which supports Jeff thesis. Lots of it was just plain banal "did you know what we have on channel 71 today?" kind of spam.

By deleting my email address, I might be missing out on some special offers. Probably not. If they want my email address again, they'll have to learn to respect my desire NOT to hear from them unless it's important.

I've tested both SIRI and XMSR receivers in my home and my office, here in LA where both have a repeater. Both have intermittent problems with interference, even when placed in a location with clear sky views.

For my current SIRI receiver, I've found a location that largely eliminates the problem, but I suspect there is some kind of local intereference.

At my old office, I could not get either XMSR or SIRI to work well unless I could place the antenna outside the building: a combination of lots of steel in the construction and a metallic tint on the windows made for major issues.

-btc

At the Money said...

Just to prove your point. I got an XM radio a few days ago (not a Howard fan). After I activated my radio with the activation fee waived of course, the confirmation webpage showed that I was eligible to recieve a free XM radio. The catch is I have to maintain a six-month subscription on both radios.

Its_strange said...

NY Post reports CSFB figures we will see a 32% increase in online ads in 2006. They believe it will come out of radio , TV and print. I don't know but the recent move in TSCM's stock has me thinking they are about to offer more free or ad sponsored content. And if Cramer is reading this ......The new CNBC format is a disaster, i can't even have it on for the audio. I haven't been able to listen to radio for years now. It clearly is time for a Satellite radio business blog channel . I will be happy to sign up if and when you media pros get it together. Give me a TSCM subscription that includes a Satellite radio deal (business blog / news ) I will have it on in the car and it will just about replace my TV . And i don't care if you have advertising on the satellite...Someone is going to do this . Fox or Yahoo or Google or someone.

Its_strange said...

And maybe i just don't get it but whats so unigue about Howard ? He seems rather boilerplate bathroom talk to me. Kinda like the yahoo posters . I say a business blog where the pros can review and critigue wallstreets finest is unigue.

CNBC should be ashamed of themselves for what they did with thier satellite opportunity

Jeff D said...

Seems to me the biggest difference maker between the two services right now is sports coverage. Sirius (which my wife and I have in the car) offers a full NFL slate and a lot of college football where XM has baseball and college basketball. In terms of music, comedy, etc I would be they are similar.

One thing I dislike is that for CNBC you often get the audio feed of the TV channel which can be near useless when they are discussing charts, etc. For that reason I usually have it on Bloomberg for business news.

That said, I don't think XM was expecting this much of a surge in Sirius' subscriber base from Stern. Seems like Stern has already paid for himself and any more additional subscribers are going to go to Sirius' bottom line.

Jeff

tvw said...

I subscribed to Sirius simply because of the $500 lifetime subscription vs. nothing comparable available at XM. Stupid if Sirius folds in the next 4 years, but predicting it won't.

Its_strange said...

I had a great New Years Eve weekend . 3 days at the NJ shore . Great seafood at Spikes in Point Pleasant. The Southside Johnny NYE show in RedBank .The only thing missing was business blog satellite radio . ...

tvw...i didn't know about that lifetime deal . It sounds very interesting....Its my wild guess there are about 200,000 pros working on wallstreet . I bet they would be happy to pay $500 for a lifetime sub to satellite radio with a top shelf business blog...

Chug-A-Bug said...

JMHO, I think XM is going to miss. The promotional activity has been too insane. It smells like fear.

A miss in this case would not be by much. It should still be a spectacular number, they just, in the end, couldn't get it done at the promised levels.

The reasons for the miss will not be well-understood. Everyone will talk about Stern, but in reality Stern should have added to Sirius his people, not taken away XM's growth.

What Stern really did was just add buzz and excitement to the one satellite radio company that cares to promote itself 365 days a year.

In the face of this, XM's marketing was inadequate. They turned it on a bit this quarter, but too little, too late. Listen to all their presentations, they always express some arrogance about how they don't need to promote themselves, they don't need to do anything, everything will just take care of itself, and they can control sub acquistion with pricing and a little bit of sporadic advertising. WRONG.

They might be stubborn, but they're not stupid. I'd put better than even money that they're learning their lesson this quarter.

It also appears that there were some distribution mixups, with walmart not getting enough of the ultracheap radios, and BBY and CC getting too many. All those Roady2s piling up at BBY and CC for $9, Walmart could've moved at their $29 price. If they got them.

This could be a, shall we say, "buying opportunity." Or maybe not, since CES is going on this week and who knows what XM will announce.

SAC will not be as materially affected, despite the big promotions, because GM sales are weak. GM saved the satellite radio industry with its XM deal, but these days, it is an albatross. A GM sub carries with it HUGE SAC, plus revenue share, plus a middling take rate. Bad GM sales = more money that XM can pour in more cost effective channels.

As for content...

Fox News is now exclusive with XM. This will be interesting to watch.

XM and Sirius have very different programming philosophies. XM goes deep. Sirius is highly repetitive and hits based. IMHO this accounts for SIRI's consistently higher churn.

As for sports, XM signs college conferences, Sirius targets specific schools. Net, XM carries slightly more college sports though some big games between two schools owned by SIRI are missing. Both have NHL for now, going to XM exclusively soon. XM has MLB, SIRI has NHL. SIRI will be taking NASCAR from XM next year. And each has some other minor sports (i.e. SIRI has english soccer, XM has PGA)

Its_strange said...

Cramer thinks Murdoch might buy the WSJ . That he wanted it a few years ago when it was $70 and now he could get it for $50.

This media stuff is very interesting. ...a la cart TV , the internet and satellite radio. One day it will be like getting dinner at Boston Market. $25 gets you a chicken and your choice of side orders.