In an article I wrote previously, I eluded to the fact that the recent channel consolidation of Sirius XM had many benefits, yet I only touched on one due to the fact that other news overshadowed my original thought process.
The first benefit I mentioned was that it made the service easier for the general public to follow. Having an identical service on any GM, Ford, Honda, Chrysler, Toyota and every other make and model sold in the United States makes the end user more likely to continue the service. This should lead to increases in subscriber retention.
Having said that, most investors know the lowered costs that will be associated with the new format, yet the big picture is being missed by most investors. Those who have the service may have noticed an increase in the number of quality advertisers on the non-music channels.
Every channel now has double the listeners, and that is a huge plus for Sirius XM going forward. Sirius XM advertising just became more attractive to quality companies who want to reach a larger audience. Prior to this move, each service had about 10 million subscribers, and advertisers could only reach a portion of that pool at any given time. Sirius has consolidated that listener pool to 20 million and as such I look for a large increase in ad revenue.
Investors need to remember that this is what Mel Karmazin has been expected to do. He has a created what some have termed a satellite radio monopoly. He is creating a media company that has excelled in an environment in which all other media is faltering. He has managed to increase revenues despite the worst economic crisis that most of us will live through.
Ad revenue last quarter rose 6 million dollars over the same quarter in 2007, and yet its only up 7 million for the full year. This indicates to me that we are seeing dramatic increases in advertising revenue since the merger, and this is actually the first full quarter of the combined company. I expect that the ad revenue number will increase dramatically in this, the final quarter of 2008.
|(in thousands, except per share data)||2008||2007||2008||2007|
|Subscriber revenue, including effects of rebates||$||456,357||$||226,844||$||978,516||$||627,275|
|Advertising revenue, net of agency fees||14,674||8,524||31,413||24,422|
Position: Long Sirius XM.