usirius-genresThe NiceMac USirius StarPlayer application for the iPhone is generating a ton of buzz! SiriusBuzz is giving away 7 invites for the application, and with over 300 comments on the promotion, it is clear that people are clamoring for an application that marries Sirius XM Radio with the iPhone.

The application, developed by NiceMac requires an existing subscription to Sirius XM Radio, and relies on the Internet feed of the service to deliver content. That Internet feed is currently free with a paid subscription, but beginning March 11th subscription pricing will change, and among those changes is the Internet feed which will cost an additional $2.99 per month on top of the $12.95 if you have an existing radio. Internet only subscriptions are available for $12.95 per month, and do not require a radio.

So how does a third party application help Sirius? In an ironic twist, Sirius XM Radio is allowing subscribers to lock in current rates, and maintain their free Internet feed for the length of their contract. Thus, if you renew your subscription prior to March 11th, you can keep your Internet feed for the term of your renewal.

The longer two and three year plans offered by Sirius XM already build in savings, but now, with applications such as this, locking into these rates to maintain the Internet feed has even more value. The potential for Sirius XM is pretty big. If 1 million subscribers lock in by pre-paying for $349 for the three year plan, it delivers an infusion of $349 million into the coffers. Considering that over 20%, or 4 million radios, of the subscriber base is in family plans which will also see a price increase, the activity on locking in lower rates could be huge.

While the prepay aspect of this issue helps bring cash into the doors, the other potential savings comes from cutting expenses. The company subsidizes the cost of retail radios, pays marketing costs, rents shelf space, and employs a sale force. With the iPhone capable of getting Sirius XM, there are no such costs. Sirius XM literally gains an advantage on the viral aspect of the iPhone phenomenon! From a business standpoint, a subscription on a device that costs the company nothing is far superior than one that costs the company money.

Many analysts that followed the sector had all but given up on a price increase after the merger concessions were published. It was thought that any mechanism for increasing revenue and ARPU were a sacrifice to the merger, and that prices would be stagnant for three years. The company has increased prices in the two ares they could, and that will drive Q1 numbers substantially. Unfortunately, this information is lost on the street because many analysts simply are not covering the equity any-more.

The take rate on locking in rates was already going to be decent. People want value. With the NiceMac's application hitting the market, and the certainty of more in the pipeline for Blackberry, and other smart devices, the value of the Internet feed will only increase.

While the numbers presented here are not enough to wipe out all of the debt, they are substantial enough to give the Sirius XM debt picture an entirely new perspective. This will make the next few months even more interesting, and will give shareholders something to look forward to in the Q1 numbers as we await the finalized data from Q4 of 2008.

Position: Long Sirius XM