Price Increase Will Bolster Sirius XM’s Bottom Line
While consumers may not appreciate a price increase for any product, investors most certainly understand the dynamics of what such an increase means. For Sirius XM, the impact of their recently announced price increases will surely help the bottom line as well as cash flow.
The company will soon be rolling out a $2 per month price increase on their “Family Plan”. In general, the “Family Plan” are additional receivers activated on an account. Typically, satellite radio has seen about 20% of their self paying subscriber base in the Family Plan category. Thus, out of 20 mil. subscribers, there are 4 mil. that would fit into this category and those 4 mil. delivered about $28 mil. in revenue each month. If we were to assume that the price increase would cause a 10% drop (a high estimate in my opinion) in the existing Family Plans, we would see 3.6 mil. Family Plan subs left, each paying $2 more than they were. The price increase would effectively give a $4.4 mil. per month raise to the revenue line of Sirius XM, bringing revenue to $32.4 mil. The fact of the matter is that it would take a subscriber drop of over 20% to make the move a net negative. That kind of backlash simply is unlikely.
Meanwhile, the company is also going to charge for the Internet feed of the service. The $3 per month charge means that subscribers will no longer get to listen over the net unless they pay. This move makes devices like the Logitech Squeezebox, which uses the Internet feed, become a $3 per month device rather than free as in the past. Royalties for on-line listening are higher, so the company will be able to offset some costs, but in real terms, the take rate on the Internet feed may be more than what people initially think. If we assume that 4 million subscribers take up the added cost, then that represents $12 million more in revenue each month.
Combine these two increases, and the company will be seeing an additional $16.4 million in revenue each month. While this may not seem tremendous, it is is nearly $200 million per year added to the coffers. The other item to consider is the cash infusion that will happen for subscribers that will pay early to lock in the lower rates. People look for value. When XM satellite radio did a price increase from $9.99 to $12.95, they allowed subscribers to pay ahead to lock in the lower rate. The response was measurable, and the cash on hand for the company increased. For Sirius XM, with various debt issues, additional cash is a good thing. The company will be getting $7 per month more from my account:
EXISTING ACCOUNT
Main Subscription with Best Of XM – $15.95
Second Subscription —————-$6.99
Third Subscription —————— $6.99
TOTAL—————$29.93
NEW PRICING
Main Subscription with Best Of and Internet – $18.95
Second Subscription ————————–$8.99
Third Subscription —————————-$8.99
TOTAL———————-$36.93
The bottom line is that this move by Sirius XM helps the bottom line, and helps the health of the company. It allows the business model to be modified so that the company will appear more attractive not only to potential lenders, but to the street as well. Metrics such as ARPU will see a positive bump. From my own account, I will be paying $7, or $2.33 per account, per moth more than I once was if I opt for the Internet feed. The price increase helps add revenue (and deferred revenue), helps defray costs, and is not so offensive that it will spurn mass cancellations. From a business perspective, this is a positive move for the company.
Position: Long Sirius XM
It is so aggravating watching this company die, because it had so much potential. Especially after most of us put so much effort into backing the merger. I foolishly believed that after the merger the company would reward it’s subscribers by offering all of the channels for $12.95. With such a high quality product at a great price, there would be no competition. I envisioned the number of subscribers would explode and the business would thrive.
Karmazin needs to take a lesson from the foreign car manufacturers. Their business model is simple. If you offer a high quality product for a good price, everything else will fall in line. It’s as if Karmazin wants the business to fail…which is a possibility.
One of the problems with satellite radio is that people do not understand it. They do not know what it is or how to get it. Also, before the merger you had the confusion of having to choose Sirius or XM. Karmazin stated that the merger will solve this problem and increase subscribers. But now he offers confusing subscription packages which nickel and dime the costumer to death and then he has the audacity to raise the prices. To say I am disappointed would be a huge understatement. I can’t believe the damage Karmazin is doing to this company. I thought he was a salesman…
I fought for the merger because I believed Sirius XM would treat their customers right and the subscribers would benefit. It’s obvious now I was fighting for the wrong side. It’s as if Karmazin is following “The Terrestrial Radio’s Guide to Destroy Satellite Radio.” What’s next? Commercials on the music channels. Hey Mel, that’s a great idea. That will pull in even more revenue.
I use to have such a sense of pride towards satellite radio. Now I am ashamed and embarrassed for the way Sirius XM is treating it’s subscribers.
I apologize for ranting…
Agreed! 110%. Run it like a business and not a chairty event!
err. im charity lol.
I just want some news from Sirius XM management. This years first debt payment is fast approching, and yet we have heard nothing from management(Yeah, they swapped a few shares to reduce the debt a little bit, but not enough). I have been heavily invested in for the last several years. I was a fool to invest so much, but I believed in this company. A 90% loss will be hard to recover from, but if this company files bankruptcy, like a lot of others, I will be crushed. Its all or nothing for me now! I wish everyone who invested in this company the best of luck!
For well over a year during the merger fiasco, Mel argued vehemently that the merger would bring lower prices. I don’t buy this nonsense that they must raise prices becuase they are fighting to survive; it is bullshit. The only fighting they have indulged in is with the subscribers, and it’s a fight they are destined to lose.
Look at the response people have had to Barack Obama. Just by speaking positively, and with a sincere tone and a sense of urgency and commitment, this man has restored hope and enthusiasm to millions of American citizens! Nothing complicated; simply something not seen in decades – eloquence, eloquence, intelligence and compassion. Perhaps not proven yet, but PERCEIVED !!! It goes to show you what can happen when you capture the imagination of people, and give them a glimmer of hope.
Mel Karmazin has done nothing to stir the imagination of current and potential subscribers. He has had an adversarial relationship with the subscribers since he took over. He doesn’t know how to market the service, he has never been accessible to the subs and the shareholders, and he always chooses complexity and confusion over simplicity and order.
My perception of the management of Sirius/XM is horrible. I have no faith in any of them. I don’t trust that they have the best interest of the subscribers as a priority. They will never know what might have been, because they took the excitment, the zeal, the enthusiasm people started to show for satellite radio a few years ago and killed it. What other product can you think of that is this good, yet met with such resistance? Such disdain.
What Mel is doing isn’t working. What will work… he isn’t doing. If he would just stop trying to screw the subscribers, stop lying, and stop acting like a sleazy low life, then maybe peoples perception of him might improve. Maybe the perception of Sirious/Xm might improve. There has to be some reason why the mere mentiom of satellite radio generates such a negative response from so many people.
Until the perception and the image people have about satellite radio improves, it will remain stagnated and lethargic. Somebody needs to restore the hope. Somebody needs to revive the fervor. Somebody needs make satellite radio great again, and then convince the skeptics that it is great. Mel has proven to me that he is not that someone!
Steve O, It’s hard to argue your take on SRX’s percieved image. Is Mel so consumed by the debt & our diar economic situation that he can’t see or convey a positive image to the consumer & Wallstreet? Has the pressure got to him (i’m not denying that the pressures aren’t real). It’s like he’s letting the media beat him down. It cost nothing to send out positive press releases. I’m not talking about BS releases. Their PR dept. seems to be non-existant. In simple terms they need to fight off the impression that they are a loser company. Yes the stock is down but does the perception of the product have to go down stream with the stock price? We ourselves know it’s a great product and a good value. But those on the outside looking in are tying both the stock price w/ the product together. This leaves an impression that the product must not be worth while. That’s a big problem that SRX seems to be in denial. If Mel & his people can’t instill the positive value & content of SRX to the general public how will he convince the bankers?
Look at all the sugarcoated feel good posts. Most of them have been posted by the same group of shareholders that broke rule #1 for investing, they fell in love with their SIRI stock and continued to hold while it dropped dollars per share. Now they are all experts about how great the price increase will be for SIRI, at a time when many householders are struggling to pay their bills. Tell me oh wise and noble bagholders, with all the jobs that are or will be cut just since the first of this year, how many do you think have SIRI subs and how many do you think will still keep them, while they struggle to keep a roof over their heads and try to pay bills using an unemployment check?
The global economy is in DEFLATION MODE. Many corporations and even small business owners are holding the line on price increases, while many are actually LOWERING their costs of goods and services to keep the cash coming in and help them ride out the bad economy until it gets better. Go ahead and sing your praises about Mel and his smart move to raise prices. Just remember that it was Mel who did NOTHING to protect your shareholder value, who told you the acquisition of XM would be great for SIRI and its shareholders, and who was too unsophisticated to shop for financing BEFORE the FCC approved the deal. Have fun talking about your champagne wishes and caviar dreams, that’s about as close as you’ll ever get to that type of lifestyle.
Thanks, Even though I know I made a mistake in holding on to this stock and not cutting my losses, it is always great to be reminded by others, the so-called “Investment Experts” that made one right call.
Although it’s a longshot, this company still has a small chance of surviving. Remember, Sirius XM radio is still a great product. I can’t remember the last time I listened to traditional radio.
Bingo!
There is not a single company, in the history of the stock market, that has lost over 95% of it’s value and survived.
Sirius is now a penny stock and will remain so until it goes belly-up.
Sell your shares now, they are, for all intents and purposes, already worth ZERO!
Neal Barkett – I agree totally with your addendum; pretty cool word – don’t you think?
I think of the ubiquitous(I’m on fire!) I-pod. It isn’t the most essential item in the world. It isn’t the best sounding music player by a long shot. There are many things I would like to own, and would purchase before laying down the green for this little hunk of plastic and metal. So why has this thing sold like twinkies at a chubby chick convention? Because it has been masterfully marketed – and millions of people think it’s cool. I won’t argue the fact that it is an amazing device, and it has altered the listening habits and recorded music industry dramatically. The point is… If it was not perceived as cool and unique and amazing, then it would have quite possibly never have been the sales phenomenom that it became.
Satellite radio, in my estimation, is just as cool, unique and amazing – but look at the immense discrepancy when comparing number of units sold, and the products popularity. The I-pod has outsold satellite radios by a margine of at least 10 to 1. It is probably more like 20 to one or even higher. Don’t take these figures as gospel – I’m just making a dopey guess for the sake of getting my point across.
The bottom line is this: The I-pod isn’t 10 or 20 times cooler, or better, or more remarkable than the satelliter radio I am listening to as we speak – the company and the marketing of the product is 10 (or 20) times better!
What we have here is not a product problem; the problem is a seriously flawed business model and management team. Great product + horrible management = BAD PERCEPTION. PERIOD !!!
I feel like Tristan. There were those that were opposed to the merger who were here and other places making noise about it and I and others put them down.
Now I have to admit they were right on. There were going to have synergies and we 10 cents a share. They were going to give us more choice and now both stations have the same channels. They were going to give us better prices and now their raising their prices. There would be no monopoly because iPods would force them to keep prices low.
There were a very few that said these things and we all shouted them down.
Now the truth has come out. But like some of those people told up front there is nothing to be done about it and you cannot put the toothpaste back in the tube. Sat radio has been destroyed and it can never be the same.
BTW I liked XM better and I feel like the merger has taken away the good stuff from XM. Anyway, I just terminiated one of my receivers and I’m thinking about doing the other one.
People are losing their jobs at a faster rate than know in my lifetime. Paying for the basics for many people is a difficult task. For all this, what do we get from XM/Sirius as a result of the merger? How about a significant price increase. I am done with theses guys. This is just a slap in the face. I think I will purchase an HD off the air radio and see what I can get for free. I hope everyone bails.
I for one will be dumping Sirius when my current subscriptions expire.
I have a Stiletto 2 and the fact that I will have to pay EXTRA for a basic feature of the unit, wireless internet access, is a deal killer for me.
ANYONE with any of the Stiletto units knows that the satellite reception is NON-EXISTENT indoors and spotty, at best outdoors.
For Sirius to place a premium on their portable unit is the height of arrogance.
Why anyone would pay for a Stiletto now when they can simply use an iPhone or Blackberry and the internet is beyond me.
Mel Karmazan promised no price increases to Congress during the hearing on the merger.
We now know that he was lying.
I got Sirius for one reason, Howard Stern.
The fact that Howard is leaving at the end of his current contract and that Sirius will probably be in bankruptcy shortly,
has pushed me to finally pull the plug on my Sirius subscriptions.
When they expire, I’m done.
Mel, Howard and Sirius management can go pound sand.
If this is how they treat loyal customers, I don’t need them.
I am in total agreement with Tim. I have already emailed my thoughts to Sirius Customer Service.
I think this is crazy. I am too upset about the increase of two dollars for the “family” plan. I will be ending my second radio because of this. Times are tough right now and an increase in the price of service is just a bad move.
On top of that, they are taking away a service that was free to all members before, and now charging for it. Really, I wouldn’t have a problem with that but lets put it this way, if I have a choice between being charged for a service that was one free or listening to my ipod or free streaming internet radio instead, I will not be paying for internet sirius, I’m sorry.
Too Bad…no more Howard for you.
I’ll be cancelling my additional 2 radio subscriptions. Besides If I here that terrible Susan Zapper say “NYOW” one more fing time!!!!
Once again companies combined with talk of saving money and POW! Lying bastards
Pay massive a salary to Howard Stern and this is what you get. He’s not worth what he’s paid and YOU get a rate increase to cover it. No more Sirius for me!