Serious OEM Potential For Sirius XM Radio
Now that the merger between Sirius and XM is complete, it is now time for everyone to focus what what will happen going forward. For those that listen to SiriusBuzz Radio, you have heard me discuss some of this potential before. This piece will focus on the OEM potential.
Each year 15,000,000 cars are sold in the United states. Some manufacturers have satellite radio as standard equipment, while some are barely getting started with SDARS installations. Up to this point we are familiar with promotional periods, take rates, and OEM subsidies.
The basic structure of the satellite radio deals with auto manufacturers involves satellite radio subsidizing the radios as well as installations. In return, the OEM’s for the most part pay part of the promotional period subscription. The consumer is exposed to satellite radio for “free” for a period of time. Half of those exposed to the service elect to become self paying subscribers. Those self paying subscribers generate revenue, and a portion of that revenue is shared with the OEM.
One of the problems with this business model is that all of those consumers that elect to forgo satellite radio represent costs for subsidies, etc. and no revenue for either the satellite radio company or the OEM going forward.
What if there were to be a shift in the OEM business model?
What if the price of a five year subscription was built into the price of the car? The first year delivers the standard $12.95 satellite radio service. Years 2 through 5 deliver the “Pick 50 Channels” service at $6.99. This represents a value of about $500.
If that $500 value were put into the price of the car, the consumer would see about a $10 per month difference in their monthly payment month, but would never really equate it with satellite radio. From the perspective of the consumer, the satellite radio simply came with the car.
BENEFITS OF SUCH A SHIFT
1. All radios would generate revenue. As things are now, only half generate revenue.
2. Better churn metrics. These will be 5 year subscribers. They will not churn, and the churn metric will improve dramatically.
3. Everyone wins. 100 installs with the current business model gets 50 subscribers paying $12.95 per month for a total monthly revenue of $647.50. Using a general assumption of 40% revenue share, the OEM gets $259 and Sirius XM Radio keeps $388.50. This is virtually a month to month (consumers can churn any time) business model and means that cash flow can vary an projections become more difficult. Assuming these subs stay on for a full 5 years (they wouldn’t), the OEM will collect $15,540. Sirius XM Radio would get $23,310, and this is the best case situation with no churn.
100 installs with the new method gets 100 subscribers that in the first year generate revenue of $1295 per month. Years 2 through 5 generate $699 per month. Using the same 40% revenue share, the OEM gets $518 per month for the first year, and $279.60 per month for years 2 through 5. For the Sirius XM Radio, the first year would bring $777 per month, and years 2 through 5 would be $419.60. Over the five year period, the OEM collects $22,992, a minimum of a 48% improvement over the existing business model. For Sirius and XM the revenues are $29464.80.
4. Consumers who get used to the full lineup can upgrade the service delivering even more revenue.
5. The subscriber numbers will bolster meaning that Sirius XM radio can charge more for advertising.
This type of business model delivers direct benefits from costs that already exist. The company invests dollars into every radio. To have radios that are not delivering revenue is a waste. If Sirius XM Radio were to establish this type of program, the bottom line would benefit on almost an immediate basis. If OEM installations were to reach 70%, there would be over 10,000,000 new subscribers per year coming out of the OEM channel instead of just 5,000,000. All of this by simply getting the OEM to build the price into the car.
Come Back to Sirius Buzz for more looks into what the Sirius XM Radio future may hold.
SiriusBuzz Radio airs Thursday at 9:00PM EST
Position: Long Sirius XM
I completely agree!
Being exposed to tivo got me hooked. I can say the same about satrad.
My parents waited for both satrad and Tivo. Now both of my parents say they couldn’t go back to radio nor the “old” way of watching tv.
I agree, but you can make it even simpler. Lets say that there are 15 million non activated receivers. Sirius should just flick a switch and activate all those units, with a full package. These non payers would get full service for 1 week. But, every hour, a voice would interrupt the program and tell the non payers that it is a 1 week trial, and that as a once in a lifetime special, they can now get 1 full years subscription (full service package) for only $99. No contract, nothing. Just go to the Sirius website, give your credit card number, pay $99 up front, and get 12 months of service. (Non refundable, even if you sell your car) And obviously Sirius would write in the fine print that the service is automatically renewed at the going rate after 1 year if the user does not op out.
At the same time, the non payer also receives a pamphlet in the mail telling him about the offer, and saying how it is a limited time deal, and he must do it within 1 week.
Lets say that only 10% actually choose to re activate.. that means 1.5 million new users, each paying an upfront fee of $99.
We instantly get a $150 million boost. Sirius stock will double over night. And it won’t cost the company anything. Some of the current subs might get a bit pissed because they missed the special offer, it doesn’t matter, and most won’t even ever know.
Sirius, just do this, fuck. I’ll even pitch in some money to buy and send out the pamphlets. I know it will work.
I’d like to see a huge promotion for a free preview weekend (or week) for all existing radios after the best of both services are available. Those who want to hear Howard (and other adult content) would probably have to request those channels be activated (to avoid inevitable complaints). I think they would be foolish to not do do this.
mario, you were writing as I was. Great minds think alike!
great idea! any way you can get this over to Mel and his marketing team?
Great concepts, and maybe worth a try, but the situation I outlined makes SDARS ubiquitous, and the consumer actually does not even have a choice. They buy a car, and become a subscriber whether they listen or not.
From a business perspective getting massive penetration and becoming a part of the car, rather than an addition to the car is key
indeed, it’s such an obvious concept, I am sure somebody at the company must have plan to do this. But then I wonder, if they had the plan, why would they not have done it already (as separate companies)
It boggles the mind. I think we should have a pole to question whether on not we think Sirius has competent mangers, a clear vision, and an excellent plan to execute. Honestly, so far I have been let down. There was the excuse of the merger, and this and that….
I’m in deep as it is, so I can’t just bail, but I will eventually if this thing doesn’t shape up.
I can sacrifice 2 more quarters…. If I don’t see some quality improvements buy January 2009, I don’t care what the stock price is, I’m out.
mario….
Remember the timeline. Sirius’ OEM did not come on board in large numbers until after Mel came, and shortly after Mel came, he was talking merger with XM.
The OEM was married to one company or the other, and consumers may not want the service the OEM commited to. Now, One company, A-La-Carte, etc. make the plan more real. Keeping it under $500, and having it last 5 years is the key
Tyler you are right about new OEM,s… especially in higher end cars, but they need to get at least some of the old radios up and running again. I wonder how many new HBO and Showtime subscribers come from their free previews.
spanyo…
agreed. It is good to capture those radios in some manner or another.
The impact however is less instantaneous.
If the street knows that there are an additional 10,000,000 per year subs which deliver revenue, they can project that. They can see the dollars before they even get to the company.
Getting the old radios is a fishing expedition from which it will take time to get the results.
What I am writing about in this article is predictable cash flow that helps in many ways. Financing could improve because of such an OEM structure. Those that buy ads know ahead of time where the numbers will be. It will no longer be a subscriber counting exercise, but a money counting exercise.
I just have one problem Tyler, you just increased the car by 500 dollars that is not a concept that the OEMs are going to be to keen on. They are already giving rebates and lowering the prices to sell them now. While I dont think the down turn will last, I do think it is going to be hard to try and get the OEMs to tack on another 500 dollars. It would most likely work for the higher priced models but SIRIXM, most likely would get those people anyway. I just saw an article several months ago about how they were taking out extras that were standard like ash trays, lighters, cup holders, and others to bring down the price of the car. Now I also am aware of the WSJ article that extras are in more of a demand in the smaller cars. But those are not things that are just standard people are asking for them. I some how think it is going to be a more difficult row to hoe trying to get the OEMs to add 500 dollars to the price of a car. There is the other problem of competetion. I dont think GM is going to want to add 500 dollars to a car that is competing with a simular Toyota model and price. Unless both are willing to do it for those models. Do you see what I am saying or do you have any ideas to get around these problems.
P.S. did not mean to rain on anyones parade. and I do like the other idea about turning on the existing radios. I believe Tyler talked about something like that about a month ago. I like the detail that mario gave. Just one change though I would not make the service one that you have to cut off otherwise it continues. That is a big turn off to people, If you notice when you had credit card companies trying to sell the extra protection. They try, never to mention about the fact that you have to call and cancel it in 3 months when the promotion ends.
John, check out the article that I wrote.
https://siriusbuzz.com/the-other-side-of-the-oem-story.php
It addresses your concern exactly.
Tyler, I agree that would be very good for the immediate stock value. Counting money from this stock is going to be my favorite exercise.
By the way, thanks for all of your hard work. I think you should do consulting for SIXM.
Hi Tyler, I really like your idea. They could even offer discounted lifetime subscriptions. That said, there still needs to be some way to extricate value from the existing inactive radios. And until your approach is widely embraced the number of inactive radios keeps growing. Just curious, what do you guys think of the Record label idea presented in the forums?
Very simple solution on the retail new car end. Most dealerships are always offering a cash back incentive, usually $2000. They drop their $2000 offer to $1500 and advertise it as $1500 cash back and FREE sat radio for 5 years.
Sorry Tyler, John Says has it right. There is no way that auto dealers are going to start marking up autos in a declining market.
Currently sirixm is having some problems with auto dealers even mentioning satradio during the sales cycle, or so it was said in one of the Mel interviews.
I do like the aproach that sx is taking by making Howard and other select value added items available for $4 in September. It will bring in revenue before the al-la-cart prices drop, and also give a good indication of how much impact on subs, some of the on air talent has.
It would be great to see a bunch of xm listeners pony up four more dollars to hear howard or martha. Likewise, perhaps siri listeners pay for baseball…..all BEFORE, any low priced packages are offered.
BUT, they must make it publicly known that some programming is always going to come at a premium, otherwise they could have the same “wait on the sidelines”, effect as we got with the worlds longest FCC approval.
Newman, I read that a while ago. It does to some extent but not really. I did get the articles wrong instead of it being the WSJ you said it was the NYT. There is still the proplem of trying to get the OEMs to add 500 dollars to a car that they are already trying to reduce the cost. I do see the point that the OEMs are winners in this, even from Tylers article that was clear. I just thing the OEMs would rather sell the car that they are in the business to sell then not by trying to add extra cost.
Siriusinvestor, that is a good idea, the only problem is that, most dont realize it, but dealers always get a rebate from the manufactures. Even when there is not one offered to the customer the dealers still get one. I dont know if that has to go through the dealers also. I still like it though.
But that is the problem with the car dealerships as well: Cars do not come ala carte.
In most vehicles, if you want a navigation system, you also have to get leather seats, a sun roof, and an upgraded stereo system (usually with XM/Sirius). You do not get an option.
There are so many packages, that you can easily hide/cover the added on cost of the radio. Usually, they are charging for the radio anyways.
I think this would be a great idea to implement.
Tyler, great thoughts. I think it is like any option on an auto. It usually comes down to a few dollars per month. And the best part for SDARS is you do not have to do anything for three to five years to continue it. I have never liked the current plan. Except Lamborghini: life of the car.
Whatever, Mel better start doing something quickly to get the share price up. He has had 17 months to put plans together in the event merger approval was granted. I just hope the Sirius people were just sitting around during this time.
Newman, I am starting to see what you are saying. I agree that in most cases you have to get the “premium package” to get the savings. It always made more sense to get it all. The 3 or 4 items that you really wanted of the 8, almost cost as much as the 8.
I keep wondering if they will discontinue the lifetime subscription model?
you pay roughly $500 for a lifetime subscription. Why would you pay the $500 for the five years when you can pay the same price for a lifetime subscription?
I’m excited by the merger completion, and don’t see the doom and gloom of many “pundits.” Mel K. is a bull when it comes to bringing a company to profitability. I believe the long FCC battle hurt, but it will only make Sirius XM act in a more aggressive manner. Some of you have excellent ideas and I have to believe that the pros steering the ship are thinking along the same lines. I’ve been a SIRIUS sub long before Stern came over and I see awesome potential. I get the music I want as well as the variety. Now with XM on board I have even greater variety. I also own a iPod. OK, good product, but there are many times when I listen to Sat radio instead (in my car, at the beach, camping, out for walk, laying by the pool, etc. What keeps me listening? The fact that I know what’s on my iPod and I want to hear new tunes. Look at all the product possibilities. I think this company will kick ass and expand into more markets then the analysts geeks realize.
Shrink those radios, add SD memory expansion with mp3 playback capability, add some heavy metal and let’s get to the kids. There is a huge profit future at hand.
oh yeah… forgot porn… is there a playboy channel yet? We all know how much profit adult programing would add…..oh yeah… and downloading streaming video to that great under used screen on my Stiletto 100.
I’ve got 19,100 shares…. think I’ll buy some more!