At first blush many people think that satellite radio is a luxury. The concept of paying for radio seems to be something foreign to them, and should not be included in their monthly budget. However, satellite radio has seemed to gain traction despite a bad economy. No, it isn't on the "needs list" the way a phone is, but people seem to want the service even in these poor economic times.
In their second quarter report Sirius XM was able to report that they increased subscribers by nearly 600,000, lowered churn by 10% to 1.8% per month, increased the take rate, and increased the Average Revenue Per User (ARPU), all while maintaining a flat Subscriber Acquisition Cost per gross addition. The company has accomplished all of this in a poor economy. What does all of this mean? It means that satellite radio is gaining traction with users and not only are people hesitant to give it up, but Sirius XM is proving so valuable that new people are coming on board each day. In simple terms Sirius XM is adding more people at a flat cost while also getting more money per subscriber. That is a recipe for growth and success.
Most consumers get exposed to satellite radio through the OEM channel when they buy a new car. The OEM channel is the biggest contributor, but the company also has enough subscribers at this point that word of mouth is spreading the benefits of satellite radio as well. People are realizing that satellite radio is a real and viable service that offers plenty of unique audio entertainment that simply can not be matched by other services. Terrestrial radio has too many commercials and not enough selection, and Internet radio is predominately limited to music channels and lacks sports, news, and talk without the signal quality and full availability offered by satellite.
Sirius XM offers users a consistent signal over satellite that delivers the same content no matter where in North America you are. It is supported by a decent Internet option that can be utilized on smart phones or from a PC, and the company continues to roll out unique content on a regular basis such as Star Wars Celebration Radio, E Street Radio, and a new show with Michael Posner. From commercial free music with live entertainment such as Sirius Hits One and XM 20on20, deeper playlists of Classic Vinyl, live sports and news coverage, and awesome talk channels, Sirius XM pretty much has it all, and it is that, more than anything that makes the service carry an appeal to consumers even in a depressed economy.
With a national platform Sirius XM is also able to attract today's talent to participate. It is not uncommon for pop singers like Katy Perry to be a guest host on the weekend countdown, or for a band like Dave Matthews to take over a channel for a few days. What Sirius XM remains relevant and cutting edge and the wonderful thing is that as the company demonstrates financial success, they can build upon that even more.
What Sirius XM has done is prove that they can and will be a force even during the current economic issues that face this country. They do not need a full economic recovery to be a profitable concern, they are doing it now. What does this mean for investors? It means that as the economic picture begins to brighten that Sirius XM will not be like most companies and trying to get back to where they were. Instead, they will be blazing new trails with subscriber records, an even better revenue picture, and setting the pace for all others to follow. Yes, terrestrial radio, Pandora and Slacker will still exist, but Sirius Xm can be applying the needed pressure by raising the bar with each passing day. Yes, Google Music will likely launch with the support of deep pockets, but they will be in catch up mode. The bottom line is that Sirius XM will have the ability to shift to meet competitive demands because they are already established and have proven their model. More car sales and a better economy will make Sirius XM more of a powerhouse going forward.
For Sirius XM the future is as bright as they want to make it. The competition offered by other services only helps ensure that consumers will see added value in satellite as the months roll by. Satellite Radio 2.0 is the unknown commodity that Sirius XM's Mel Karmazin mentioned in the Q2 conference call. The beauty is that Satellite Radio 2.0 has not really been defined. It can be anything Mel wants it to be. It does not have to be limited to a technology, and more likely than not wont be. In my opinion Satellite Radio 2.0 will incorporate technology as well as content. Satellite Radio 2.0 will be the whole package, technology and content, and Sirius XMs next step in their path to success and domination inaudio entertainment.
Position - Long Sirius XM Radio