In a move that was widely anticipated, Sirius XM Satellite Radio (NASDAQ:SIRI) has settled a class action lawsuit brought against it. Class action suits that reach a trial date without dismissal are often settled. The settlement, like many sees the attorneys getting the most benefit, but there are some aspects of the settlement that can benefit subscribers to Sirius XM.
The first item to note is exactly what the class is, and to understand that it is the class, and not new subscribers that can benefit from this settlement. If the FCC decision comes regarding the price freeze, The company can raise rates at any given time for new subscriptions. The settlement requires the company to not increase prices until December 31, 2011 for members of the class. Interestingly, it may be possible for that date to change at some point, knowing that currently the company can not raise base rates anyway. Recently one of the FCC commissioners resigned, and that event could put a hold on a lot of what is happening at the FCC regarding decisions. If a price increase could not happen anyway, the judge and/or attorneys may seek an extension of sorts.
The thought of a price increase had the street excited about Sirius XM. This proposed settlement could hamper the happy thoughts of the street in that it mentions the current pricing existing until at least the end of the year. Remember, when it comes to a stock, the facts do not always rule the day. It is perception that oft dictates what happens with an equity. The proposed value of the settlement is $180 million. This will not be paid in cash, but rather in price freezes, etc. to the class.
Another interesting aspect of the proposed settlement is the offer for 4 million who no longer subscribe to re-subscribe without an activation fee. I can already see passionate Sirius XM investors chomping at the bit and having visions of massive subscriber numbers coming into the folds. Think again. First, these people churned out for a reason. They did not like the current price. There is nothing new in pricing for these people, and a $15 credit of an activation fee is not going to get these people motivated. Remember, most in the class will NEVER BE AWARE OF THE SETTLEMENT! My advice is not to get ahead of yourself here. These 4 million will have NO IMPACT on subscriber metrics. Stern renewing had minimal impact, Dr. Laura had minimal impact, and Certified pre-owned cars to date have had minimal impact. A class action suit that no one is aware of will not have an impact either.
The bottom line is that this case will cost Sirius XM $13 million in attorney fees, freeze prices on existing subscribers (members of the class) until the end of the year, and push of any real benefit from a price increase until at least 2012. The bigger news here is that with Meredith Baker Attwell resigning from the FCC, a decision regarding the price freeze could be delayed substantially.
I would anticipate that this settlement will not be viewed as positive, and thus the stock price may suffer. In the conference call Mel spoke of a price increase later this year. That is now off of the table for the members of the class (most of the self-paying subscriber base). Time will tell.
Position – Long Sirius XM Radio