When Sirius XM merged, one of the stipulations was a three year price freeze. It seemed like a small concession to give in order to gain merger approval. Up until that point Sirius XM’s Mel Karmazin had spoken many times about the fact that the company had never raised the price of the base subscription and that he felt there was elasticity in the price. Analysts began taking an inevitable price hike into account with their projections. Then the price concession happened and a price increase to drive revenue was taken off of the table.
Last year I wrote several times that the FCC giving up their control over Sirius XM’s price structure was not a slam dunk. Once the government gets their claws into something it is often difficult to pry them free. In this case, I think all of the latest swings in technology will actually be helpful to Sirius XM. The company argued that the competitive landscape is more robust now, and this is quite true. With BlueTooth A2DP technology and car audio systems integrating more and more with devices outside the dashboard, consumers have more options than ever before.
Many media outlets have painted a picture that Sirius XM is seeking permission to increase prices. This is not the case at all. Instead, the company is seeking the FREEDOM to adjust their prices as they see fit. There is a distinct difference. This is more about gaining their freedom than anything else. While this freedom may ultimately lead to some price increases, higher satellite radio prices is not a foregone conclusion.
There are several factors that the FCC may consider in making their decision, and the company could have to offer up additional concessions to gain their “freedom”. One such concession could be for subscribers to both the Sirius service as well as the XM service. If you fit into this category you have the pleasure of paying full price for both services. Thus if you drive a Ford and your spouse drives a GM, you are paying for two full price subscriptions. If you have multiple subscriptions on the same service you get “family plan” pricing for the additional subscriptions. This very issue was brought up by consumers multiple times during the comment period for the merger.
What I foresee is that instead of a price increase the company will “rearrange” some of their pricing structure. Offering better discounts in some areas while perhaps increasing prices in others. Sirius XM needs to tread carefully here. The service, while superior in distribution capability and content offerings, has to compete with the likes of Pandora which at $36 per year is far less expensive than the current $150 plus you need to pay for Sirius XM. The easiest way for the company to put through an increase without consumer pain would be to build it into the price of a car from the start. This however would require some negotiations with OEM’s as they try hard to keep their prices competitive.
These changes in pricing structure will likely not be incorporated until the company rolls out Satellite Radio 2.0. Luckily for the company they have the latitude to price Satellite Radio 2.0 however they want. The price freeze applies to the base service only, thus, if Satellite Radio 2.0 is marketed as a premium add-on, the company can put a price tag to it. I am sure the company would rather couple pricing changes with the new capabilities and services offered by Satellite Radio 2.0 giving the consumers added value which would justify a price increase.
What Sirius XM is really seeking here is flexibility to price their service how they see fit. In my opinion their best chance in gaining that freedom is by sweetening the pot slightly. Personally I think the multi-subscription pricing across the two platforms would be enough to get the deal done.
Position – Long Sirius XM Satellite Radio