sirius-xm-oem-focusWe often hear passionate satellite radio investors and fans clamoring for 100% auto installation penetration. On it's face it may seem like a great idea, but the reality of the OEM picture is different, and Sirius XM demonstrated that today at their annual meeting.

Sirius XM demonstrated the dynamics of smart growth in the OEM channel, and it is a strategy that the company is focused on. A vehicle such as the Cadillac Escalade enjoys a 70% take rate. This means that 70% of those vehicles equipped with SDARS become self paying subscribers. By contrast, economy cars carry a 30% take rate. A substantial difference.

It is not only the take rate that matter though. The length of time to see a return on the money invested is also a major consideration. Vehicles that have a 70% take rate become a "break-even" proposition after only 12 months, while the 30% take rate vehicles take 29 months to become a "break-even".

The length of time it takes to get a return on their investment needs to be a major consideration of Sirius XM. While a subscriber acquisition cost of $61 may not seem like a big number, it becomes substantial when you multiply it by a million. In simple terms, would you rather get back an investment of $61 million in 12 months, or 29?

Right now it is smart growth that Sirius XM need more than a bigger penetration rate. Expanding penetration is great when a company is making money, and that day will come. Understanding the dynamics of the OEM picture becomes important because it is such an integral part of the Sirius XM business model.

Long Sirius XM Radio, No Position OEM's