Sirius Satellite Radio News

Easing off the new-car accelerator
For years, Sirius was able to sustain healthy subscriber growth by working with auto manufacturers to get its technology installed on the assembly line, and then offering free trials to new car buyers. It's a model that has worked well for Sirius, but one that has a limited life as the primary driver of customer growth.

Its technology is now installed in some 78% of new vehicles, which is a larger number than the company's executives had expected. It's also a number that's unlikely to increase from here, simply because the economics wouldn't support it.

Getting satellite technology installed in new cars costs money, and Sirius needs to see a return on that investment. That's why Sirius chose first to focus on the higher end of vehicle lineups, where buyers have more disposable income and are more likely to start paying a monthly fee when their trial ends. But it makes less sense as you get further down the vehicle lineup. Installing satellite technology in budget-friendly subcompact models won't deliver as great a return on investment for the company.

Revving up efforts in used autos
That's why it's become increasingly important for Sirius to tighten its focus on the used-car market. More than 6 million used-car owners signed up for a free trial of the Sirius service in 2015, a record number for the company. And the company expects the annual number of used-car trials to double over the next few years -- and probably triple over the coming decade.

Sirius has been trying to attack the used market from a number of angles. The company continues to build out the network of used-car dealerships that offer Sirius XM trials. Those dealerships now number more than 19,000, executives say, up from 14,000 just a year and a half ago. And that's still only somewhere around half of the dealerships out there, so Sirius should be able to continue growing that number.

But there's also probably a ceiling as to how many auto dealers Sirius will partner with. The smaller the dealerships get, the less return for the time spent bringing them on board and following up on sales.

The company last fall announced that it had signed up more than 80 Jiffy Lubes to provide information on the cars that come through for maintenance, including whether they have a satellite radio, and whether it was activated. Sirius has also been talking with companies that finance used-car loans and exploring options with the companies whose websites and apps serve as intermediaries in the sales of used vehicles.

In contrast to that 78% number on satellite-equipped new vehicles, the company estimates that its radios were in just 28% of used vehicles that were sold in 2015. The good news: That's up from the prior year's 24%, and that should grow over time as old inventory rotates out and makes way for newer models on the pre-owned lots.

CEO James Meyer forecasts a "predictable arc of growth for many years to come" from used cars.

Growth comes at a cost
But whether Sirius can double or triple the number of used-car trials isn't the only important question to consider. Potentially as important is whether Sirius can sign up and retain those listeners without spending too much to do so.

Subscriber acquisition costs for the company were up by about 8% in 2015. That outpaced the annual growth in subscriber revenue by a hair. But the margin was magnified in the fourth quarter, when the costs attributed to landing subscribers outpaced the growth of subscriptions revenue by about 12% to 7%. If that were to continue, it could be cause for concern, since it would affect overall margins and eat into the company's cash flow.

Sirius hasn't given us a reason yet to doubt its rosy view of growth in used cars, but investors must keep an eye on the costs of adding those new subscribers.

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In June last year, Sirius increased the prices of other packages – including ‘Mostly Music’, ‘Premier’ and ‘All Access’ – by the same margin.

The net result spells good news for labels and publishers, who (see table below) will receive 14 cents more cash each month from every Select subscription as a result.

That’s $1.68 more per customer per year coming into the music industry.

Considering that Sirius XM boasted 29.6m subscribers at the end of 2015, this is no insignificant increase.

(24.3m of these subs ‘self-paid’, rather than being tied in to a subscription through a promotion such as Sirius subs being given away with new car purchases.)

Once Select’s price change is executed, all of Sirius’s most popular monthly packages will have increased by $1 in the past 12 months.

That difference across 29.6m subs would mean just under $50m more cash being pushed towards labels and rightsholders by the service each year.

Sirius’s other popular subscription options include XM All Access, which currently costs $19.99 per month and XM Mostly Music at $10.99 per month.

As you can see below, Sirius XM’s total revenues in 2015 stood at $4.57bn, with $3.82bn coming from subscriptions.

The service paid out $1.03bn as ‘revenue share & royalties’ to rightsholders – a figure that included ad revenue as well as due portion of subscription money.

Last summer, Sirius agreed a $210m settlement with the major labels and ABKCO regarding its use of pre-1972 music.

The brand’s star DJ Howard Stern signed a new five-year deal in December last year believed to be worth $90m a year.

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"Defendant systematically advertised and sold its lifetime subscriptions to consumers by leading consumers to believe that such lifetime subscriptions were for the lifetime of the consumer," lead plaintiff Paul Wright says in the Monday class action in Federal Court.
"However, when consumers have tried to transfer their lifetime subscriptions from one receiver to another or from one automobile to another, defendant has taken the position that the 'lifetime' referred to is not the lifetime of the purchasing consumer, but the lifetime of the receiver or automobile."
Early purchasers of satellite radio "took a chance and paid large upfront lifetime subscription fees" to Sirius, with no guarantee that it would survive as a business, "but in the hope that if defendant did survive, their lifetime subscription purchases would pay off over time," Wright says in the complaint.
Sirius XM Radio was formed in 2008 in a merger between competitors Sirius Satellite Radio and XM Satellite Radio. Although the new company verged upon bankruptcy a few times, today it has more than 24 million paid subscribers.
Tens of thousands of them purchased lifetime subscriptions, the class action estimates.
Wright says that Sirius XM's "refusal to honor the lifetime subscriptions has allowed it to reap millions of dollars in profits while individual consumers find they have spent hundreds of dollars for a lifetime subscription that is not as it was represented and not as expected."
Wright bought a lifetime subscription in December 2006 for about $400. He got no service agreement or other written agreement about his lifetime subscription, he says.
Wright says "understood 'lifetime' to be his lifetime, as is used in the ordinary course of business." He got "no verbal or written notice that the lifetime subscription was limited to the original device only" or was limited in any other way.
Wright found out otherwise in January this year when his portable receiver, known as a Stiletto, gave out and he bought a replacement. He tried to transfer his lifetime subscription, but Sirius refused.
Neither the company's director of corporate communications nor its general counsel could be reached late Tuesday for comment.
However, an item on the Sirius XM website says that lifetime subscriptions purchased before June 20, 2005, can be transferred to new devices indefinitely. Those purchased between that date and Sept. 7, 2007, can be transferred three times. Ones bought after that date for use in a home or portable receiver can be transferred three times, for a fee. Those installed in a car radio cannot be transferred.
Based on that policy, Wright should be able to move his subscription to a new receiver three times. The class action insists, however, that he was never told about any policy or limitation, but nonetheless was denied a transfer.
His attorney, Tina Wolfson of Ahdoot & Wolfson, did not return a call about the case.
Wright seeks class certification, restitution, an injunction and damages for fraudulent and negligent misrepresentation, unfair competition, breach of express and implied contract, and consumer law violations

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