Friday, April 28, 2006

Guest Blogger: Sirius Vs XM

A substantial posting from one of our readers on the merits of Sirius vs. XM. Go to the comments section for my thoughts.

"Some of the XM investigations that surfaced today will probably also apply to Sirius when they announce their financials next week. Also, the FCC investigation is a joke and the worst that could happen is a recall for some receivers, which aren't even manufactured by XM, but rather Delphi.

As for counting subscribers, both seem to be a bit shady. XM's controversy comes from how they account for promotional subscribers and for how many months of the promotional period is paid for by the auto manufacturers. The baseball promotions that you speak of are completely paid for by MLB, so they are not part of the investigation. Sirius counts subscribers in cars that are unsold. So once a Chrysler, or a car from any other auto partner, rolls off the assembly line, Sirius counts it as one more subscriber. Both questionable if you ask me.

Also, Sirius may never get the chance to catch up to XM because of the magnitude of their spending. For example, the metric SAC, subscriper acquisition cost, was $64 for XM for all of 2005, while Sirius' SAC was $139 for all of 2005. So Sirius was spending over twice as much to acquire each subscriber. XM quickly reduced this metric years ago, but Sirius is having a difficult time. Also, Sirius' losses are widening, and that was before they started paying Howard his $100+ million. Sure, Howard has saved Sirius up to this point, but you have to question at what price?

Speaking of Howard, I think the migration is practically complete. Out of sight, out of mind. He no longer makes headlines and is almost forgotten. Especially now that a respectable replacement has been made with Opie & Anthony. I'm not saying that O&A are better than Howard, but they are an adequate substitute for those casual Howard listeners.

And speaking of Opie & Anthony, XM made a wise choice by syndicating the show. XM learned with O&A, that after 18 months on satellite, it is hard to attract new subscribers. So, now they have a tremendously large audience to which they can promote XM. Not to mention the financial aspect. I wouldn't be surprised if CBS is paying XM a large sum for syndication, but there is also the possibility of splitting advertising revenue from FM. Very few O&A fans, if any, will cancel their XM because of the deal.

I'm sorry if this seems long and drawn out, but it frustrates me to see inaccuracies and a bunch of fanboy BS for Sirius because "they have Howard.""


Michael in New York said...

Not too long a posting at all. I'm certainly no fanboy of Howard, having never listened to his radio show for more than ten minutes in my life. CBS helped him by suing because yes, when on satellite he is out of sight and out of mind. The media can't comment on what he's talking about because they aren't listening and can't do so casually as with free radio. I think he has to put himself out more for appearances on Letterman et al to keep himself in the public eye. I didn't have the room to get into their costs of bringing in new subscribers, but of course everything you say is valid. With Bush in the White House, yes a business-friendly FCC is unlikely to do anything harsh, but having them announce the investigation and see your stock drop is never a good thing. Your take on Opie & Anthony is very interesting; hadn't thought of that: XM has already pulled in any new subscribers they might have garnered by signing the duo so now they might as well share them with terrestrial radio. Still, avoiding churn is surely important and if I'm paying $13 a month for XM, I'd be annoyed to see them available for free, just as I'd be annoyed if I paid $7 for HBO and then saw The Sopranos airing on NBC. Do you have an idea of who is cheating more on the subscriber count? If it's about equal, it still means that XM has gone from well over 100% more subscribers to just 50% more -- still a big gap, but a gap that is closing. As for XM claiming profitability in 2008 and Sirius now claiming the end of next year, bollocks. Years away, unless they merge.

Anonymous said...

"Still, avoiding churn is surely important and if I'm paying $13 a month for XM, I'd be annoyed to see them available for free, just as I'd be annoyed if I paid $7 for HBO and then saw The Sopranos airing on NBC."

Then again, if NBC cut out all the good parts, and HBO had a channel that showed The Sopranos uncensored all day long, there'd be more of an incentive.

Michael in New York said...

True. But unlike The Sopranos, Opie & Anthony proved themselves capable of being big stars on free radio, even if they caused their programming directors agita. So I don't think people will feel cheated or like they're getting a diluted product as they might with "The Sopranos." And while "Sopranos" is probably the exception, look at how well a denuded "Sex and the City" has done in syndication on TBS. I would have thought it would flop but there are a LOT of people who prefer even their envelope-pushing shows to remain in the envelope. o again, of course.)

Anonymous said...

I feel honored to be a "guest blogger." I guess I should get around to registering on blogspot one of these days....maybe tomorrow.

Satellite radio is somewhat of a slippery slope. I should know because I am/was a shareholder of both companies during their meteoric rise and subsequent fall. I think the business model works, but it will take time.

You make a good point with the Sopranos. But I don't think O&A were nearly as popular as Howard. Honestly, I am from Chicago, and never even heard of them until they signed with XM. I was concerned that XM would lose a lot of subs due to the syndication, but some research shows that is not the case. As part of my due-diligence of investing, I brave the treacherous waters of an O&A message board at There was an 107-page thread on the deal. There were very few people, if any, that said they would cancel XM because they can hear for free on FM.

Subscriber numbers are a very strange thing with these two companies, and of course, they don't account for them the same way. Every quarter, XM releases their financials and subscriber numbers. They breakdown subscriber numbers between full-paying subscribers, subscribers in an automobile promotional period, rental car subscriptions, and data services subscriptions. Sirius counts them as retail subscribers, automobile subscribers, and rental car subscribers. Now, what is different? For one, Sirius does not say how many auto subscribers are in the trial period. Also, XM does not say how many subscribers came from the retail channel. So it is very difficult to calculate retal/auto marketshare because they do not explicitly state those numbers. Also, XM has a 3 month trial while Sirius has a 12 month trial. Here, Sirius gets to count those subs for an entire year, which is obviously to their advantage as their car installation rate is increasing rapidly.

The auto arrangements that both companies have is also someone twisted. XM and Sirius subsidize the installations of their radios in the car. So they are paying the car company. In turn, the car company pays for the promotional period. It's kind of a "I'll pay you now, you pay be later" type thing.

Now who is fudging the numbers more? I think Sirius. XM does a good job at breaking down their subscribers as I mentioned above and explicitly say how many are in the promotional period. XM also provides the number of subscribers from that promotional period that sign up full-time, which is now at 54%. With a 3 month trial, it is hard to use smoke and mirrors to disguise subsribers. Sirius, on the other hand, does not tell you how many are in the trial, and they also do not state the take-rate from the trials. Also, they count cars as they roll off the assembly line, XM counts cars as they are sold to consumers. That is a big difference. Especially with gas prices and disappointing car sales, there is a high inventory of cars. Sirius is counting inventory as subscribers, while XM is not. This number could be quite substantial as well, being as high as several hundred thousand.

The XM investigation stems from confusion at the end of the trial. From what I have read, XM gives for some sort of grace period which allows them to count the sub for a few more months. I don't think that is a big deal. However, the other part of the investigation is their billing department and rebates. This could be a problem. If you read any XM message boards, they are riddled with complaints about being unjustly billed and taking forever to get a refund. I can attest to this as well. I bought a radio for Christmas and tried to activate my online account and couldn't. Turns out, somehow my radio was on someone else's account, they paid for a month of my service before cancelling. Now I call up because my radio doesn't work and try to reactivate but can't because it was reported fraudulent. Many phone calls later the problem was resolved. I guess a lot of letters were sent to the Better Business Bureau and now the investigation.

Another long one, but a good discussion.

Michael in New York said...

Thanks for the breakdown on subscribers anonymous and how they do it. I'll take your word Siurius is playing faster and looser with them and thus padding a bit (say, 300,000?). Definitely counting cars sitting in a dealer's lot is ridiculous. I looked for a breakdown of what the two were doing but found nothing in the traditional media as what you wrote. Do you wish they would both merge? No reason why there can't be an HBO/Showtime situation, but seems a service that competes with a lot of other forms of media (namely free radio) and not so different from each other. Their increasing usage of commercials seems a conern. And of course Sirius at least doesn't count as "commercials" the constant interruptions on the shows plugging other Sirius shows and channels and Sirius itself. (Unclear to me if that happens on the music channels, but I assume.) I know one person who works at Sirius and have appeared on the air there, so I'm just more familiar with the company but don't lean towards one or the other. (Except for Sirius having a gay channel, which I applaud.) Re; O&E, perhaps churn isn't a problem since they're not that special to begin with. But it takes away from the exclusivity and coolness factor of XM and I think that's damaging. Half the fun of having something like satellite radio is all the cool stuff you ahve access to that no one else does. O&E was a highly promoted acquisition for them and now they're devaluing it. It makes you wonder what other programming will be next. Maybe they'll make some bucks by sharing advertising (? -- one possibility mentioned in the TM) but long term seems a bad choice to me.

Anonymous said...

The way that Sirius gets around counting cars in the lot is that technically, they are receiving revenue from the automaker. But still, if no one is listening, I don't think it should be counted as a subscriber.

As for a merger, I think it could happen. People are always saying that it would be impossible and would create a monopoly, but like you said, there is plenty of other competition. I think that they can coexist in the future. The only weird thing would be the exclusive content, like Stern, MLB, NFL, etc.

Michael in New York said...

But surely the only merger that makes sense is if one channel is closed and the best of both get combined -- both NFL and MLB etc. That would make satellite much more appealing since you wouldn't have to choose.