Sirius XM’s Key to Profits in 2010 Takes Giant Step Forward By Reversing Retail Radio Market

By Relmor Demitrius

Sirius XM Radio (NASDAQ:SIRI) reported today that it had added 171,000 subscribers in Q1 of 2010.  This is huge news for Sirius XM.  Not just because they added 171,000 subs versus losing approximately 400,000 subscribers in Q1 of 2009.  It means that due to basic math we know that Sirius XM probably reversed its losses in retail subscribers in Q1, drawing more subscribers away from the more expensive OEM market channel.

A simple math calculation can be used to formulate how many Sirius XM subscribers had been added due to the OEM route.  Using the metrics Sirius XM has given us of 2.0% churn and the slight improvement in the take rate, we know Sirius XM in the OEM channel added under 100,000 subscribers.  The rest had to come from either the Skydock for the Apple Ipod and Iphones, the used car market, or over the counter radio sale improvments, or possible a combination of all these factors.  Whatever the way they added these subscribers they are low cost to add.  Any subscriber added through a non OEM market is a huge plus on their business model.  They don’t have to pay revenue sharing with an auto maker and they don’t have to give away a promotion with it either.  Also the normal cost to acquire this subscriber is usually around 65 dollars in the OEM market, but it’s significantly cheaper, if not outright profitable, depending on the method.  Sirius XM can in some cases actually make money on activations and the sale of the radio itself immediately in some cases.  In the OEM market, it takes months if not up to 1 year to see positive money flow from a new subscriber.

Making calculations on their prospects of actually having profits hit the bottom line in earnings in 2010 was perceived difficult by me unless one thing could happen.  A market reversal in their retail subscriber totals.  Seems like so far Sirius XM has made a giant step in this direction.

Long SIRI