Don't Cry for Sirius Xm...
http://www.fool.com/investing/value/2009/01/21/sirius-xm-radio-in-2012.aspx
Sirius XM Radio in 2012
By Rick Aristotle Munarriz
January 21, 2009
I'm jamming to Sirius right now, only I'm three years in the future.
I'm making the most of the January lull to hop into my time machine and check out how many of the popular 2009 companies are faring in 2012. I've already taken a look under the hood of several different companies, and now it's time to wax futuristically on Sirius XM Radio (Nasdaq: SIRI).
For those about to rock
As you can imagine, life is pretty sweet in 2012. The way we listen to radio has changed -- and I'll get to that shortly -- but you probably have two very important questions on your mind that need to be addressed first.
Did Sirius XM file for bankruptcy protection in 2009?
Is it still alive and relevant in 2012?
No, the company didn't have to file for Chapter 11. It caught a few breaks between the refinancing milestones, but catalysts for a buoyant share price, coupled with a reverse split and a somewhat successful secondary offering by year's end, helped bridge the gap between desperation and self-sufficient cash flow generation.
There was too much at stake if the satellite radio provider had to turn to the bankruptcy court to reorganize its structure, as any consumer-facing company will tell you. Customers who don't know the difference between Chapter 7 and Chapter 11 get nervous and unsubscribe. Talent retention becomes a challenge.
Striking new deals and embarking on new initiatives helped galvanize the investor community. Pulling off a secondary offering as it turned the cash flow corner proved to be a godsend, as even a lukewarm market began to buy into the story that has come to define Sirius XM in 2011 and 2012: the beauty of all of those tax-loss carryforwards eating away at the company's effective tax rate now that it's profitable.
New slang
From your early-2009 vantage point, an onslaught of competition appears inevitable:
More cars are including input jacks for Apple (Nasdaq: AAPL) iPod players.
Ford (NYSE: F) and General Motors (NYSE: GM) are putting high-capacity, voice-activated hard drives into more new models, allowing drivers to rip their entire CD collections to satiate the need for commercial-free music.
Chrysler began selling trunk-mounted Internet routers last year, opening the door for devices to stream the infinite playlists of Internet radio in your car. This is already available, without the router, on 3G smartphones through free apps that stream Pandora, AOL Music, and CBS' (NYSE: CBS) Last.fm.
As all of these new ways to listen to tunes open the options for in-dash audio entertainment, justifying $13 a month for satellite radio isn't always an easy sell. Delivering content via costly satellites and a fleet of signal repeaters is also a harder overhead justification in 2012, when free Wi-Fi coats most of the country.
So how is Sirius XM thriving in 2012? Well, for starters, not everyone is paying for satellite radio. Even in 2008, Sirius XM was facing the challenge of conversion. Despite striking deals for cars to preinstall the costly receivers, nearly half of the new car buyers were not renewing their service when the free trials ran out.
CEO Mel Karmazin discussed the possibility of activating limited content on dormant accounts in 2008, but it didn't become a reality until 2010, to fend off competitive broadcasts. Free users get a few ad-supported channels and a free premium music channel that changes daily.
Another free channel is the Amazon Channel. No, it's not about the plight of rainforest or a haven for world music -- it's powered by Amazon.com (Nasdaq: AMZN). Similar to television shopping channels like QVC, Amazon hosts a steady stream of deals that listeners can get in on with their interactive receivers.
Yes, the receivers are now truly interactive. Advertisers pay more, because you can click a button to receive more information directly from sponsors. The biggest music acts are on a waiting list for live appearances, because those spots allow the bands to move everything from concert tickets to T-shirts to digital downloads seamlessly through satellite radio. Did I mention that Amazon powers that, too?
A whole new world
The number of premium subscribers is only marginally higher than the 20.2 million Sirius XM had at the end of 2009. Yes, it did miss its original target of 21.5 million, which was revised down to 20.6 million in November of 2008. No one said success would come easily. Many of those subscribers are also on lower-priced plans with a limited number of channels, though some are paying more than $15 a month (the going rate in 2012, by the by), given an influx of premium content.
But all those small contributions add up. Sirius XM may have just 21 million paying customers by 2012, but it's a flick of a knob away from roughly 80 million more car owners through its free offerings and terrestrial syndication deals. Terrestrial radio is still around, but barely, as even local stations are throwing their efforts behind online migration.
Subscription revenue is still the key driver, but Sirius XM is making a steady flow of affiliate revenue (through Amazon, for instance) and online advertising. Its branded music channels have spawned Sirius-owned social networking sites for musical niche audiences. The stations put out digital release compilations on a monthly basis, with plenty of fans subscribing to the plans (in exchange for a price break on the monthly releases).
The allure of satellite radio changed, but Sirius XM turned the challenges into opportunities. It even tried to acquire Napster from Best Buy (NYSE: BBY), though the FCC finally cracked down quickly to nix the deal.
So don't cry for Sirius XM, despite its pocket-change price in January of 2009. The social networking initiatives will launch shortly, the soft subscription tallies will be largely ignored, and the bigger picture will gradually come into focus.
News 
Market Data 
Discover 
AI
