By Tom Taylor
The following article comes from Tom Taylor’s newsletter, Taylor on Radio-Info.
CEO Mel Karmazin, as always, touched on many issues in his conference call, especially when drawn back to questions of auto sales (supply chain problems in Japan?), his new 2.0 technology (more channels), and what Mel thinks they might do with their growing stash of free cash flow. Starting at the top –
• The net subscriber growth of 373,064 by the end of first quarter puts the New York-based satcaster over 20.5 million subscribers (to 20,564,028) for the first time. That’s up 9% from the 18.9 million subs of a year ago. “SAC”, the subscriber acquisition cost, continues to drop, from $59 to $57, and the churn is stable, at around 2%.
• Sirius XM (NASDAQ:SIRI) is positioned as “one of the largest subscription entertainment businesses in the world.” 20.5 million paying subscribers puts you in the league with Dish and DirecTV, though Mel didn’t focus on those. He did go right to the comparison with fast-growing internet radio service Pandora. Mel says “Pandora, the leading company in the very crowded Internet streaming sector, reports $138 million in 2010 revenue and 80 million registered users and 30 million regular users. They are able to generate either $1.68 per year from their registered users or $4.59 per year from their active users.” By contrast, SiriusXM had far higher revenue ($2.8 billion) and “generated $141 in the year for each subscriber.” Mel says “I think that helps to demonstrate why we like our subscription business model.”
• “Sirius currently has 9% of all listening and 15% of the total U.S. radio revenue”, says Karmazin. Of course that’s combining the $2.8 billion in mostly subscription revenue with terrestrial radio’s income from advertising – two very different streams. But it’s a novel way to look at it, and valuable. Mel is drawing a clear line among #1, terrestrial radio (“thousands of stations dividing up 79%” of total radio revenue). #2, Pandora and its Internet streaming kin (“hundreds dividing up 12%” of listening). And #3, “One company with 9%” of the listening and 15% of the revenue. That’s him.
• SiriusXM 2.0 is due later this year with more channels. Karmazin says Hispanic car dealer groups “have been all over us for well over a year, wanting us to add more Hispanic channels.” That will soon be feasible, for the 50-million strong Hispanic segment.
• A subscription price increase this Fall would be “more than inflation”, once the company’s three-year hold-steady agreement with the FCC expires. Mel says “It would be something that would be compensating the company for its investment in content” – costs that it hasn’t been able to pass along to its customers. And make no mistake – Karmazin still uses the “best radio on the radio” promotional line and says they’re continuing to invest in content. As for distribution -
• “We want to deliver the best audio entertainment in the world to our paying subscribers, however and wherever they want it. Increasingly, this includes smart phones, tables and other IP-connected devices.” Karmazin notes that Howard Stern’s show has been available through smart phone apps since the first of the year, and this coming NFL season (here’s hoping there is one) will have play-by-play distributed via mobile devices. Karmazin says “the IP-connected mobile world” has strong competition, but “has also created huge new opportunities for us.”
Tom Taylor is the Executive News Editor at Radio-Info.com.
Contact the Author: tom@in3media.com
regarding 2.0, may just be a ploy, but I like how he didn’t want to reveal any of the technology nor major functions due to competitive concerns
In my view, since Karmazin has an extremely tight control of the Sirius ship, it makes a lot of sense to listen to the Captain. I have been doing this since he got onboard and never regretted following his public “advice”. The guy is about making money and he knows how to make it, including of course for himself in the first place. He spoke about price increase several months ago. It was obvious what he was going to do. What has changed since then? Nothing, except for that we got closer to August 1. The same will happen with shares buyback. He means is. His plan is obvious. He is saying that he would be happy with 3 to 1 leverage. This means he wants to use available cash first to pay off 2013 debt (2011 debt is practically paid off) or part of it and not to bother about 2014 and 2015 but rather refinance those pieces at a better rate and move them in the vicinity of 2020. Sirius may be done with paying off 2013 debt by Q2 or Q3, 2012, will refinance 2014 and 2015 the same year or even earlier and will get down to business buying back shares from mid- to late 2012. Assuming a two buck price increase after July 31, 2011, the company will be loaded with cash as early as late 2012. So, they can probably buy out over a billion and half plus shares in 4-5 years simultaneously reducing liberty’s shares accordingly. To me, this is a reasonable scenario without hype or illusions. Ideally, Karmazin would like to see a float at about 2B shares (plus liberty’s stake of 40% or about 1.33B shares). The question is how quickly he can get there. There is a good chance he could accomplish this by 2017. If we assume that Sirius gets to 30M subs by 2017 (1.8M per year x 5 years), their revenue could be at $180 per sub per year x 30M subs = $5.4B, with profit in the range of $2B+ as early as 2016. If we use a 25 multiple, we are talking a $50B company with stock price without premium at about $15. I believe this is quite a conservative scenario, and we may expect much better stock price. Again, I believe that the only thing that can prevent this scenario from unfolding is liberty buyout of Sirius. Then we will be addressing a different play.