By Demian Russian
With a newly issued research report, Wunderlich Securities Media Analyst Matthew Harrigan reiterates his previous HOLD rating and a 12-18 month price target of $2.80 on Sirius XM Radio Inc. (NASDAQ:SIRI). Harrigan saw Sirius XM avoiding “major fallout” with the recently rendered Copyright Royalty Board (CRB) decision setting Sirius XM’s royalty rates through 2017. Sirius XM’s new percentage rate on gross revenues paid to SoundExchange will increase from 8% to 9% in 2013 and increase .05% annually, arriving at 11% in 2017.
“Sirius XM Radio certainly avoided major fallout in Friday’s Copyright Royalty Board decision.”
– Matthew Harrigan, Wunderlich Securities
In light of the fact that SoundExchange had been looking for Sirius XM Radio’s royalty rate percentage to be reset to 13% of gross revenues in 2013 and then subsequently increase to 20% in 2017, Harrigan views Sirius XM’s new royalty rate structure handed down by the CRB as being “quite manageable.” Sirius XM was seeking a royalty rate percentage reduction to 6%, with subsequent hikes following through 2017. While he views the possibilities of Sirius XM passing this new additional royalty cost through to its subscribers as being credible, Harrigan expects Sirius XM to be ”restrained in implementing a formal pass-through.”
Not accounting for any additional royalty pass-through cost to subscribers, Harrigan estimates this costing Sirius XM $125 million in 2016. While he sees this additional royalty cost to Sirius XM as being material, he views the recent bump in Sirius XM’s stock price on the heels of the CRB decision as likely being “effusive.”
Commenting on Sirius XM’s recent announcement of a special dividend of .05 per share, payable on December 28th, Harrigan sees this as just “a moderate start” to Liberty Media (NASDAQ:LMCA) recovering the $1.4-$1.5 billion the company will ultimately spend raising its ownership stake in Sirius XM from ~40% to 50%+. Harrigan notes that Sirius XM’s board of directors made the special dividend announcement even ahead of the removal of the CRB royalty rate uncertainty, the formal FCC spectrum transfer approval, and the appointment of a new CEO.
Wunderlich Securities Media Analyst Matthew Harrigan will be the special guest on this evening’s Playground Radio program for a live, exclusive interview at 8:00 pm ET.
Demian Russian is the Editor-in-Chief of Satellite Radio Playground and Market Playground.
Disclosure: Long SIRI
Contact the author: DemianRussian@SatelliteRadioPlayground.com
