Sirius XM Radio Inc
is the largest satellite radio company in United States. Sirius and
XM merged in July 2008 to form Sirius XM Radio Inc. The company
offers over 180 channels comprising of commercial free music,
sports, talk shows, news stations amongst others. Sirius XM radio
channels are mainly available in automobiles but can also be
accessed over the Internet or through home stereos by using various
accessories. The firm's satellite radios are primarily distributed
through automakers, retail locations and through its website.
Sirius XM has ties with major automobile manufacturers such as Ford
(
F
),
GM
(
GM
) and Toyota. This helps drive its presence in the U.S. automobile
space. In addition satellite radio services are also offered to
customers of certain rental car companies.
Sirius at a Glance
The firm's primary source of revenue is the subscription fees it
charges customers for annual, semi-annual, quarterly or monthly
subscriptions. In addition the company derives revenue from
activation and other fees, the sale of advertising on select
non-music channels, the direct sale of satellite radios and
accessories as well as other ancillary services such as weather,
traffic, data and "Backseat TV" channels.
We recently launched our coverage of Sirius with
stock price estimate of $1.97
.
For our analysis, we segmented Sirius XM's business into three
divisions:
1) Satellite Radio Subscription
2) Advertising
3) Equipment and Other Revenues
Sirius' Niche … Satellite Radio
The satellite radio industry is slowly growing in the U.S. amid
competition from the digital audio industry (iPod, Pandora etc).
Sirius's satellite radio not only offers a commercial free music
experience to listeners, but it also provides updates on local
weather and traffic.
Sirius relies heavily on the automobile market to promote its
services. Therefore the past two years have been difficult for
Sirius as auto sales declined. However as the automobile industry
recovers from the recession, Sirius is expected to do well. Sirius
currently has a 60% penetration rate in the new automobile market
and of those who purchase automobiles about 46% continue to use
Sirius radio services after the trial period expires. In the future
we expect Sirius to further expand its reach and also target the
used-car market.
2011 Developments
2011 is an important year for Sirius as its three-year freeze on
subscription pricing imposed by Federal Communications Commission
will expire. Thus Sirius could potentially change its subscription
fees. Also the Copyright Royalty Board is expected to provide new
guidelines for the royalties that Sirius has to pay to content
providers. Currently, Sirius will have to pay 7.5% and 8.0%
royalties in 2011 and 2012. If the Copyright Royalty Board changes
the rates, Sirius might have to change its subscription pricing as
well.
See our full rationale and estimates for
Sirius.