Tuesday, May 02, 2006

A Closer Look at Subscribers

May 2, 2006

With both Sirius and XM having reported their Q1 results, we now have all of the information needed to contrast and compare some of the metrics. In this article Satellite Standard Group will be looking at subscriber comparisons on a NET basis.


This segment of the market is dominated by new subscribers to satellite radio (people who have in the past not been subscribers). Often this is the first experience that consumers have with Sirius or XM. Typically it came as an option on their new vehicle purchase, and was bundled with a "free" promotional period.

In Q1 of 2006 XM garnered 272,024 NET OEM subscribers - 54.7%
In Q1 of 2006 SIRI garnered 225,343 NET OEM subscribers - 45.3%

With the exception of Q4 2005, XM has always been dominant in this sector. Sirius has made in-roads into the OEM market, and Sirius partners seem to be prepared to ramp up substantially in the coming model year and beyond. XM is also expecting a ramp up of their own. It would appear that through 2006, that XM will maintain quarterly net subscriber advantages in the OEM channel, although the spread between the two has narrowed substantially over what we saw in 2005.


This category is where most subscribers come from. Typically retail subscribers are consumers who have made a conscious decision to get satellite radio. In Q1 2006, as in Q4 2005, Sirius carried a substantial advantage in the retail arena. Going forward both Sirius and XM have expressed that they see the retail arena coming in at relative parity. Time and quarters will tell us if this indeed will be the case.

In Q1 2006 XM garnered 303,622 NET retail subscribers - 36.2%
In Q1 2006 SIRI garnered 534,958 NET retail subscribers - 63.8%

An interesting component (or subset) of looking at retail subscribers is the "Friends and Family" plans. XM has been aggressively pursuing this segment, and this segment represents 20% of their overall subscriber base. By contrast the "Friends and Family" plan represents 12% of the Sirius base.

In Q1 2006 XM garnered 167,180 "family plan" subscribers - 55% of their retail number
In Q1 2006 SIRI garnered 124,508 "family plan" subscribers - 23% of their retail number

XM got 57% of the "family plan" subscribers in the quarter.

"Friends and Family" subscribers do carry a value. They are easier to market to because the consumer already has experience with the product. In theory, there is a "healthy" limit to the percentage that these companies want to pursue in this sub-set (likely about 25%). This sub-set offers an opportunity to "home grow" subscribers periodically.

The interesting thing to look at here is the "fresh" subscriber (new to satellite radio). The "fresh" subscribers are those that are new subscribers to satellite radio, and are a full price subscription.

In Q1 2006 XM garnered 136,422 "fresh" subscribers - 45% of their retail number
!n Q1 2006 SIRI garnered 410,450 "fresh" subscribers - 77% of their retail number

Sirius got 75% of the "fresh" retail subscribers in Q1 2006.

The important factor to note is that before you can begin to get "Friends and Family" subscribers you must first get "fresh" subscribers. Sirius, perhaps as a part of the "Stern Effect" has built a substantial base of "fresh" subscribers over the past 2 quarters. How long this trend will continue is not known, but investors should keep an eye on this.

What SSG has done here is break down the growth into measurable components that people can easily track. The importance of doing this is to understand where the growth is coming from, and what type of revenue that growth brings in. One way to look at this is the subscriber revenue (simplified to exclude SAC) that the subscriber class of Q1 2006 will bring in to each company. The mix of subscribers determines this metric.

XM Q1 2006 potential subscriber revenue (retail only):

136,422 "fresh" @ 12.95 per month = $1,766,665
167,180 "Friends and Family" @ $6.99 per month = $1,168,588

Class of Q1 2006 Average for XM = $9.66 per month

SIRI Q1 2006 Potential subscriber revenue (retail only):

410,450 "fresh" @ $12.95 per month = $5,315,328
124,508 "Friends and Family" @ 6.99 per month = $870,311

Class of Q1 2006 Average for SIRI = $11.56

As you can see, the potential revenue differs substantially. All subscribers are not and should not be considered equal. Sirius has a revenue advantage of $1.90 per subscriber for this subscriber crop. Investors in either equity should keep their eyes on details such as these.

5/02/2006 05:09:00 PM

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