Subscriber Number Breakdown

October 4, 2006



UPDATE:
In looking into my worksheet after receiving a n e-mail regarding this issue, I noted and found an error in my worksheet. In the simplest terms, the breakout of "Self Paying Churn" was not further broken down into OEM and Retail in my calculations. Thus, the results of the data seemed to indicate that all of the self paying churn was being absorbed in the "Retail" category. In breaking down the numbers further, It appears that self paying OEM deactivations are broken down out of the "OEM" category. The numbers do not align perfectly, because assumptions need to be made on a monthly basis when we only have quarterly data. Further complicating calculations are the "Data Services" breakout and the "Rental Car" breakout, as well as the promotional subscribers category. If we can assume that all promotional subscribers come from the OEM channel, then the numbers get close enough to generate a realistic assumption. If there are promotional subscribers from retail (free radio with 6 month sub, etc.), then things become more complex. Although I would like nothing more than to be able to offer more clarity, it simply can not be done with the data supplied. Therein lies the danger in trying to run calculations.

With the NET subscriber additions for Sirius and XM in, the next logical question is now being contemplated.

What is the breakdown between Retail and OEM?

We will all have to wait until the quarterly reports for this information, but some educated guesses are possible.

XM

Last quarter XM posted roughly 220,000 subscribers from the OEM channel, and about 178,000 from the retail channel. Their total was roughly 398,000 subscribers for the quarter.

In this quarter, if OEM remained flat, then we are looking at retail additions of only 65,000 subscribers. How is this possible?

SEE NOTE ABOVE
-------Well the issue at hand is that while subscribers are reported in two main categories, Retail and OEM, deactivations of self paying OEM subscribers are counted against the "RETAIL" category. Those that choose not to continue the service after an OEM promotional period are offset by the OEM additions. This means that when it comes time to report subscriber numbers, that the "RETAIL" component" absorbs all of the deactivations from the self paying subscriber base.--------------

Thankfully, Q3 is typically the weakest retail quarter, and this issue will not repeat itself in Q4. However, in the short term, it does look bad at first blush. It is important that investors understand not only the methods by which subs are counted, but also how deactivations are counted.

SIRIUS

Last quarter Sirius reported OEM subscribers of about 325,000 and Retail subscribers of about 275,000.

Many Sirius OEM's are counted at some point in the production process. This means that a slow down in production could carry an impact for Sirius. July is typically a month where manufacturers do shut downs to re-tool for the new model year of cars. This temporary stop in production would carry a small impact on the OEM numbers. We would expect that this impact would mean that Sirius would not match the Q2 OEM number. In our estimation, Sirius' q3 OEM number should be in the area of 270,000 to 290,000.

For the purpose of this article, we will assume OEM additions of 280,000. This would put the Sirius retail number at about 161,000 for the quarter.

Similar to XM, there is an issue with how the deactivations are reported, and what they offset. This makes it difficult to gauge exactly what is happening. We anticipate that analysts will be looking for guidance on how to handle this from both Sirius and XM at the question and answer period in the quarterly call.

SEE NOTE ABOVE
-------The bottom line is that the "RETAIL" channel in subscriber reporting is also carrying the load of the self paying OEM subscriber deactivations. Thus, retail is not as weak as it may appear to be at first glance.-------

Regardless, retail will remain an important factor in SDARS until such time that vehicle installation rates become more standard, and OEM installed radios become more feature packed.

10/05/2006 09:53:00 AM

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