Is Jacoby Considering The Big Picture?

November 28, 2006

Investors in Sirius seem to be a bit timid regarding this equity. Reports of a weaker retail segment from analysts such as Jacoby weigh on the minds of investors when the look at Sirius meeting guidance of 1,200,000 NET subscriber additions here in Q4. Investors look at last years 1,100,000 number, and wonder how that can be beat. Here are some factors to consider. One wonders whether or not Jacoby has taken all of this into consideration (remember he is expecting Sirius to miss last years retail number by 10%). In order to look at this properly, we should consider last years Q4 numbers.

2005 Q4 retail – 900,645
2005 Q4 OEM – 241,955

In quick numbers, Jacoby is expecting 90,000 less retail this year than last year. Interestingly, last year had a huge Howard Stern push, as his show was moving to Sirius. This makes it hard to comprehend Jacoby’s thought process. Does he think Stern not a factor last year, or does he believe that Sterns pull power is nearly as big as last year? Does he believe that NASCAR will be a big push? He mentions none of this in his report.

Now consider a few items in the segments that Jacoby may be missing

OEM

In 2005 the OEM channel for Sirius did not include a robust Ford program. This year, Ford is participating in a bigger way. Last year, DCX was at a 30% penetration rate. DCX has bumped that up to 40% for the 2007 model year (cars being manufactured and sold now). The OEM channel should see growth over last year even when considering churn.

Interestingly, Jacoby feels that there is a shift from retail to OEM, but he does not acknowledge the shift that has already started at Sirius. Is DCX increasing penetration by 10 points not a factor? Does a bigger commitment by Ford not get any credit? Something is awry here.

NPD

This past month (NPD October) retail sales weakened for the first time. As many are aware, NPD does not include Wal Mart. In January of this year, Wal Mart stated goals of increasing their penetration into the satellite radio market. A satellite radio sale at Wal Mart would in effect take away from a sale at an NPD covered store. Thus, NPD numbers could potentially look worse while sales are actually the same, or rising due to non-npd stores grabbing a bigger share.. There are many on-line retailers that do not get counted as well.

SIRIUS DIRECT SALES

Sirius is much more active in selling radios this year. These sales are not reflected in the brick and mortar channel checks, nor in NPD. The rise in Sirius direct sales has been obvious, even when looking at NPD. The actual reported retail share favored Sirius by a number greater than the NPD percentages.

FAMILY PLAN

Sirius’ family plan is likely in the 14.5% of the subscriber base neighborhood. Rival XM is in the 21% neighborhood. Sirius is now far more aggressive in marketing the friends and family plan this year. Raising the friends and family percentage to even 17.5% would mean over 200,000 additional subscribers. This in and of itself is more than enough to offset a drop of 90,000 units in the retail channel.

SIRIUS INTERNET RADIO

Sirius has now launched the premium internet radio service. The 128 kbs offers CD like quality that many other services do not offer. This is available on a global basis, and was the subject of a successful campaign in October. This is another new source for subscribers that Sirius did not have last year.

SIRIUS BUSINESS

Sirus’ business arm has been going gang-busters this summer and fall. Many deals have been made, and installations will likely spill over into Q4 as well as Q1. While this service was available last year, it was not marketed to the extent that it has been this year.

Simply stated, one has to ask whether these factors will offset a theoretical 10% drop at retail and churn of 300,000 vs. last years churn of about 200,000. The wild card Sirius has is the friends and family plan. They can stoke up the marketing effort if they need to, and can be pretty aggressive about it. This gives them some flex in how they approach the goal of 6.3 million. While it may seem a tall order, 1,2 million is attainable with help from various avenues that simply were not available last year.

11/28/2006 02:26:00 PM

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