Thursday, January 11, 2007
XM OEM Clarified
January 11, 2006
Some changes have happened with the way subscribers are counted, and we thought it would be beneficial for investors if we reviewed some items:
It was announced last year that
XM would not count subscribers for certain
OEM's unless they became self paying subscribers after the promotional period. The metric that determines this ties to revenue. If
XM receives revenue during the promotional period, the promotional subscriber will be counted in the subscriber count. If no revenue is received during the promotional period, the radio will not be counted as a subscriber.
To avoid confusion, we are creating a new category for the purposes of this, and perhaps future articles.
PROMOTIONAL INSTALLATIONSWe here at
SSG define a promotional installation as "
an installed radio activated to expose a consumer to the XM Satellite Radio service, but where no revenue is received by XM during the promotional period.These Are not counted in the subscriber totals"
In general terms, all installs except GM and Honda would fit into this category.
We feel it is very likely that
XM will create a new category to account for these types of promotions so as to better let investors understand the metrics and the changes.
XM will have subsidy costs for all of these radios, but the benefits of those installs will not be reflected anywhere until months down the road. By creating a category such as promotional installations, investors can get a feel for how many potential subscribers are being exposed to
XM during that period. It will also help
XM to explain the cost side of the business in a reasonable and understandable manner, since these
OEM's will not be available to be used as a divisor on SAC accounting.
EXAMPLE
In general, a consumer who buys a Nissan with
XM in January will begin a three month trial period for
XM. That consumer will not be counted as a subscriber, but the impacts of the subsidy and other costs will already be impacting the company. The consumer will receive "free"
XM for 3 months, and if we allow a month for marketing, it is reasonable to expect a result on that PROMOTIONAL INSTALLATION in April. If the consumer decides to keep the service, they will be counted as a subscriber. If the consumer decides to discontinue the service, they will not impact
deactivation's or churn.
WHAT INVESTORS NEED TO BE AWARE OF
The key for investors is to understand that there will be costs booked in Q1 that do not really tie to a subscriber. This could skew metrics until the issue becomes balanced. By Q2, enough time should have passed that there will be PROMOTIONAL INSTALLATIONS that are becoming a part of the subscriber count, and this will begin to show the benefit of the monies invested into that radio in the previous quarter. By Q3, the issue should be fully stabilized provided there is not a substantial ramp-up that would once again skew the numbers. The key is to understand that the “benefits” of each installation are not realized for 3 to 4 months.
If
XM does create a new category, investors will have a metric by which to gage progress. In theory, an investor could add the number of PROMOTIONAL INSTALLATIONS to the subscriber number for the period and divide by the SAC (or
CPGA) to obtain a more apples to apples comparison with previous quarters or years.
A note of clarity is that there is an existing category called PROMOTIONAL SUBSCRIBERS. It is in that category that revenue generating promotional subscribers are placed (such as GM and Honda).
It is our hope that investors in
XM find this helpful.
Labels: OEM, xm
1/11/2007 01:15:00 PM
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