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May 1, 2007
Well, we now have the subscriber numbers for both Sirius and XM for Q1 2007.INTERESTING NOTES:
- Sirius garnered 66% of NET additions
- Overall Market Share is now 55% XM and 45% SIRI
- The gap in subscribers is virtually identical to 3 years ago at 1,332,000. The maximum gap in subscribers was 2,861,000 in Q3 of 2005
5/01/2007 12:38:00 PM
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Except that the two companies employ radically different standards for reporting subscriber numbers.
By May 01, 2007 1:11 PM
XM has taken extra measures to present conservative figures (like recently beginning to count certain OEM subscribers only when they become self-paying) while Sirius routinely counts cars as subscribers when the roll off the assembly line.
As DCX has ramped up factory installs, the extent to which these data are misleading becomes even more pronounced. Their flat refusal to provide conversion data is suggestive that all is not well in the Sirius OEM program, and that their OEM "growth" comes only by virtue of increased penetration, not by retention of these customers once they start having to pay for the service.
your statement about XM taking steps to present more conservative figures is a curious one.....
By SSG, at May 01, 2007 2:46 PM
The issue is actually quite simple and relates to REVENUE. If there is no revenue for a subscription the radio can not be counted as a subscriber. XM's steps happened with certain OEM's as well as certain rental companies. It was not an effort to become more conservative......it is simply that there is no revenue. If the effort was as you stated, then they would go across the board with it.
Many people love to look at the sirius oem deals and cry foul. Where is the foul? Yes, there is a benefit to the subscriber line item, but there is a negative impact on ARPU. no one who argues this issue ever makes the suggestion that we need to add dollars to ARPU.
These companies both have the ability to structure their deals.
Is there a vast complaint that the GM deal is SAC friendly? It happens to be very SAC friendly. how many times do you see people discuss the structure of the deals, and not simply the metric that looks good? The flip side is that the revenue share in that deal is very unfriendly.
What about the churn reported by these comapnies? One gives only self paying churn....the other a fully loaded churn. Is it right to use a promotional subscriber for calculation of SAC and CPGA and subscriber numbers, but then to back them out for churn?
The point is that there are many metrics where there are differences in how these companies report, and many of those metrics carry far more weight than the subscriber number.
I do not think there is a person who follows these equities that fails to see that if a car was manufactured with a Sirius unit that it will be a subscriber at some point in time for a period of time.
A conversion rate for Sirius can be arrived at (or at least a decent approximation) by looking at the self paying churn of 1.6% in comparison to the fully loaded churn of 2.3% with consideration to the additions that have happened in the OEM channel. The fully loaded churn of XM is a bit over 2.7% for comparison.
Thus, growth is happening via OEM retention as well as increased penetration.
A reasonable person can conclude that the adoption of SDARS at an OEM level by consumers would not differ in a drastic way between the two companies.
>> The issue is actually quite simple and relates to REVENUE. If there is no revenue for a subscription the radio can not be counted as a subscriber.
By May 01, 2007 10:28 PM
SIRI's so-called "parking lot subscribers" are non-revenue generating. These subscribers begin to generate revenue ONLY after the car has been sold.
Deferred revenue is not revenue. It is a liability (debt). The fact that DCX has advanced money to Sirius (in effect, a loan against a guarantee to provide future services) has no bearing whatsoever on the reasonableness of counting these unsold vehicles as subscribers.
I am well awrae that deferred revenue is a liability. To call it debt is a mis-characterization of deferred revenue. Sirius, in theory, owes either the money back, OR the delivery of service. Sirius will deliver the service.
By SSG, at May 01, 2007 10:37 PM
Your characterization of this as a loan is also off the mark. It is not a loan. It is a car manufacturer buying a 1 year subscription that they in turn market to consumers.
If you want to discuss reasonableness of accounting I would suggest you use reasonable terms.
Everyone understands the methodology of these deals. Sirius subsidizes a radi and installation. The OEM, such as DCX is awarded warrants based on milestones and certain criteria. If you refer to the DCX contract, you will see quite clearly what those criteria are. One of the methods for DCX to obtain warrants is to buy a specified number of 1 year subscriptions. There are always a few who simply live to complain.
simply stated there is a subsidy, a subscription purchase, and warrants for shares.
By the way, the DCX warrants....as well as the Ford warrants are under water.
Okay, so you think that calling a "liability" a "debt" is "mis-characterizing" a liability?
By May 02, 2007 5:48 AM
Yes, Sirius will deliver the service. But the money is nevertheless owed to DCX until such time as they do. Sirius has not earned the money, yet they are free to spend it (which they are doing and have done). That makes it a debt. It is money in the bank they haven't earned and they didn't issue shares for. Debt.
Furthermore, it is service they will have to provide in the future (along with the attendant costs) for which they will receive no more money. And they money they received for that service has already been spent, for the most part.
You say that everybody understands the deals, but your remarks provide strong evidence to the contrary.
As to the reasonableness of my terminology, one need look no further than any dictionary to find that a liability is defined as "debt". Any introductory accounting text will provide a similar, if not identical, definition.
This is all getting away from the point -- you said that "if there is no revenue, the radio cannot be counted as a subscriber" -- a point with which I totally agree.
In the case of Sirius and the so-called parking lot subs, there is no revenue until the vehicle is sold to its eventual owner. By your own statement, such vehicles should NOT be counted as subscribers. As I said previously, they are non-revenue generating.
The money is not owed to DCX. There is a contract for services to be delivered. The only way the money comes into play is if Sirius were to fail to deliver the service.
By SSG, at May 02, 2007 9:30 AM
"A company's legal debts or obligations that arise during the course of business operations. These are settled over time through the transfer of economic benefits including money, goods or services.
Recorded on the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. Liabilities are a vital aspect of a company's operations because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, the outstanding money that a company owes to its suppliers would be considered a liability (or in the case of sirius, the service owed).
Outside of accounting and finance this term simply refers to any money or service that is currently owed to another party. One form of liability, for example, would be the property taxes that a homeowner owes to the municipal government.
Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period."
So the issue at hand is what you feel Sirius will deliver. What odds do you place on Sirius delivering the service rather than refunding the money? There is an extremely low risk that the service will not be delivered.
The fact is that the methods of subscriber counts have been looked at by the FTC, and are audited by accounting firms. The prcatice has been accepted.
The debate can go back and forth forever, but at the end of the day, the radio will be a subscription.
If you want to split hairs, should we take GM subs off the books in the third month of the promotional period? GM pays 2 months, and XM picks up the third.
Do you consider someone who buys at retail and signs up for a year, thus creating deferred revenue as a bad thing?
the fact of the matter is that these will be subscribers, and a percentage of these subscribers will keep the service (assume 40% to 60%). Why is this bad?
Further the 8% figure you speak of was when sirius had fewer subscribers. It is not a figure that should remain constant. If you appy 8% to 6,600,000 you arrive at 528,000 units. Apply it to 10,000,000 subscribers and you arrive at 800,000. you see the point here. The percentage of the base we are speaking of gets smaller as time passes. Is it your assertion that there are 528,000 vehicles sittiung on car lots that are being counted as subscribers? The GROSS OEM number for Q1 was between 500,000 and 600,000!!!! Do you think that every sirius equipped car from the quarter is sitting on a car lot? The answer is obvious.
Yes, there are differences in how sirius and XM count things, and that goes beyond the subscriber number (SAC for example). The key is understanding the differences.
Again, this issue is really a non-issue except to a very select few who want to make an issue of it. If you are in that group, then you should also adjust your numbers for the ARPU upwards.
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