Friday, March 30, 2007

Sidak - 23,000 Hours of Content

March 30, 2007

More for the C3SR file.

In his Criterion Economics report Sidak states the following:

"In 2006, Sirius announced it's acquisition of the rights to 23,000 hours of Stern programming, which it intends to air unedited"

Mr. Sidak........Why did you neglect to tell where that programming was from? Why did you neglect to state that the VAST MAJORITY of that programming could air on terrestrial radio TODAY. The fact is that that 23,000 hours of programming represents the terrestrial radio days of Howard Stern. Do these facts not suit your stance?

Today some of that content was on the air, and there was nothing in that show that couldn't have been broadcast on terrestrial radio.

The facts are this. Terrestrial radio could not air the content without the consent of Stern. Stern was not going to allow that to happen, considering that he was being sued by CBS at the time. Sirius bought the rights to the content for $2,000,000. CBS could have stuck to their guns had they found the content so compelling. They did not, and sold their rights for $2,000,000.

Labels: c3sr, criterion economics, sidak, stern

3/30/2007 10:15:00 AM

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Thursday, March 29, 2007

Sidak Research Incomplete On Conversion Rates

March 29, 2007

The more I read this Criterion Economics report the more I find holes in it. This one report alone is 91 pages, and the number of inaccuracies will provide for a long series of articles tied to this subject.

In yet another section of the report, Sidak states:

"In addition to low churn rates another indication for inelastic demand for SDARS is the high conversion rate. The conversion rate is defined as the percentage of customers who sign a contract with an SDARS provider after sampling the service for three months free of charge. During 2003 XM was able able to convert nearly three quarters of all customers who were on a three month free trial. During 2004 through 2005, the conversion rate decreased to 60 percent, yet was still impressive. The high conversion rate suggests that SDARS customers would not substitute toward another radio service in response to a small price increase for SDARS"

Mr. Sidak........where is the most current conversion rate data????? Was that data missing or just conveniently omitted from the report??????

2003 conversion was reported at a bit over 70%. What you fail to state is that subsequent to that report XM corrected several parts of their billing system and weeded out bad accounts and people receiving free service beyond the three month period. It was then that the rate dropped to 60%......then 55%.....and the LATEST DATA is at about 52%.

Yes a 52% take rate is decent. However, consider the amount of money invested into those consumers. This is money that the terrestrial radio stations need not invest.

I apologize, but I must ask again......WHAT IS THE REASON YOU NEGLECTED TO PROVIDE THE LATEST DATA????????

Labels: c3sr, criterion economics, merger

3/29/2007 09:32:00 PM

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Comments on Criterion Report Part 3

March 29, 2006

Comments on the study conducted by Criterion Economics against the merger.

SSG is looking over the study conducted by Criterion Economics and commenting on various aspects of the study. Bear in mind that we are not professional economists, but we can offer insight and opinion that we feel the author of the report has overlooked. This analysis will happen over a series of articles.

Article series links below:

Article #1 - Comments on The Criterion Report

Article #2 - CS3R and NAB

This segment concentrates on the comparison to the satellite television merger that was attempted and failed in 2002. SSG Comments in RED

The author of the report states:

"The merger proponents suggest implausibly that this merger bears no resemblance to the proposed DBS merger that was abandoned in the face of FCC skepticism in 2002. But similarities are striking, and they have been detected by many respected industry observers. In the proposed DBS merger, most MVPD customers would have experienced a reduction in the number of suppliers from three (the incumbent cable operator, Direct TV, and Echostar), to two, and five million DBS customers in areas not passed by cable television systems would have experienced a reduction in the number of suppliers from two to one. Assuming generously that terrestrial radio serves the same role of the incumbent cable operator here, most radio customers would experience a reduction in the number radio suppliers from two to one, and those 22 million age 12 and over who receive 5 or fewer stations would experience a reduction in the number of radio suppliers from two to one. For the same reason that the FCC was skeptical of the proposed satellite television merger, the proposed satellite radio merger should be rejected."

Interesting thesis, but lacking in very real terms:

1. Radio stations can not be compared to cable operators. Cable operators are the sole source of cable television and the cable company collects all of the revenue associated with cable subscribers. To insinuate that the many radio stations in a market are collectively a single entity is very very very very wrong. Terrestrial radio stations compete aggressively with each other and other media on a day in and day out basis. Have you ever seen the ratings books????? Pick any town in the U.S with a single cable operator and tell me what their share is of the cable market.......That's right 100%. Radio stations do not have that luxury.

2. The assertion that 5 million customers in ares without cable would have been relegated to one choice is correct, but lets put that in realistic terms. those 5 million customers represent less than 5% of the population of this country.

3. How is it in one statement the author can go from lumping all radio stations together as a single entity to then speaking about markets with 5 or fewer stations? For the purposes of your argument are they lumped together or separate???? Pick a stance and stick to it. This statement seems like it is likely a Direct quote from David Rehr of the NAB. He is good at flip-flopping.

Sorry Mr. Sidak, but you seem to be trying to compare apples to oranges. And, if anyone takes the time to read your footnotes, the supporting argument for the comparisons of these mergers does not reflect at all the sentiment you state in the paragraph above

Labels: c3sr, criterion economics, nab

3/29/2007 08:56:00 PM

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Some Comments on The Criterion Report

March 29, 2007

Comments on the study conducted by Criterion Economics against the merger.

SSG is looking over the study conducted by Criterion Economics and commenting on various aspects of the study. Bear in mind that we are not professional economists, but we can offer insight and opinion that we feel the author of the report has overlooked. This analysys will happen over a series of articles.

The author of the report states that in mid 2005 XM raised their price but did not suffer an increase in churn, and therefore there is a distinct difference in SDARS and other providers of audio content. His argument is that the price increase did not cause consumers to seek out new providers for content.

SSG Comments:

First, churn needs to be defined and the other impacts happening in that time period need to be considered.

1. Churn is a measure of cancellations relative to the average size of the base. An influx of subscribers above the norm can have a direct impact on the reported churn rate.

A. General Motors introduced their highly successful employee discount program and had record sales. This created an inflation ion the OEM channel subscriber numbers for Q2 and Q3. There was then a lower than expected OEM number in Q4, but the retail holiday season helped offset that issue. The author of the report fails to acknowledge this fact.

B. During that same timeframe, XM satellite radio launched an aggressive friends and family promotional program. During this timeframe the friends and family program increased from about 12% of the subscriber base to 22% of the subscriber base. Consumers were enticed with free hardware offerings and/or free service for a period of time. The author of the report fails to acknowledge this fact.

2. During this timeframe XM Satellite Radio saw an increase in Subscriber Acquisition Costs (SAC) and reported losses greater than anticipated. The author of the report fails to acknowledge this fact.

3. XM dropped a premium tier of programming and made it part of the base service. Thus, there was an increase in value and level of service that the consumer received. The author fails to acknowledge this in his report.

4. XM had elasticity in price because Sirius was already at $12.95 per month. This gave XM room to increase the price without a large backlash from their consumers. The author failed to acknowledge this in his report.

5. XM satellite radio also offered consumers the opportunity to lock in the current rate by pre-paying. Many consumers took advantage of this offer. The financial reports show that the average pre-pay subscriber increased during this timeframe. The author of the report fails to acknowledge this in his report.

Simple mathematics dictates that a surge in subscribers would increase the subscriber pool such that the normal cancellations would appear to be in line with a normal situation. The author of the report, and in fact most analysts that covered the sector, did not take into account the substantial changes and dynamics that happened in the XM subscriber base during that timeframe. There was a substantial increase in OEM (estimated at 175,000 to 225,000 higher than normal over 2 quarters) subscribers as well as a substantial increase in Family plan subscribers. The author speaks of a price increase, but does not consider a few hundred thousand units that were selling with three months of free service, and $6.99 per month thereafter (family plan). For the author to state that churn was not affected without getting to an apples to apples comparison is simply wrong.

The increase in SAC speaks to what was happening. Simply stated, XM was in the mode of “buying” subscribers at a rate higher than they had previously been spending. Thus, the price impact did indeed have an impact on metrics…..it simply was not seen in churn. Ask an XM investor about the SAC costs during the second half of 2005 and you will see a direct impact.

The change in price was coupled with programming being removed from a premium tier. Thus, the base package of XM was increased. This added consumer value. This coupled with the option to lock in pricing helps to offset churn.

Simply stated, on this aspect of the report, the author seems to have missed some key components and factors. Would these factors change the authors opinion or number on this section of his report. We may never know. The report as it exists was contracted by an anti-merger group, and I somehow do not see that group asking the author to address these factors, nor do I see the author changing his report to take these items into consideration unless he was paid to do so, or there was another compelling reason.