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Thumbs up Update Sirius-XMs Nerves of steel - 03-May-2009, 19:40

Sirius-XMs Nerves of steel

Chris Forrester


Sirius-XM unveils its latest numbers this coming Thursday, May 7. The Q1 data might well be telling, and indicate how well the pay-radio broadcaster is weathering the economic storm. Not helped by weak car sales, the numbers have never been more important.

As always the headline figures will grab at subscription gains or losses, but there might well be good reason to ignore the headlines on this occasion and delve a little deeper. Sirius-XM has already issued its guidance on the year ahead, saying it expects a positive EBITDA of some $300m.

Most analysts will be focusing on how well Sirius-XM is doing with this overall number in mind, especially given that the general consensus is that Sirius-XM will suffer reduced subscriber numbers. In Q4 the broadcaster saw useful growth of 1.7m gross subs, but that was down significantly on the autumn gain of 1.84m. This January-March period is always slow when compared to the pre-Christmas period, and anything over and above 1.4m will be seen as doing well.

The trouble is that these numbers barely keep up with lost subscribers. Q4 saw churn of 1.6m. Q3 saw cancellations of 1.5m. In other words, net gain for Q4 was a thin 82,945 subs. This current period could see core subs numbers suffer badly, which is why the market will want to focus on the underlying financials.

The sat-radio gossip blogs are alleging something of a conspiracy at Sirius-XM, and that it is impossible to cancel a subscription, and that the companys retention guys are working harder than ever to reverse would-be cancellations. This is praiseworthy, but only if it means subscribers really want to stay aboard. All pay-TV operators run similar customer retention operations, but if listeners really want to bail out they will!

Another worry is the on-going stress in the auto-trade. Chryslers Chapter 11 bankruptcy could lead to losses at Sirius-XM. Currently some 400,000 vehicles in transit (on the sales floor, or in storage, but having left the factory gate) are listed as subscribers albeit not yet activated, and not generating revenue for the broadcaster. Usually about 45%-55% of new-car buyers end up as real subscribers (the car-builder pays the first years sub).

Chryslers bankruptcy protection will take a quarter or two to resolve itself, and hopefully match with Ford and GM towards the back-end of this year when the recession starts easing. Hopefully this will manifest itself in more new car sales, more revenues for pay-radio and bottles of champagne at Sirius-XMs headquarters. But it needs nerves of steel.

On another front, Sirius-XM last week adopted a poison pill defence against any potential investor acquiring 4.9% of Sirius-XM. Its shareholder rights plan would issue stock rights to all other shareholder should anyone acquire 4.9% or more of the outstanding shares of Sirius XM without board approval. That would in effect immediately dilute the shares of the unwanted investor by boosting everyone elses shares. Analysts are near-unanimous is citing Charlie Ergens Echostar as representing the largest threat to Sirius-XM (and its 40% shareholder John Malone).

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