An In-Depth Look at Gross Subscriber Numbers

Wednesday, November 8, 2006 at 12:15 PM
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Now that the numbers are out, let's take a look at gross subscriber additions between both Sirius and XM.

Looking at gross subscriber additions is a more accurate way of looking at the trending of the industry and gives a better feel of the pulse of the market. It eliminates factors like churn, which as the subscriber base for each service increase, creates the illusion that industry growth has slowed. Yes, net subscriber additions are extremely important and are in fact the "true" indicator of growth, but gross gives us a look into market penetration.

So with explainations out of the way, let look at it shall we? For the 3rd quarter of 2006, here's how gross subscriber additions stacked up:

SIRIUS Gross Subscribers: 732,406
XM Gross Subscribers: 868,007

Now since we're talking about trending, let's take a historical look at gross subscriber additions per quarter, starting from the beginning of 2005:

Sirius and XM Gross Subscriber Additions 

Here's the data:


1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06
Sirius 354,708 432,687 465,228 1,266,674 960,610 830,571 732,406
XM
821,631 945,885 989,045 1,373,876 1,007,306 926,281 868,007

 

Of particular interest is how 2006 is trending. We all expected the spike in 4Q05, but since then it's been nothing but downhill. Ignoring the 4th quarter, let's look at the same periods in 2005 - there was nothing but growth. This is all the more reason why managing churn needs to be high on the priority list for both companies.

It's also a good thing that both companies have saved up their marketing cash for a big pop this quarter... the 4th quarter is going to need it.

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Comments

I was just looking at XM's 8-K from Monday. Any thoughts on why "XM Activated Vehicles with Rental Car Companies" dropped from 42,117 last year to 20,515 this year?

It is also disconcerting that the net aftermarket subscribers was only 68,711.

It's definitely a positive for them that they focused on OEM early.

Chipper... the rental car subs have dropped cause this Q3 they removed about 20,000 rental cars previously counted as subscribers. This "hit" took place in Q3.

On another note. In the Sirius filing, the headder for subcribers seems to indicate

Sirius and Sirius subsidiaries subsciber counts all in one number.

Does this mean they are now counting Canadian subscribers?

The last blurb in any filing from sirius regarding this was in the YE 2005 report where they specifically mentiond that Sirius canada was not included. But this has been absent from Q1 Q2 and now Q3 reports. Could they really be counting Canadian subscribers?

XM has stopped counting certain rental companies as paying subs for some reason (not sure why).

Thanks for the responses... that does ring a bell now. Jeff, I wouldn't put it past Sirius to count Canadian subs as well... for better or worse, they try to inflate their subscriber number as much as possible. Do you think that will be a question for the next quarter conference call? I nominate Ryan to get to the bottom of it, lol.

I have to ask, does XM or Sirius make any money on "Gross Adds"?

"I have to ask, does XM or Sirius make any money on "Gross Adds"?"

Sure, but they lose money on the churn. 10 people sign up, pay $13 for a month of service, that's $130. 5 cancel, they lose $65. I've got no idea how the hardware factors in, I would guess they are taking a loss or working with razor thin margins. Are there any statistics on that?

I wonder why there are more former XM subscribers unsubscribing to their service than former Sirius subscribers unsubscribing. Anyone have a clue why people with Sirius stay more often than XM people?

Good luck to both in 4Q. I just hope that Siri comes up with some new ad ideas. (non-stern I mean) That weird guy that just kinda shows up to bug you can't sell A lot of subs.

I'm just guessin, but could it have alot to do with factory installed auto subs and people not renewing something they tried out for free? Doesn't Siri use much longer free subs that might not be showing any churn yet? Just a guess.

>>> I wonder why there are more former XM subscribers unsubscribing to their service than former Sirius subscribers unsubscribing. Anyone have a clue why people with Sirius stay more often than XM people?

1. There are more XM subscribers than there are Sirius subscribers. So, obviously, there will be more people dropping XM than Sirius.

2. XM and the OEMs provide factory installs 3 months of service at the end of which half choose to not to re-up. Sirius, in an effort to prevent churn, gives them a year (okay, the OEM gives them a year and Sirius gives the OEM a radio of equal value. Whatever). In addition, Sirius starts counting them when they roll off the assembly line which adds at least a couple months to the time before which they can churn. All gimmicks.

3. Sirius has lifetime subscriptions. They even count dead people if they bought a lifetime subscription before they died.

Good points StackPointer.

Another interesting trend is that while the gap between XM and Sirius gross sub adds has certainly narrowed, there does appear to be a slowly growing gap between the two again.

In 2005, SIRIUS Canada Inc., a Canadian corporation owned by us, Canadian Broadcasting Corporation and Standard Broadcasting Corporation, received a license from the Canadian Radio-television and Telecommunications Commission to offer a satellite radio service in Canada. In December 2005, SIRIUS Canada launched service in Canada with 100 channels of commercial-free music and news, sports, talk and entertainment programming, including 10 channels of Canadian content. Subscribers to the SIRIUS Canada service are not included in our subscriber count.

To respond to the making money on GSAs. Yes XM makes money on GSA's - if they stay with the service long enough. The CPGA is around $100 - will be closer to $110 in 4Q according to their call - so they need a sub to stay for about 8 months to break even. The issue remains churn and on the OEM side, conversion rate. The drop in conversion rate effectively raises the CPGA(almost doubles it) and causes the time needed to break-even to go to 15-16 months - with 25% churn this is where things get tricky.

>>> I wonder why there are more former XM subscribers unsubscribing to their service than former Sirius subscribers unsubscribing. Anyone have a clue why people with Sirius stay more often than XM people?

1. There are more XM subscribers than there are Sirius subscribers. So, obviously, there will be more people dropping XM than Sirius.

2. XM and the OEMs provide factory installs 3 months of service at the end of which half choose to not to re-up. Sirius, in an effort to prevent churn, gives them a year (okay, the OEM gives them a year and Sirius gives the OEM a radio of equal value. Whatever). In addition, Sirius starts counting them when they roll off the assembly line which adds at least a couple months to the time before which they can churn. All gimmicks.

3. Sirius has lifetime subscriptions. They even count dead people if they bought a lifetime subscription before they died.

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Adding to StackPointers points:

#1 Makes perfect sense, not to mention that XM has nearly twice the OEM subs that Sirius has (see #2).

#2 XM has twice the OEM's Sirius has. People will argue the "disconnection rate" here, but OEM is where the vast majority of the disconnections come from. These next points apply to both Sirius and XM equally, but will effect XM far more because of having more OEM's. There are four (4) reasons why people cancel (or disconnect, or churn).
1) The consumer didn't care about satellite radio, it came with the car. They let it expire when the free trial ran out.
2) The consumer liked satellite radio better than FM, but not enough to justify the continuing $12.95 rate. They let it expire.
3) The consumer didn't like satellite radio, and let it expire.
4) The consumer wanted the opposite service, and let it expire.

#3 Well, that's a little far-fetched. While there MAY be some dead people counted as subs, it can't be too many.

What I'm NOT liking about these charts is the falling demand overall for satellite radio.

This shows that competing technologies that allow on-demand entertainment (think iPod) are now REALLY having an effect on satellite sign-ups.

There was a predection from many stock experts just two years ago that SDARS would have 40M subs by 2010. Now the reality is setting in thanks to those competing technologies. I personally don't think they're going to make it.

Corrections:

That's supposed to be 20M subs by 2010, not 40M. And those stock experts made a prediction, not a predection. :P

What I'm NOT liking about these charts is the falling demand overall for satellite radio.
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Generally speaking Q1 and Q3 are weak Q's in retail. On top of this we had the FCC thing for both XM and sirius. I would venture to guess there was a 100k drop as a result of a comination of FCC and high energy prices cutting in to everones wallets. Although the current trend is concerning, I would not write off Sat Rad yet.

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