Recently the topic of Sirius' "Car Lot Subscribers" seems to have been picking up steam with terrestrial radio. The source of this frenzy is based on comments by Sirius CFO David Frear at the Merrill Lynch Media & Entertainment Conference.

At the conference, Frear was asked exactly how many subscribers are "cars just sitting on the lot" - of which Frear responded that in Q4 2005 the number was about 10% of subscribers, and this past quarter it was in the 8% range.

Listen to the Audio here.

Now, the terrestrial radio has taken this and ran with it. David Rehr's keynote at the NAB Radio Show, specifically highlighted "those 500,000 subscribers in empty car lots." Inside Radio (which sometimes seems like a good resource, while at other times is just a megaphone for the NAB) was actually the first publication I could find that threw out the solid 500,000 number after Frear's speech. Even Jacob's Media has gone so far as to compare Sirius' "half million unsold vehicles on car dealer lots" to Sarbanes-Oxley compliance. (wha?! Apples... meet Oranges.) UPDATE: Check out this PDF by Inside Radio (pictured) to see how this propaganda is being pushed (page 26 - or you can read the full thing and see a photo of Mancow in a monkey suit)

But let's break this down for a minute. Is the number really 500k? In 2Q 2006, Sirius reported something like 4,678,000 subscribers. At 8% that's around 374,000 "car lot" subscribers. And as Frear pointed out, the average days these vehicles spend on the lots is around 90 days (culmatively... Bimmer's have a tendency to fly off the lots whereas Fords and Chryslers stick around longer).

Now, just for the record, I'm not criticizing Siruis' policy for reporting unsold cars as subscribers - I'm actually disputing the NAB's propaganda of a "half million subscribers" that they seem to be enjoying. The practive is almost understandable from an accounting standpoint since Sirius gets paid at the time of production. The only thing it does is make it difficult to compare Sirius net subscribers with XM's net subscribers - which is a comparison that only Wall Street does (and those who are running the numbers should be factoring in that percentage anyway). Other than that, why does it matter? As if Arbitron reports exact numbers.

OK, so the burning question, what about the year's to come? Frear said that the percentage of car lot subscribers is shrinking. That makes sense when you consider that Sirius' subscriber count continues to grow. According to Bank of America estimates: in 2007 the percentage will drop to 6%, with car lot subs equaling 542,000. By 2010? Maintaining the 6% rate, you're looking at a total of 964,000 car lots subscribers.

[more on TheStreet] 

NPD Group's August sales data (available on SSG) have showed the first decline in the satellite radio retail channel, when compaired to the same period last year. Unit sales for the industry as a whole fell 3% year-over-year in August, while in July satellite radio retail sales actually increased by 2% YoY in July.

The Quick Glance:
Sirius August 2006 Retail Share: 55%
XM August 2006 Retail Share: 45%

Sirius' unit sales were up 16% YoY in August, while XM's unit sales were down 19%. Compare this with July, where Sirius' YoY unit growth was up an incredible 49%, and XM's YoY unit sales were down a whopping 29%.

The Analysis:
Sirius Satellite Radio's retail share has been 54% or better for every month since September 2005. That my friends is The Stern Effect in action. Unfortunately this also sets the bar very high for the coming months, and with the amount of retail activity we saw in Q405 it'll be hard to show a year-over-year increase this year. Sirius' share was 55% in August, in line with September 2005 (55%). XM's share on the otherhand was 45% in August, compared with 54% in September 2005. For the past 12 months, Sirius has dominated the satellite radio retail market share.

Going forward, I just don't see Q4's retail sales showing any sort of YoY growth from 2005. 2005 could almost be discounted as an anomoly (almost) because the subscriber growth was just not indicative to a "natural" curve. Stern changed everything last year and the hype he generated will be extremely difficult to duplicate this year. I'm not being a Negative-Nancy, just trying to set some realistic expectations for the months to come.

Does this support the theory that satellite radio retail sales have reached their peak? I'm not so sure, but the months ahead will be difficult.

A recent report by Bank of America analyst Jonathan Jacoby states their belief that the satellite radio industry's annual retail gross adds could be nearing its peak.

Citing that the "early adoption phase appears to have passed," BofA now estimates that gross subscriber additions from the retail channel will flatten out from 2006 to 2007. What's worse, they project retail adds to begin to decline after that point.

What this does is put a greater dependency for subscriber additions on the OEM channel. Greater reliance on auto manufacturers puts both XM and SIRIUS in a weaker position when distribution agreements are up for renewal.

But while the early adoption phase may be ending - for today's receivers - I wonder if innovation in technology can combat this looming peak? The wearable receivers are evolving, and with a total of nearly 59 million iPod sold, there's obviously a market for personal music - and the possibility for satellite radio to engage even a fraction of this audience.

Then there's the home. With innovations like SiriusConnect Home and the XM Mini-Tuner, satellite radio has the potential of being embedded now into many home entertainment systems. This type of convergence that integrates satellite into home electronics exposes the technology to a whole new market. I think there's a massive potential to this market. The key? Give away free trial subscriptions with the purchase of these satellite-ready devices.

So let's open the floor to some discussion. What areas of potential growth in retail do feel are untapped? What devices do you believe will help spur a surge in retail?