20 Million Reasons to Like Sirius XM

You've come a long way, Sirius XM Radio (Nasdaq: SIRI  ) .

The satellite radio provider is topping the 20 million subscriber mark this week.

It's an impressive milestone, though it's long overdue. Two years ago, Sirius XM expected to close out 2010 with 22.1 million subscribers. After closing out 2008 with 19 million subscribers, the recessionary downturn took its toll.

As new auto sales tanked, Sirius XM's best source for new accounts also dried up. After back-to-back sequential declines in net subscribers, Sirius XM began to bounce back in the second half of 2009.

We knew that this was going to be the quarter in which Sirius XM would finally hit 20 million subs. It closed out its third quarter with 19.9 million accounts and is publicly targeting 20.1 million by year's end.

It's impressive that Sirius XM was able to hit the mark in November, instead of the post-holiday activations that were common during the platform's early years when retail subscriptions were the key to success.

Gaining a lot of subscribers -- now second only to Comcast (Nasdaq: CMCSA  ) among premium entertainment services -- is clearly a good thing. Don't let the bottom-line effect in the near term sway you otherwise.

Sirius XM has been able to drive its average acquisition costs down to $59 per subscriber. It obviously isn't making that back during the initial prorated quarter, but the company's low monthly churn rate of 1.9% proves that it's a worthwhile investment over time. If Sirius XM is too successful at nabbing new accounts, it may affect its bottom line during the quarter itself, though obviously this is a good problem to have in the long run.

This isn't the time to take it easy. If Sirius XM loses Howard Stern next month or plans to bump its rates higher next summer, the streak of what will now be six consecutive quarters of sequential subscriber growth will be tested.

There is still no real threat to Sirius XM in the realm of premium radio. The success of Web-based Pandora Music and Apple's (Nasdaq: AAPL  ) iTunes hasn't really slowed Sirius XM down.

Sirius XM points out that it took longer to land its first 10 million subscribers than its next 10 million. Does this mean that it will have an even quicker path to 30 million, or will the company run into resistance as it tries to reach out beyond its core of active commuters?

Enjoy the milestone, Sirius XM. Just make sure you continue to drive forward.

When will Sirius XM hit 30 million subscribers? Share your thoughts in the comment box below.

Apple is a Motley Fool Stock Advisor selection. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 11:34 AM, Austin77478 wrote:

    The article is platitude, at best.

  • Report this Comment On December 01, 2010, at 12:49 PM, pete163 wrote:

    Not a bad story here, and when it hit's 30 million I will say something good then as well.

  • Report this Comment On December 01, 2010, at 1:55 PM, pinshot wrote:

    i wonder if sirius has anything on agenda besides satellite radio. cant find any info.

  • Report this Comment On December 01, 2010, at 2:17 PM, snit wrote:

    I expect 30 Mil by the end of 2012.. However, beyond 2012 the real competition will be internet radio.

  • Report this Comment On December 01, 2010, at 2:35 PM, Valuestocksonly wrote:

    Dec. 2015. By then SIRI will have multiple sources to get the radio in listeners ears. APPS, internet, the used car market will explode and not forget Latin America. They will have 2.0 next year and then who knows what else is up there sleeves.

  • Report this Comment On December 01, 2010, at 3:10 PM, waterinfo wrote:

    Most articles that talk about the bright future of SiriusXM (SIRI) have a number of negative responses that include the imminent demise of SiriusXM at the hands of "free" Internet Radio and/or music download and distribution.

    Content and programming aside, any service that would provide competition to SiriusXM would have to find some kind of revenue source, either through subscription revenue or advertising. Since audio advertising must be intrusive to the programming to be noticed, the whole idea of commercial free broadcasts becomes essentially impossible unless there is significant subscription revenue.

    However, the most important issue is wireless capacity. In order to supplant the satellite distribution of the SiriusXM signal, an internet based service would have to set up a digital audio stream to each active user, consuming large amounts of wireless distribution bandwidth and capacity. Wireless carriers would be forced to move to nearly 100% usage based data contracts in order to control usage and capacity consumption.

    To model this, I looked at AT&T's high data usage model, which is $35/month including the first 200 MB and $10 for each 100 MB thereafter. After the base usage, capacity is thus priced at 10 cents per megabyte.

    To achieve decent quality audio, of say 50 to 18,000 hertz, a digital signal of at least 6 Kilobytes per second is required. That would be 360 kilobytes per minute, or about 21 Megabytes per hour of listening. At 10 cents per Megabyte, it will cost a wireless internet radio listener about $2.10 per hour to listen to the radio. A hour a day......$63 per month, essentially 4 times the SiriusXM charge for unlimited listening.

    Even if the digital stream were compressed by four to one (which would either severely limit the quality or violate Nyquist's Theorem of digital transmission), the Internet alternative would still cost more than SiriusXM for just an hour per day of enjoyment.

    You just can't get away from the basic physics. A single radio transmission, comming from a satellite, available simultaneously to every paying subscriber, is inherently thousands of times more efficient than trying to reach individual user, from indivdual cell sites, using individual data streams. The wireless carriers understand this, and they cannot afford to give their capacity away to applications that don't pay their fair share of the underlying costs.

    My forecasts stand.....Dec 2011 SIRI = $5/share,

    Dec 2019 SIRI = $46/share.......Minimum.

  • Report this Comment On December 01, 2010, at 4:22 PM, 702nitro wrote:

    {

    I expect 30 Mil by the end of 2012.. However, beyond 2012 the real competition will be internet radio

    }

    30m by 2012 is quite a reach! Maybe 2014 or 2015. Since Frear estimated that in 2015 ~70mil cars on the road will be equipped with satellite radio.

    I just don't see internet radio posing any threat to Sirius, at least in the automobile. People just want to be able to turn on their radio and get going without having to worry about tethering their smartphones.

    *Tethering reminds me of the days before wifi became ubiquitous, where people had to plug in an ethernet or analog line to their laptop to get connectivity; It's just a caveman approach to technology.

    Let say for example that a new wireless standard is defined for mobile to mobile device connectivity is created, similar to blue tooth but more superior. That's great now you don't need to tether your smartphone anymore, but it still requires the presence of a smartphone. Sure you could transfer songs to the car dash unit, but then it would just be a glorified jukebox music player. Want more variety then you'll need to rely on your smartphones data connection to feed the media, and we know where carriers will be going with the all-you-can-eat data plans.

    Another question to ask is can internet radio match the content of a subscription model such as Sirius, and still offer it for free?????? Can they afford to pay a Howard Stern $100m year???? See where all this is going? For internet radio to be a true competitor to Sirius, they need to start charging $$$MORE for their service. Then you need to get connectivity whether that is via your phone, or possibly a internet plan for your automobile. In the end, this could cost a user $30 and up wards per month just to get music, while Sirius has had 10+ years of experience in the business, has the physical infrastructure to deliver the content, and will have a head start ahead of the game when Sirius 2.0 comes out next year.

    There is also speculation in the Sirius community, that Sirius could be offering their service for free that is supported by commercial ads. That will then give the listener the option to purchase add-on packages.

    So Sirius gets paid, and people will purchase ala carte packages to add one such as Howard Stern, NFL, or whatever.

    Do you want to put your money on the farmer who owns the milk cow? Or the store the farmer sells his milk to?

  • Report this Comment On December 02, 2010, at 3:58 PM, jm31563 wrote:

    I agree @702. I don't really see internet radio being serious competition for Sirius now or in the future.

  • Report this Comment On December 07, 2010, at 1:34 PM, matt310 wrote:

    How many of these new subscriptions are tied to new vehicle sales? And how many are counted during the first three, six, or 12 months the automakers subsidize to push this 'premium' service?

    I continue to receive "please come back" letters from Sirius, even though my current vehicle has an active XM subscription. That's just ridiculous.

    Additionally, I have the premium sound system in my car, Mark-something-or-other-son and satellite radio continues to sound absolutely horrible compared to CD/MP3 and hell even FM bands. Why? Why is the sound quality tinny and lifeless yet marketed as premium quality and content?

    Sorry for the rant, but it seems their business model is still messy and until they combine their legacy systems, stop wasting money/time/paper on irrelevant customer retention, and up their downstream bitrate, I will not be renewing my service at the end of this month.

    /rant :)

  • Report this Comment On December 25, 2010, at 4:22 AM, onstarradio wrote:

    I have had Sirius for over 4 years, and have zero complaints.

    In fact, I notice that the listening options are terrific--something for everyone. The Bose Radio System give the tunes their quality, while when listening to CNBC & other "talk"-type shows, the sound is crisp & clear.

    I'm going to looking for a second GM car, and you can be sure that I'll have Sirius in this one as well.

    Thank you,

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