Can Sirius Exploit This Blessing?

The little guy wins sometimes. That doesn't always translate into killing the big guy, though.

A disgruntled subscriber lashed out at Sirius XM Satellite Radio (Nasdaq: SIRI  ) a little over a year ago, arguing that the company was raising subscription prices on the sly. My Foolish friend Rick Munarriz called Carl Blessing v. Sirius XM Radio a "Blessing in disguise," as Sirius would likely be able to spin any restricted revenues into a selling point to land more subscribers.

Well, the Blessing case has reached its final destination, ending up as a low-key settlement. Sirius will not pay any damages or reimbursements to Blessing and other purported price-hike victims, though current and some former customers are entitled to a small helping of free service. Up to $13 million of the plaintiff's legal fees will be covered, but that's the only monetary damage to Sirius.

The eye-catcher in this settlement, however, is the solemn promise not to raise subscription fees until the start of 2012, pushing back the deadline from July 28.

The non-hike promise was an important factor in the Sirius-XM merger, without which the satellite radio provider would still be competitors rather than partners. The end of that price freeze has been widely regarded as a catalyst for the stock, as fatter average monthly collections per subscriber would translate into higher profits very quickly. That's the operating leverage you're dreaming of in a business with high fixed costs, which describes Sirius to a T.

CEO Mel Karmazin as much as promised to raise rates as soon as possible in the latest earnings call, and this settlement doesn't change that plan. It just marked a new day for it in the calendar.

When Blessing filed that suit, Sirius had 18.5 million subscribers; now, the tally stands at 20.2 million. A 9% rise over 18 months is hardly the stuff of legend, considering that fellow subscription entertainer DirecTV (Nasdaq: DTV  ) matched that pace over just the past year and Netflix (Nasdaq: NFLX  ) grew its subscriber base by 16% in the last quarter.

So I think it's fair to say that Sirius hasn't exactly milked its frozen rates for all they're worth -- yet. But I wouldn't be surprised to see a marketing blitz in the coming weeks, built around the promise of another few stable months and pleas to former customers to come back and see what they've been missing. This Blessing could still play out exactly the way Rick saw it.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Motley Fool newsletter services have recommended Netflix. Other services have also recommended buying puts in Netflix. 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. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (16) | 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 May 17, 2011, at 12:51 PM, bottomfisherman wrote:

    Draws a long breath. lol Ok good write up on Siri. I kept hearing inaccurately from others that they could not raise rates but you hit it on the head but am not letting you off the hook for some of your other recent and blatant misses on other companies ha ha ha.

  • Report this Comment On May 17, 2011, at 1:48 PM, Fredlee009 wrote:

    CEO Mel Karmazin as much as promised to raise rates as soon as possible in the latest earnings call

    Not true. 100% false. Your making that up 100%. Give quote or edit article.

  • Report this Comment On May 17, 2011, at 1:51 PM, Fredlee009 wrote:

    , the tally stands at 20.2 million

    Lie #2. Close, ur only off by 300,000. LOL

    Someome get this guy a fact checker!!

  • Report this Comment On May 17, 2011, at 1:54 PM, Fredlee009 wrote:

    O, and rick is never right even when hes wrong. Sorry, wouldnt ever click that. Hes still back at .45 cents waiting for the r/s. LOL AHAHAHAHAHHAHAHAHHAHAHAHHAHAHHAHAHHAHAHAHAHAHHHAHAHAHAHHAHAHHHAHAHAHAHHAHAHAHHAHAH

    Your both "borderline" journalists to begin with. This article puts you in the "too wrong to be a coincidence" category.

  • Report this Comment On May 17, 2011, at 1:55 PM, Fredlee009 wrote:

    Sorry, I meant Rick is never right, even whens hes rigtht, when you miss the big issues, ur opinons on the small ones kind of dont matter.

    Wheres ur r/s Rick? Thought the stock couldnt move up with out one?

  • Report this Comment On May 17, 2011, at 1:56 PM, Fredlee009 wrote:

    Is this the famous "Beware of penny stock profits author"....

    If there was a hall of fame of bad article titles, that would win hands down. Stupidest title in the history of journalism. Or if that ur colleague? Cant tell cause your all terrible.

  • Report this Comment On May 17, 2011, at 4:02 PM, Rut67 wrote:

    The decline has ended. Many investors don't understand the significance or the opportunity here. It's really significant and will produce an unanticipated increase in subscribers all set up for the end-of-the-year rate increase. It's a great outcome of this mini aberation and Mel came through with flying colors.

  • Report this Comment On May 17, 2011, at 4:29 PM, TMFZahrim wrote:

    Okay Fred, here you go:

    http://goo.gl/slDlC

    Mel Karmazin:

    Okay, so we obviously have not made a final determination on exactly what or when a price increase will kick in, but you should assume that it will not be something that looks like inflation, but it would be something that would be compensating the company for its investment in content. I mentioned that we have not raised our prices. We added a lot of premium content to our service. It was very expensive. We haven't adjusted it. We were financing it by keeping the price the same. So though we certainly are sensitive to the economic conditions around, but you shouldn't think about inflation. You should think about a number more than that.

    Anders

  • Report this Comment On May 17, 2011, at 5:37 PM, doubting wrote:

    Any coin has two sides. This class action suit outcome could truly be a blessing.

    1. We know when the price increase will happen, that is January 1, 2012.

    2. We know the amount of the price increase - $2.00

    3. Karmazin suspected that it could take him more time to work it out with FCC. Here is your bone, FCC, another five months. Are you crazy to ask for more? On what basis?

    4. Existing customers will be more likely renewing for longer periods.

    5. Churn may decrease because more folks would want to have a "deal".

    6. New customers in 2011 are more likely to sign up that will affect the sub growth.

    7. Sirius will accumulate more cash to start buybacks sooner.

    8. All the above is again a win-win situation for Karmazin.

    9. Karmazin always gets what he wants. If he could get merger and favorably renegotiate with HS, he will get the raise. Do you still doubt it?

    When all the above sinks in, the share price will be at $2.50 within the next twenty days. This is why I am accumulating now.

  • Report this Comment On May 17, 2011, at 5:41 PM, doubting wrote:

    Also, the five month extension of the voluntary price freeze is a lucky face saver for the FCC that will negotiate the same five months extension to the price freeze and will end up being a true HERO and true protector of poor customers from greedy sirius xm!!!

  • Report this Comment On May 18, 2011, at 8:40 AM, Fredlee009 wrote:

    That quote doesnt help your case author. Try again. That was in reponse to a question on what kind of rate increase it would be, small or large basically. Mel responded it if happened, u can expect a sizable one. No time hinted at of when in that quote. The question wasnt when, it was how much.

  • Report this Comment On May 18, 2011, at 8:40 AM, Fredlee009 wrote:

    Soon as possible is Jan 2012, always was.

  • Report this Comment On May 18, 2011, at 8:42 AM, Fredlee009 wrote:

    Okay, so we obviously have not made a final determination on exactly what or when a price increase will kick in, but you should assume that it will not be something that looks like inflation

    If you cant read author, please stop writing. You quoted something that helps what I said, not you.

    WOW, MF authors ARE TERRIBLE!!

  • Report this Comment On May 18, 2011, at 8:45 AM, Fredlee009 wrote:

    Ill quote it again for you cause your slow...

    cap it too cause you cant read... one or the author... illiterate, or cant understand the words you read.... one of the other..

    Hers your quote..."CEO Mel Karmazin as much as promised to raise rates as soon as possible in the latest earnings call, and this settlement doesn't change that plan. It just marked a new day for it in the calendar"

    Heres your evidence of that quote? I think, cause its not...

    "Okay, so we obviously have not made a final determination on exactly what or when a price increase will kick in, but you should assume that it will not be something that looks like inflation,"

    NO DETERMINATION WHEN. Ok, i think u get it now right?

  • Report this Comment On May 18, 2011, at 8:47 AM, Fredlee009 wrote:

    So you took the phrase "no determination when" and wrote, Mel plans on raising rates AS SOON AS POSSIBLE. Sounds like you owe ur readers an edit, and apology. Or find anther quote that says Mel will raise rates as soon as possible.

  • Report this Comment On May 26, 2011, at 12:36 AM, WalterMatthews wrote:

    Why is Mell still in charge? Isn't Whitworth's group still running Siriuis? http://www.time.com/time/specials/2007/article/0,28804,16110...

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