4 Things Sirius XM Must Do in 2012

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It was another good year for Sirius XM Radio (Nasdaq: SIRI  ) . The satellite radio giant padded its subscriber count, building nicely on its fast-growing profitability and free cash flow.

After three consecutive years of market-thumping returns, will 2012 be more of the same?

We'll see. There will be a few important events and developments that will ultimately dictate which way CEO Mel Karmazin's media company heads in the coming months. Let's go over them.

1. Sirius XM's rate hike must be well-received
It's been more than three years since Sirius and XM joined forces, and now it's time to test the platform's pricing elasticity.

We already saw what happened to Netflix (Nasdaq: NFLX  ) after it imposed what was in effect a price hike of as much as 60% on some of its users, but Sirius XM won't be closing in on that kind of outrageously insensitive territory. Sirius XM will be raising its basic monthly rate by 12% to $14.49. It's reasonable, and it's Sirius XM's first rate increase.

However, at least Netflix can point to escalating streaming costs as the catalyst for its poorly received increase. Programming and content costs have actually declined at Sirius XM over the past year.

These are interesting times. Sirius XM's conversion rate of drivers into paying subscribers once their free trials run out has been shrinking in recent quarters, though churn has been held largely in check. Investors will want to see how conversions and churn hold up once the higher rates kick in. If fans do prove their loyalty and stay close, the positive impact on Sirius XM's bottom line will be huge.

2. Sirius XM 2.0 has to be better
This autumn's rollout of Sirius XM 2.0 didn't live up to the hype. The original Edge receiver wasn't very special beyond its ability to broadcast roughly two dozen extra channels. Things should change when the Android-powered Lynx receiver hits retailers in the coming weeks.

The other big step will be when automakers begin upgrading to the new platform. Karmazin indicated that at least one car manufacturer will be making the switch to Sirius XM 2.0 receivers in 2012, with the rest likely following suit come 2013 and beyond.

If Sirius XM 2.0 finally proves its mettle as a differentiator, it will be big for both Sirius XM and the early-adopter car manufacturers. If it's early Sirius XM investor and partner General Motors (NYSE: GM  ) , the auto giant can try to position its cars as offering a broader selection of premium content than its rivals with fancier tech toys.

3. Satellite radio will have to keep the streaming phenomenon at bay
After surprising the market with back-to-back profitable quarters, Pandora (NYSE: P  ) is for real.

As automakers make it easier for smartphone owners to stream audio through their dashboard entertainment systems, Sirius XM is no longer competing against commercial-laden terrestrial radio in the battle for captive drivers.

There are shortcomings to mobile streaming. Sirius XM better be ready to act quickly if subscriber counts begin heading in the wrong direction. Pulling an anti-Netflix -- making its stand-alone mobile streaming an included feature for its receiver-based service -- may actually improve Sirius XM's chances to keep Pandora and iHeartRadio from overtaking the dashboard.

4. Sort out Liberty's intentions
It's been two years since Liberty Capital (Nasdaq: LMCA  ) acquired a meaty 40% preferred share stake in Sirius XM simply for the right to loan it money. There is no shortage of speculation as to what John Malone's eclectic conglomerate will do now that it has greater flexibility heading into 2012.

Will Liberty Capital increase its stake? Can Malone afford to buy all of Sirius XM? Will Liberty Capital cash out, realizing billions in taxable gains but also freeing up money that Malone can deploy elsewhere?

It's definitely going to be an interesting year.

If you like to stay on top of what happens next -- and I'm guessing you do because you're reading this article -- how about checking out Motley Fool's top stock for 2012? Spoiler alert: It's not Sirius XM. However, it is a free report, but only for a limited time so check it out now.

Motley Fool newsletter services have recommended buying shares of Netflix and General Motors. 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. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story except for Liberty Capital and Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (4) | Recommend This Article (1)

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 29, 2011, at 11:11 AM, trapper007 wrote:

    Can Malone afford to buy all of Liberty?

    Do you mean Sirius Xm? Doesn't he already owns Liberty?

  • Report this Comment On December 29, 2011, at 1:59 PM, TMFBreakerRick wrote:

    Trapper, yes -- my bad. It should have been Malone buying all of Sirius XM there.

    Thanks for catching that.


  • Report this Comment On December 29, 2011, at 4:08 PM, ilanddad1 wrote:

    Good article, you seem to enjoy writing about Sirius. You write with a upside note. When will you buy some Sirius stock? What are you waiting for?

  • Report this Comment On December 29, 2011, at 4:27 PM, southernbeachguy wrote:

    HAppy Sirus New Year, Rick.

    You write very informative articles about Sirus.

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