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Can Sirius XM Survive Another Price Hike?

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Sirius XM Radio (NASDAQ: SIRI  ) didn't just survive last year's 12% rate increase. The satellite radio provider thrived, closing out 2012 with 2 million more subscribers than it had when the year began, despite bumping its basic monthly rate to $14.49 in January.

Now we'll see how things play out on a much smaller scale.

Sirius XM is advising its 23.9 million subscribers that it will be bumping its music royalty fee higher on Feb. 1. Starting with next month's billing cycle, accounts will see their monthly royalty charges go from $1.42 to $1.81 on the most popular Select and Premier pricing plans. The rate for additional receivers under the same account will also go up by a little more than 27% to $1.25 a month.

The music royalty fee in addition to the $14.49 monthly fee isn't new. Sirius XM began to pass on the royalties that it pays out to composers, publishers, artists, and record labels in 2009.

Subscribers didn't flinch then, and it's easy to argue that they won't flinch now. Media consumers are so used to seeing their cable bills creep higher every so often that they don't often realize how much more they are paying for entertainment than they were a few years ago.

The rub for Sirius XM is that unlike cable and satellite television providers that face escalating rates from networks and broadcasters, Sirius XM's costs are actually heading lower. Programming and content costs have declined 1% over the past year, even though its subscriber base has expanded by 9%.

This doesn't mean that Sirius XM is ripping off its customers. Just as Pandora has been lobbying to ease the burden of rising copyright royalties -- that terrestrial radio stations don't pay -- Sirius XM is also forced to pay a larger chunk of its revenue to the music makers with every passing year.

The timing isn't ideal. Most Sirius XM subscribers probably cracked open their first paychecks of 2013 earlier this month to find that their take-home pay is noticeably lower after the end of the payroll tax break that concluded in 2012. Budget-minded families will need to assess what they're willing to do without, and satellite radio may be a casualty.

However, it's hard to bet against Sirius XM here. It faced a much steeper challenge with last January's 12% rate hike, and it went from forecasting just 1.3 million net additions last year to tacking on 2 million net subscribers.

These are certainly interesting times for satellite radio. Liberty Media (NASDAQ: LMCA  ) finally took majority control of Sirius XM last week, and shuffled up the board over the weekend, with three resigning board members replaced by Liberty Media insiders. Liberty now owns 50.5% of Sirius.

Still, the show must go on. The challenge here is if subscribers will be open to paying more for said show.

Chasing satellites
Despite Sirius XM being one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in our brand-new premium report. To get started, just click here now.

Read/Post Comments (5) | 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 January 23, 2013, at 11:41 AM, duze54 wrote:

    I think the music industry will be the losers in the long run as SIRI does have a talk only subscription, as I had it before the all-everything plan. I can easily go back to it. They get to greedy and they'll lose listeners to FM.

    Also, i think SIRI should offer talk, plus premium talk NFL/MLB channels w/o music-they'd get the sports fan who doesn't like paying the royalty.

    My wife likes the music, but said she could easily go back to her FM stations, if I went back to talk,news and sports/comedy.

  • Report this Comment On January 23, 2013, at 4:09 PM, vesprito1 wrote:

    To each their own. I subscribe and love XMSIRI because i had enough of commercials and talk radio. That's just me.

  • Report this Comment On March 12, 2013, at 1:43 AM, H8MONSANTO wrote:

    I will quit SERIOUSXM once certain threshold will be reached in the quarterly fee that I am paying. Now I just [paid over $52 for 3 months, which increases every 3 to 6 months. I will STOP feed the greed pretty sign and I'n afrauid that millions will not be paying close to $20 a month for something that they use rarely. I listen to SERIOUSXM only once a week for just 15 minutes or so, in my car only, because they made the online part of the service expensive and of a laughable quality. My income has come down 80-90%, yes 4 to 5 times, from say $8000 to just under $2000 a month and all the costs of living and entertainment are going up significantly, which means I will be canceling phone, TV, SERIOUSXM etc. soon. CONSUMER REVENGE REVOLUTION is coming soon!

  • Report this Comment On March 09, 2014, at 12:38 PM, H8MONSANTO wrote:

    From March 2014 my rate is now more than $18 per month. Yet another price hike by the greedy SiriusXM. I just canceled my subscription with them. It's a matter of principle and it's not because I can not afford it.

  • Report this Comment On March 09, 2014, at 12:39 PM, H8MONSANTO wrote:

    P.S.: The chemtrails (chemwebs) just make it troublesome for the people. Consumer Revolution!

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