Sirius XM Raises What It Can

Now that's what I'm talking about.

Shares of Sirius XM Radio (Nasdaq: SIRI  ) didn't seem to move yesterday, after word slowly trickled out about an upcoming rate increase for certain satellite radio subscribers. It's a move that has favorable cash flow implications, assuming things go as planned, even if the market's not initially impressed.

SiriusBuzz broke the news that the monthly rates on additional subscriptions and online streaming -- essentially the two plans that aren't governed by the FCC-mandated rate freezes as a condition for the merger's approval -- are going up on March 11.

Wake up, investors. This is hopefully the first step of many by Sirius XM to -- ideally -- bump up its share price, to the point where it can better raise the money it needs to fend off nail-biting creditors.

Why am I the only one in this cheesy cheerleading outfit? These pom-poms are rented, you know.

Pump up the jam
The company's Internet streaming service will get a long-needed bump in audio quality, but it will no longer be free for existing subscribers. Users will have to pay an additional $2.99 a month for access. In addition, members who are already paying $12.95 a month for their service will now have to pay $8.99 -- a $2 monthly increase -- for additional receivers within the same account.

The beauty of the jacked-up plans isn't necessarily the new rates. The timing is actually a bit unfortunate, given the state of the economy. One can argue that if roughly a quarter of the accounts decide to dump their secondary subscriptions altogether instead of caving in to the 29% hike, that it will be a pointless move. 

Few users are likely to pony up for online streaming, despite the improved bit rate. There are just too many free Web alternatives like Pandora, Slacker, Time Warner's (NYSE: TWX  ) AOL Radio, and CBS's (NYSE: CBS  ) Last.fm to view this as a premium growth vehicle, despite the worthy content. Losing cash-strapped listeners also won't help with the efforts to smoke out more ad revenue.

However, what a looming rate hike will do is inspire subscribers to either upgrade to lifetime subscriptions or prepay for years of future service to lock into the old rates. As long as they have the means -- and let's face it, this is a real issue right now -- listeners may be sending a lot of money Sirius XM's way over the next few weeks.

Jam up the pump
The moves won't do wonders for the income statement, since the capital infusion isn't booked as immediate revenue. However, it will fatten up the company's balance sheet at a time when it has some serious refinancing hurdles to clear.    

The move may also lead to a pickup in retail activity. Sirius XM is growing nicely on the automotive side, but crickets are chirping in the aftermarket. Leading retailers like Best Buy (NYSE: BBY  ) , RadioShack (NYSE: RSH  ) , Target (NYSE: TGT  ) , and Wal-Mart (NYSE: WMT  ) all sell Sirius and XM receivers, but there hasn't been much of an incentive to buy in recent years. That may change if folks try to lock in old rates, especially if Sirius XM gets on the ball and lets its existing subscribers know that now is the best time to buy those portable receivers to tack on discounted secondary accounts at the old rates.

This is good -- perhaps even great -- news for Sirius XM shareholders. The company should be shouting it from the heavens.

Gimme an S! Gimme an I! Gimme a moment to return this outfit.

More news than static on Sirius XM:

Wal-Mart Stores and Best Buy are Motley Fool Inside Value selections. Best Buy is a Motley Fool Stock Advisor pick. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (26)

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  • Report this Comment On January 22, 2009, at 4:15 PM, DemianBohemian wrote:

    My thoughts on the reported price increase...

    I have thought about this for awhile now - the more I think about it, the more positive I feel about it...

    #1 - The FCC has no say so over the internet - period. The increased fee for the internet feed is out of their reach. The additional radio charge to an existing sub price point was also not part of the price cap merger rules - period. I am also positive that this was run through legal beforehand - period.

    #2 - How can this not be viewed as a positive thing for SIRI investors? This is a way to add much needed revenue with a very limited impact to subscriber retention and growth.

    #3 - If a regular subscriber, to a single radio (the majority), doesn't have a computer or never listens online, they will never know the difference.

    #4 - If a subscriber subscribes to the internet only feed, they will never know the difference. If they are an XM internet subscriber, they will get a higher quality bit rate. What's not to like about that?

    #5 - If an active subscriber rarely listens online, they will pay more for the internet feed (which adds revenue) or do without and more than likely still be a subscriber.

    #6 - The extra $2 for additional radios to an existing sub is a smart move to raise revenue. Subscribers with additional radios on their account (the minority) have already invested in the cost of additional radios for a reason - they wanted more access to the service and they are less likely to cancel. If they do cancel their additional radio/radios, they are likely to give/sell the radio to a friend etc. (which brings more radios to the public and adds more subs) or they will sign up for an extended or lifetime sub to lock in the current rate (which adds more needed short term revenue to the bottom line).

    #7 - The higher internet feed fee discourages listening online - which caries a higher RIAA fee for the company (helps cut costs).

    #8 - The higher internet feed fee is a hint that the iPhone app is right around the corner. The company can support and promote the coming iPhone app - knowing that it will bring revenue and not be a money drainer.

    #9 - With the internet feed fee in place, it opens the door for making the online offerings profitable. Sirius/XM can expand and market it's internet offerings and have them actually add to the bottom line.

    #10 - With the recent news that Pandora is adding embeded ads to it's streams, Sirius/XM can actually compete with the Pandoras, Last FMs, and Slackers now. It opens the door for Sirius/XM to release a product like the Slacker G2 that also gets live content.

    How can this not be a good thing for SIRI investors?

  • Report this Comment On January 22, 2009, at 4:29 PM, wgaudreau wrote:

    siri bought/merged with XM and all their crooked billing practices ....... Don't know what or how siri billed but I won't use either now .........

  • Report this Comment On January 22, 2009, at 6:55 PM, nicu28 wrote:

    So incredibly disappointing as a subscriber. I use the internet radio all the time. I could see raising prices if they added more content, but they haven't. There's the same number of stations and some have even been downgraded. What a shady move at the absolute worst time. A friend of mine cancelled yesterday as soon as the news broke. I won't be far behind.

  • Report this Comment On January 23, 2009, at 12:01 AM, back9pt wrote:

    Rick

    Are you feeling OK. I believe that you have written 2 articles in a row that maybe seen as positive for SiriusXM. We all know that TMF has been helping to push the SP down to this level. My guess is that you have secretly been buying at these levels and feel that there is some Sirius money to be made.

  • Report this Comment On January 23, 2009, at 8:25 AM, COACHGUY7 wrote:

    I got XM in a new car in 2004. I had 4 free months and absolutely fell in love with the service. I went for the 3 year pre paid plan and paid $7 or $8 a month. I upgraded my home entertainment system last year and included a tuner that has XM. Sound was outstanding.

    Then the merger came. Sound quality has gone done, disc jokeys that yak on nearly every channel. Plugs for other xm/siri stations and shows are constant. I'm paying for FM radio without the ads.

    Can I afford the increase. Of course I can. Will I pay it, nope. Mel has trashed this company. I'll keep my subscription for my home entertainment system..at least for now. The car subscription is going. Paying $3 for on line access? Wake up Mel.

    Damn shame. Great concept managed very badly.

  • Report this Comment On January 23, 2009, at 11:26 AM, yourmomsmom wrote:

    Why would anyone in their right mind prepay any subscription to a company that is increasingly likely to declare bankruptcy this year?

  • Report this Comment On January 23, 2009, at 12:03 PM, ddunleavy1 wrote:

    I never renewed my subscription and was just about to because I like listening to Sirius internet at work. After I read this article, I decided to listen to iTunes radio instead (which is free). Now is not the time for me to be spending any extra money than I really need to.

    I feel this decision will be the downfall of Sirius/XM. I told my associate this morning about the extra $2.99 a month for internet access and his exact words were "Screw it, I'm going to cancel the second I can't sign in." A lot of people I know listen to Sirius.com at work, and with so many free choices out there, why even bother??

  • Report this Comment On January 23, 2009, at 5:47 PM, ThongLover854 wrote:

    For all you complainers, whining about the merger, the change in programming, the price hike...grow a pair! I had XM, then Sirius and now SirXM for the past six years or so. Your complaints are sad...change is a constant and the price increases are completely in line with increases across the board in most industries. Let's see...$3 to get excellent music and talk all month including CNN, Howard, Bubba, Oprah...or get some streaming crap. I rarely use it and won't pay it, but if I did use it, i would pay the $40/year.

    Of course it's personal preference, but it's sad to hear everyone complain about programming changes as well. I personally didn't notice a single difference and I spend easily 30 hours/week in my Jeep. If something changed, find another similar station! I can't even listen to all the stuff I like...not enough time.

    Anyway, that's my rant to your rants! Sirius blows FM away everyday all day...they could get rid of 90% of their channels and I would still subsribe.

    Enjoy FM complainers...

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