Lost in this morning's preliminary earnings report out of Sirius Satellite Radio (NASDAQ:SIRI) and this weekend's regulatory approval to merge with XM Satellite Radio (NASDAQ:XMSR) is that XM is no longer the slacker in this marriage.
A few days after XM reported tacking on 322,000 net new subscribers over the past three months, Sirius' rolls gained just 279,820 accounts during the second quarter. This is the first time that has happened since Howard Stern's arrival at Sirius following his rocky terrestrial relationship with CBS (NYSE:CBS).
Sirius has grown its user base by 25% over the past year, a healthier advance over XM's 17% subscriber gain during the past four quarters. However, that is the result of closing the gap with XM, before losing ground this past quarter.
One can argue that handicapping the race is pointless, now that the two companies are set to merge. I don't see it that way. These two companies will need to make sure that each company's strengths are emphasized, and for now, that means conceding that XM is on a roll.
Some Sirius number-crunching
XM's healthier automaker relationships explain the widening subscriber gap during the quarter that ended in June. XM suffered a dip on the retail side, whereas Sirius was fortunate enough to squeeze out a small gain.
The discrepancy in how the numbers are tallied probably also played a part. XM counts subs only when car buyers activate them, while Sirius rings up a sub once a new car is delivered to the dealer's lot. If dealers hold back on their available showroom inventory as a response to the economic lull, it would hurt Sirius more than it would XM.
This doesn't mean Sirius should be scoffed at, given this morning's report. Revenue also climbed 25% higher to $283 million during the quarter. Even more encouragingly, the entertainment provider's adjusted operating loss fell by a whopping 70%.
Satellite radio will have its hands full as it takes on a growing array of aural alternatives in the future, but at least both companies continue to grow their fan base. Between XM's 9.7 million subs and the 8.9 million Sirius users, the eventual Sirius-XM can now lay claim to more than 18.6 million sets of eardrums.
And counting.
You may now kiss the aging bride
It's been more than 17 months since Sirius and XM went public with their urge to merge. The path to the altar cleared its biggest hurdle when the Federal Communications Commission gave the deal the green light, with a narrow 3-2 victory over the weekend.
There will be decision challenges and financing speed bumps, but any roadblocks are likely to be temporary. Sirius and XM will eventually be one, and it's time for them to begin preparing.
Because deal concessions are slated to include subscription-plan rate freezes -- and the mandate to offer lower-priced a la carte plans next year -- the united company should turn to each company's premium services once the next wave of interoperable receivers hits the market.
Sirius offers Backseat TV, a service that beams Cartoon Network, Viacom's (NYSE:VIA) Nickelodeon, and Disney's (NYSE:DIS) Disney Channel into the growing number of cars with backseat video entertainment monitors. XM may never challenge Garmin (NASDAQ:GRMN) or TomTom for GPS supremacy, but its NavTraffic service allows users with navigation systems to skirt traffic tie-ups in 80 metropolitan markets. The premium services come at modest markups, with Sirius users paying $6.99 more for Backseat TV. Tacking NavTraffic onto an existing XM plan will set you back another $3.99 a month.
Did you even know that the satellite-radio providers offer more than just the $12.95-per-month radio plans? The companies will need to ramp up that marketing message, especially as existing subscribers get tempted by the upcoming half-price plans.
It's all starting to come together. Losses narrowed, conversion rates improved, and churn rates fell for both XM and Sirius during the second quarter, relative to last year's performance.
Doubters are everywhere. Both stocks are trading well below where they were when the merger was originally announced early last year, despite the obvious synergies of the deal and the great unlikelihood of the merger's completion when it was first revealed.
It's time for Sirius and XM to begin thinking as one, even if XM can go out knowing that it had the last laugh in Q2.
Recent stories on XM's long courtship with Sirius:
