Flying High: Sirius-XM Revs Up 14%

xm/siriusIn an ironic twist, Sirius-XM saw revenues and subscribers jump compared to last year, giving the formerly beleaguered satcaster some good news in a bad economy. But there is some doubt that the good times will continue, as one of the satcaster's major sources of new subscriptions--factory installations in vehicles--appears to be headed for a ditch in 2009. On this note, the continued decline of the company's stock price suggests that investors are skeptical. 

First, the good news: Sirius-XM will finish 2008 with over 19 million subscribers, which is up 10% from about 17.25 million, and revenues of around $2.4 billion--up 14% from $2.1 billion according to CEO Mel Karmazin, who engineered the two satcasters' controversial merger earlier this year. Karmazin also remains positive about the future, forecasting a total of 20.6 million subscribers and revenues of approximately $2.7 billion by the end of next year. Those are increases of 7.8% and 12.5%, respectively.

Satellite radio is a niche medium, and may be somewhat immune to the sharp downward trend in the economy at large. According to Big Research, the average satellite radio customer is relatively well-heeled, with an average household income of almost $80,000 versus a national average of about $45,000, so satellite subscribers may have more of a cushion for discretionary expenditures.

However, Karmazin's optimistic forecast for 2009 was based in large part on subscription sales to new vehicle owners, with an expected "uptake" rate of about 50%. This means that half of new vehicle owners opt to subscribe--roughly the same proportion as 2008. But even relatively well-off consumers are cutting back on big-ticket items like cars.

In 2008, the company added 500,000 new subscriptions through vehicle sales, despite the "dramatic" slowdown in the automobile industry, accounting for about 30% of all new subscriptions. At Sirius, the proportion was even higher during its last pre-merger quarter, with 87% of new subs coming from new vehicle sales, and roughly half of its total subscription base generated from this source.

The company is counting on continuing vehicle sales to bring in an equivalent proportion in 2009, in part by installing radios in a higher proportion of vehicles than before.

For example, satellite radios are now installed in about 90% of new Mercedes-Benz vehicles. The company has deals with virtually every big carmaker, including Honda and Toyota, but that may prove meaningless if car sales drop precipitously. Sales plummeted 37% in November, and will likely sink lower if the general economic situation worsens in 2009.

Beneath the positive outlook, the satcaster has moved aggressively to limit costs since its merger. According to Karmazin, the merged company cut 22% of its total workforce, which went from about 2,050 to 1,600 in the second half of the year.

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