Subscribers drop for Sirius XM


Sirius XM lost 2% of its subscribers in Q1 to end the quarter with 18.6 million subscribers to satellite radio service. That was blamed on the slowdown in auto sales and CEO Mel Karmazin insisted that the company’s top focus is no longer on subscriber numbers, but on profitability – as Sirius XM reported its second straight month of positive adjusted income from operations and raised its projection for this year.

“Sirius XM is a cash flow growth story,” said Karmzin as he began his pitch to analysts. “We posted our second consecutive quarter of positive adjusted EBITDA – and this will continue,” he said. In fact, the company has raised its projection for 2009 cash flow – now predicting at least $350 million, up from the previous projection of $300 million.

“We really like our subscription-driven revenue model,” Karmazin stated.

AM and FM broadcasters can breathe freely. Despite recent comments by Greg Maffei, a director of Sirius XM and President of its largest shareholder, Liberty Media, indicating that the satellite radio company would not continue to be strictly a subscription service, Karmazin is having none of it. He acknowledged that Sirius XM could reactive millions of inactive receivers at any time to offer advertising-based channels at no charge to the consumer, but insisted there is “zero” planning for that to happen.

Despite the downturn in OEM sales through new car dealers, Sirius XM is working on such things as increasing efforts to get buyers of used cars with satellite receivers to subscribe, selling the “Best of XM” package to Sirius subscribers and vice-versa and raising prices for families with multiple satellite radio receivers. At this point, Sirius XM is planning for US auto sales to be only nine million in 2009.

“There is no question that we are running this company to generate the greatest amount of cash flow, as we believe that is how to create the most value for shareholders. There was a time when the focus was on adding new content and signing up OEMs. There was also a time when the focus was on getting subscribers at any cost. Today, with our strong subscriber position, all the OEMs signed to long-term contracts and a complete content offering, our focus is on making money,” Karmazin said.

Q1 pro forma revenues rose 5% to $605.5 million. With Sirius and XM now a single company, it had Q1 pro forma adjusted income from operations of $108.8 million, and improvement of $179 million from the loss of $70.2 million a year earlier. Cah operating costs for the merged company decreased 23% year-over-year.

RBR/TVBR observation: It appears Sirius XM has adopted the newspaper business plan – fewer subscribers, but higher prices and cost cutting. We know how well that’s worked out for newspapers.