Sirius Grabs Most OEM Adds in Biggest Quarter for Satellite Radio

Karmazin was coy about a future announcement by Ford, twice saying it would be “exciting” but offering few details. Analysts pressed Sirius on its OEM conversion rate with Ford vehicles and across all lines. Ford doesn’t release its satellite penetration numbers, Karmazin said, assuring investors that the automaker has been adding vehicles with Sirius satellite radio installed.

It’s difficult to predict or break down conversion rates to a list of numbers that’s easy to understand, said David Frear, Sirius’ chief financial officer. “The real issue is how many subscribers each month are you converting, and to provide that would be to give you conversion opportunities and we are just not going to give you that detail,” he said. Sirius’ OEM adds were better than expected, an analyst said on the call.

Most automakers want to put one satellite radio in their vehicles, said Karmazin, accounting for the exclusive arrangements that XM and Sirius have with the manufacturers. He was answering a question about approaching General Motors, which owns a stake in XM and has a deal with it. “There is nothing that would stop us from exploring a relationship with General Motors,” he said.

Chrysler has begun marketing and selling the Sirius video product and early reaction has been “very positive,” Karmazin said. Because the product, which offers Nickelodeon, Cartoon Channel and the Disney Channel in the back seat of Chrysler products, is so new, it’s too early to do subscriber surveys “to see what they like and don’t like,” he said. For the same reason, Sirius isn’t releasing information about revenue per user, said Frear. “The numbers are too small to be measurable over 7 million,” he said. “That is a question that is better for next year.”

Sirius expects to close its merger with XM within 24 hours of receiving regulatory approval, which it expects this year, Karmazin said. “If we get approval on a Monday, the assumption is that we would close on a Tuesday. We continue to expect the merger will close before the end of the year,” he said. Receiving regulatory approval by the end of the year would require no pause in the FCC’s informal internal six-month review clock. Wednesday is day 145, according to the FCC’s website. “Virtually all of the opposition to the merger has been generated either directly or indirectly by those who fear competition,” Karmazin said without mentioning the NAB, the most vocal critic. Sirius is holding its shareholder meeting to approve the merger Nov. 13 and Karmazin urged investors to vote. “If you do not vote, it will be counted as a ‘no’ vote,” he said.

Once the merger closes, Karmazin said, he thinks integration will be easy. “I have a great deal of experience of integrating companies. I merged Infinity into CBS and CBS into Viacom,” he said. “I don’t think it will be overly complicated.”

Karmazin acknowledged “softer than expected” results from the retail channel. He said he was perplexed as to why the retail channel is slowing but he expects it will pick up with holiday shopping. “Our partners are expecting to have a good Christmas. We hope they are right,” he said. XM last week said it lost 17,000 retail subscribers net during the quarter (CED Oct 26 p3). Sirius’ news wasn’t as bad. Sirius added more than 64,000 customers through its retail channels during the third quarter, it said.

Unlike XM, which has said it’s focusing on the OEM channel, Karmazin said Sirius was still emphasizing the retail channel. “We continue to believe that once people are exposed to satellite radio, they will want it wherever they listen to radio -- whether that be in their car, in their homes or as a wearable,” he said.

Research and development spending was down Q3 from a year earlier, but that’s nothing to worry about, Frear said. “Last year we had a lot of product launches. To get that done there was a significant amount of engineering spending. The production capability is now built.”

Sirius still expects to reach the 8 million subscriber mark by the end of the year after adding 525,000 subscribers in the third quarter, Karmazin said. That result beat analysts’ expectations, said a call participant. More than 460,000 of those subscribers came from purchasing new cars with Sirius installed, he said. Sirius still spends more than XM on subscriber acquisition costs, said an analyst on the call.

Sirius is working hard to keep customers when the prepaid portion of their contract expires, Karmazin said. Sirius is making “smarter and better follow-ups to make sure that when the prepaying is ending, they have heard from us a number of times about the benefits of Sirius,” he said. One of the best ways to engage prepaid subscribers is to teach them how to preset their channels, Karmazin said. “Simple things like presetting channels -- the more they are engaged, the more they are expected to remain as subscribers.”

Even with the gains satellite radio has made, it still only penetrates 15 percent of the homes in America, he said. Sirius’ churn didn’t change from the previous quarter, he said. Revenue was up 45 percent, Frear said. Sirius cut its customer service and billing expenses 17 percent from a year earlier, he said. The 95 cents per subscriber is a new low for Sirius, he added.