Sirius XM Moves Forward With 2.0 Platform While Envisioning Future Embedded Technology, CEO Says
Sirius XM’s initiatives in telematics and programming position the satellite radio company for long-term growth, said CEO Jim Meyer. Sirius is moving ahead with plans to roll out its next-generation 2.0 platform and it expects to close this year on its acquisition of roadside assistance company Agero, he said Thursday during a Q3 earnings call. The 2.0 architecture is “the platform of choice for automakers,” Meyer said. It allows Sirius to deliver more content and functionality in new vehicles, he said. Sirius extended its agreement with Honda to 2020, which includes Honda’s rollout of the 2.0 architecture, he said.
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Sirius is engaged with automakers on its next platform, which involves cars with embedded connectivity, Meyer said. The architecture of the future will incorporate an embedded data transport or modem, he said. When this technology becomes the norm, “a truly merged satellite and IP platform will provide the best possible experience for our subscribers,” he said. The satellite radio company is uniquely positioned to develop and deliver this new platform, he said: “The value of having our own private, ubiquitous, one-way nationwide network and being able to combine it with a public two-way LTE network gives us a very strong position going forward to optimize the entertainment experience."
The company expects to benefit from customers buying new and used cars, Meyer said. Existing new car subscribers are turning over their cars sooner, he said. “As a result, our subscribers are migrating from one radio to another in a newer car.” This trend has picked up in Q3, he said. Faster turnover is good for business long-term, he said: It could lead to “increased opportunities for used [car] subscribers."
The company reduced its 2013 self-pay net subscriber growth to about 1.5 million, down from previous guidance of about 1.6 million, it said. This change in self-pay subs is a result of migration of customers as they turn in their cars, said David Frear, chief financial officer. “It looks like they're turning over cars a little faster than what our expectations were.” There’s a “migration effect out of self-pay and into trials,” he said. More than 10,500 car dealers are participating in a Sirius program offering satellite radio-equipped pre-owned vehicles with a three-month trial, Meyer said. This helps convert such buyers into self-paying customers, he said.
For its content side, Sirius signed long-term renewals in Q3 to extend program agreements with Fox and Major League Baseball (MLB), Meyer said. The Fox agreement is a six-year commitment effective until August 2019, and includes the expansion of programming rights, he said. The new MLB agreement secures broadcast rights through the 2021 season, he said. Sirius also is offering a package of Spanish-language content for $5.99 per month, Meyer said. Marketing efforts for the service include offering a 90-day free trial offer, he said: This is an effort “to appeal to an important and rapidly growing segment of radio listeners."
The company expects to close on the purchase of Agero, which provides location-based services through two-way wireless connectivity, Meyer said. The Department of Justice review was on hold due to the government shutdown, he said. “We anticipate approval … to allow for a fourth quarter close.”
Total Q3 revenue climbed 11 percent to $962 million, compared to the same period last year, Meyer said. The company expects total revenue in 2014 of about $4 billion, he said. Paid subs grew by 513,000 in the quarter to about 25.6 million, he said. New car sales are up and trial starts are up, he added. The new car penetration rate in Q3 was just under 70 percent, he said: By the end of Q3, “57 million cars were equipped with satellite radio.”
Sirius decided to increase the monthly price of its core service by 50 cents beginning Jan. 1, Meyer said. Changing prices is a difficult decision, he said. “We are confident that subscribers see significant value in our service” and that the change won’t significantly impact retention next year.