Monday, November 06, 2006

A Preliminary Look at the Third Quarter Numbers

Here's a preliminary look at the 3Q06 subscription numbers for XM and Sirius. We will have a clearer picture after Wednesday, when Sirius releases the final figures for the quarter. First, let's look at the raw numbers. We already know that Sirius will add more net subscribers. However, it one looks at the trend, it is a certainty that XM will add a greater number of gross subscribers. In fact, we can probably say the the gap that nearly closed in 1Q06 and started to widen in 2Q06 will continue to grow into 3Q06. The closure of this gap in 2Q05 and 1Q06 was no doubt the Stern Effect. The Stern Effect started to wane in 2Q06 and continues in 3Q06. Going back to the net, we can see that the gap in the net is starting to close as churn for Sirius due to its recent growth and to its OEM promotional subscriptions is starting to kick in.

Looking at it on a percentage basis, the Stern Effect is quite obvious. Also obvious is that XM is starting to pull away in gross subscription additions. Although Sirius is well ahead on the percentage of net additions, the growth in the percentage is nearly flat for the quarter. With the divergence in the gross numbers, one might conclude that the trend in the net might start reversing in the coming quarters.

The fourth quarter will tell the tale. For Sirius, the catalyst is the Stern Effect 2 along with internet subscriptions. The catalyst for XM will be the Oprah Effect. Perhaps we will also see an O&A Effect with all the exposure they have received in recent months. Another big advantage for XM is the family plan. If one takes the family subscriptions out of the retail numbers, the net retail additions for XM would have been negative for the quarter. With the recent solicitations, Sirius apparently now grasps the importance of the family plan subscriptions.

At this point in time, I would have to give XM the edge in brand name awareness going into the fourth quarter. Sirius, of course, this has their big weapon, which they have yet to fully exploit. It's not the same XM going into the fourth quarter. Sirius had better be prepared to bring out the big guns.

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satradfan said...

Talk about skewing numbers. Net additions 4 quarters in a row go to Sirius. Period. Net additions mean paying customers added to the previous number of paying customers. All the other stuff is just data. As far as subscription motivators how about this one? Nascar (75 million fans?) leaves XM December 31st and goes exclusively to Sirius January 1st.

Bert said...

The numbers are what they are. It would be true that net pays the bills;however, in Sirius' case, much of the net comes from how they count OEM subs. In XM's case, they lose about as many promotional subs as they gain in a quarter, so it is a wash, more or less. While Sirius is still ramping up the OEMs, the numbers are skewed by a year. And, of course, XM has a larger base due to where it is in its growth cycle and therefore has a greater churn of self-paying subs.

Logically, all things equal, a greater gross ultimately leads a greater net.

It's just my observations. Many people predict the demise of XM, due to Sirius' recent growth. Due to the way each counts subs, it is not easy to make comparisons. Gross is the only way that I am aware of to objectively compare the two. XM is holding its own. Not my spin; just the facts.

NASCAR WILL be a major factor for Sirius, but I don't expect it to be a major factor in 4Q06, because Sirius won't be able to use NASCAR until 2007. I think it will be more about the quality of the NASCAR programming than about listening to the races. We know that XM has positioned itself well by tying up major talent. We don't know about Sirius yet. Being there first is going to be an advantage for XM in keeping subscribers there. No doubt, some will switch to Sirius, but don't expect them to come over in droves.

Sirius has made great gains. They hired a major talent. It has paid off in subscription numbers. One could expect no less. The difference now, in terms of subs, IMHO, it the largeness of XM. Subs beget subs. Being there first will always be XM's biggest advantage.