Both Sirius (SIRI) and XM Satellite Radio (XMSR) reported earnings today and one common theme emerged: people just aren’t buying these things at retail and both companies are relying more and more on their deals with the automakers.
Both blamed the economy, but Sirius CEO Mel Karmazin had another culprit: the FCC. Karmazin believes confusion in the marketplace is affecting sales. While analysts are aware that both types of radios will work post-merger, consumers don’t because SIRI and XM haven’t marketed the merger yet to consumers.
As far as timing, Karmazin didn’t make a guess, unlike XM Satellite CEO Nate Davis who predicted this morning that FCC approval would happen in Q2. Karmazin did say, however, is that the only thing that would stop a merger, in his mind, is if the FCC blocks the deal or imposes conditions so extensive that the merger no longer makes sense for shareholders.
Conference call notes:
Karmazin: Sirius added 2 milion subs from last year’s quarter, an achievement, he says, given the state of the economy. Ford is increasing Sirius radio installs from 40% of models to 70% next year. Karmazin says Sirius has been stomping XM in number of new subscribers for the past 10 quarters. (note: they also pay a lot more per new subscriber than XM).
Karmazin says they’re going to advertise to try to claim consumers’ government stimulus checks this spring.
CFO: Overall satellite radio market is soft. We see some evidence that long merger approval is impacting consumer purchases. Says sales were impacted by reduced sales at Sirius OEM partner Chrysler.
Back to Mel Karmazin: This is our fifth quarterly conference call since we announced the merger. On March 24 the DOJ announced they concluded their investigation of our merger. The DOJ spent 6 months, had 30 lawyers and economists reviewing the merger. Several dozens subpoenas were issued and responded to. A dozen depositions were taken. Karmazin said even BLOGGERS were interviewed! Now we move to the FCC where we need to demonstrate that the merger is in the public interest. We believe it is in the public interest to offer more choice and lower prices (that, and who knows if two satellite radio operators will be in business if this thing doesn’t go through).
We share the reasonable frustration of our investors. We are also outraged at press reports generated by opportunistic opponents looking to extract value that rightfully belongs to SIRI and XMSR shareholders. When it happens (the merger) there will be big efficiencies and we will be able to capture them immediately. This merger is so beneficial that it is worth waiting for. I am optimistic we are getting close to the finish line and we will be able to close the deal.
Mel takes questions:
You talked about confusion in the market over the merger–do you have any research that the OEM (auto installs) side has been affected by confusion over the merger?
Karmazin: The answer is no. This seems to be clearly a retail issue. David (Frear) in his remarks said our conversion rate is the same or slightly improved. I don’t think we have given conversion by line of vehicle. It’s something we monitor. In general, the more expensive the car, the higher the conversion rate.
5:04 p.m.: Can you comment on the progression in subscriber base?
Frear: We have normal seasonality to churn. Our churn rate has to be higher in q1 due to othe renewals that pile up after Christmas. They tend to impact the first quarter, but it tails off as you work through the year.
Karmazin: We don’t have April numbers yet, but the churn numbers are trending down.
Of the people who churn out–are they adopting other services? Jumping to XM?
Karmazin: We get our subs from people who have never subscribed to satellite radio. As we told the DOJ, when we lose a customer they tend to go back to terrestrial radio.
5:10 p.m.: How many people do you believe will subscriber on an a la carte basis to just certain channels if the merger is approved?
Karmazin: We believe there might be some people who find a-la-carte attractive. There are also some people who find some of our packages for $9.99 attractive. Those may be useful as far as retention. Most exciting we believe the package we can offer post-merger, the Best Of Sirius–which XM Radio subscribers would also get.
How many activations through your used car program?
Karmazin: Not much this year but used car activations expected to increase in 2009.
Is there any point in time when you throw in the towel and just go forward on a standalone basis?
Karmazin: What we have said is the efficiencies created by this merger are very substantial and of great benefit to the consumer. We are going to continue–we believe in the merger even more than we announced it, even with the debt market going the other way.
If it turns out that the conditions are so eggregious that they are not in shareholders’ interests, then we just won’t do it. But we look forward to working with the FCC to get this deal done.
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