Sirius CEO Karmazin Predicts No ‘Movement’ on Senate’s PERFORM Act
Sirius deems the PERFORM Act introduced in the Senate (S-2644) “not very consumer-friendly,” and though it would be “presumptuous” to predict the bill’s fate, “we would be very surprised if there was any movement” on it, CEO Mel Karmazin told analysts Tues. in a Q1 earnings call.
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“Clearly we are providing a great service” for the music industry, Karmazin said: “We are paying them a significant amount of money.” Sirius continues to enjoy “very strong” relations with major labels, “in spite of them trying to get more money from us. We are paying them on devices that have recording capabilities,” plus royalty fees “on the music we are using,” he said. “We negotiated what we thought was a very smart deal” for music content on the S-50 portable with MP3 download capability, Karmazin said: “They have a very difficult business model. They're looking to figure out any way they can to generate additional revenues. But we're as aggressive in Washington as they are.”
In the quarter, Sirius added 761,000-plus net subscribers, for just over 4 million total. XM added nearly 569,000 in Q1, the 2nd straight quarter Sirius outpaced its rival, Karmazin said. And, Pres.-Sales & Operations Jim Meyer said, almost 535,000 of net subscriber additions came from the retail aftermarket, where Sirius held a 64% share Q1. With the momentum, Sirius raised its forecast for new subscriptions by Dec. 31 to at least 6.2 million from one of 6 million-plus. But XM still has a 2.4-million-subscriber edge over Sirius, and with over 6.5 million for Q1, it has passed the target Sirius has set for year-end.
Sirius paid dearly for subs Q1. Subscriber acquisition costs (SACs) mushroomed 63% to $109.14 million vs. $67.09 million a year ago. But SAC per gross subscriber addition fell to $113 from $190. Even so, Sirius incurred a net loss 238% as large as a year earlier, though revenue grew 193% to $126.7 million. Karmazin said Sirius, in sound financial shape, has “no need for additional financing.” The firm is on track for “positive free cash flow as early as” Q4 and for 2007, he said.
Other disclosures: (1) Sirius will begin streaming Howard Stern on the Internet by Father’s Day at no additional subscription charge. Karmazin wouldn’t say how many new subscribers Sirius forecasts as a result. (2) Sirius had $7.3 million ad revenue Q1, more than in all of 2005, marking it as “the ad revenue leader in satellite radio,” Karmazin said. Responding to an analyst, he said targeting ad sales to reach 10% of total revenue remains a realistic goal, but Sirius has had trouble finding qualified ad salespeople. There’s “a bunch of openings,” Karmazin said.
(3) Sirius has “nothing to say” specifically about future subscription rate hikes, Karmazin said, but he confirmed they will come. Sirius will weather them because “historically” it has been the premium-priced service, he said. (4) Meyer would not discuss specific plans to build Sirius functionality into cellphones, but said chipsets in development “would give us many options” in that area. He suggested data hadn’t shown what satellite radio functionality cellphone users want.