Sirius XM Radio Earnings Call Nuggets: Subscriber Outlook and Churn
Subscriber Outlook and Churn
Barton Crockett – Lazard Capital Markets asked: I wanted to drill over little bit into the subscriber outlook. We’re seeing 1.3 million net additions versus 1.7 million.
I was wondering if it’s possible for you to parse in a little bit more detail what drives the production in net additions? Is it really just a higher churn assumption or churn rate assumption? Is there something else going in there?,
Here’s question No. 2 related to the churn. When you say you expect 2.1 percent in 2012, is that based on seeing a 2.1 percent churn from people that have been hit with price hike in January or is that just your best guess on what’s really no the data that can give you a churn rate yet?
Mel Karmazin – CEO responded: First of all, I’m saying that we are being conservative. There is no information that we have about our business.
Our most recent quarter–the fourth quarter–showed the best fourth quarter in our history since the merger as far as net adds are concerned. There’s nothing that we are seeing impacting us.
We are not seeing any new competition that’s impacting us; we are not seeing any dissatisfaction of our service what we are doing is we are putting in a price increase.
We made that decision to do and we really don’t know exactly what the impact is going to be on subscribers, mainly because we have very limited experience at the company in putting in a price increase. We compete with free.
In an ideal world, we would have lower cost per service, but that doesn’t generate us as much revenue, EBITDA and free cash flow as we’re looking for. We are starting out conservative; we are not seeing anything impacting our January churn that is alarming to us at all.
I think it’s prudent to be conservative and that’s the basis of the 1.3.
David J. Frear – EVP and CFO responded: Barton, we are just a month into it now and when you think about the fact that 80 percent of our self-pay subscriber base is on a credit card or debit card, you’ve got to wait for them to – even though we notified everybody of the price increase.
You got to kind of wait for them to see it come through on their bills and see how they react.
Four weeks into the year, it shifted very early. This is our best estimate of what we think it will look like for the year.
In terms of drilling into the sub outlook a little bit, one of the things that you have to bear in mind on net additions is that the inventory of paid trial subscriptions at the end of the year affects the change in that from year-to-year affects what the total net additions are going to look like.
So, in 2011, with supply disruptions in Asia, we had the shift in mix towards U.S. and European manufacturers who tend to be paid trial partners. I think the industry view is that there will be a shift in mix back towards Asian manufacturers in the course of 2012, which will be a shift back towards unpaid trial partners.
Part of what you’re seeing in the sub outlook is just a shifting mix in paid versus unpaid trial subscription as well as the fact that we’re instituting a price increase.
If you look at last year, it’s been a year without the price increase and this year being a year with the price increase. You think you’ll have more or less sort of overall demand from the service with the higher price and lower price. You’re probably going to say that the price increase on auto would suppress demand a little bit. We’re reflecting that in our numbers.
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