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Getting Cash into Sirius XM's Coffers

by: Tyler Savery September 17, 2008 | about stocks: SIRI    

Tyler Savery

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With the financial sector on a roller coaster ride, concerns over credit debt and liquidity have impacted companies across the board regardless of sector. While the Federal Government has stepped in to bail out AIG (AIG), it could represent the latest of “lines in the sand” drawn to try to avert a crisis, that may or may not work. Concerns over Washington Mutual (WM), Wachovia (WB) and others still loom, so the roller coaster ride is not over quite yet.

Meanwhile, in the midst of all of this we have Sirius XM Radio (SIRI) that has $300 million in converts in February, and then additional debt coming later in 2009. In total, the company would like to finance about $1 billion in debt. In current markets that represents challenges for Sirius XM Radio. While they may have some offers, they are likely at rates that the company would rather not have.

So what viable solutions are available?

Currently Sirius XM Radio has about 19,000,000 subscribers. The company, at this point, should give consideration to any and all avenues to generate enough cash from that subscriber base to put themselves in a position to either better negotiate with lenders, or better yet pay down that debt.

BEST OF

As we are all aware, the “Best Of” programming will be available on October 5th. This programming offers the ability for current Sirius subscribers to access some additional programming from the XM service, and XM subscribers to receive Sirius programming. The charge for this premium service is $4.99 per month.

Let’s assume that 10% of the subscriber base thinks that “Best Of” is a great idea. Why not offer a pre-launch of “Best Of” right away at a discounted rate in exchange for a one year prepayment. The “Best Of” will cost subscribers $60 per year if they pay monthly. Pre-Launch it for $40 for one year, and start collecting the money. The offer will be good only until October 31st. With 1,900,000 subscribers (only 10% of the existing subscriber base) paying $40 each up front, it would instantly deliver $76,000,000 into the coffers of the company.

PREPAYMENT BONUS

Start a campaign titled something like “Add A Year For Your Ear”. Sirius XM Radio currently enjoys a subscriber pool where over 20% of the base is on a 1 year or higher plan. Let those loyal subscribers get a good deal, and bring cash into the company. One year of the base service costs $155. The company should take advantage of the fact that their subscribers like to prepay, and further that people want a good deal in these trying economic times. Let this group of subscribers add a year to their existing plan for $100. This loyal group of about 3,800,000 subscribers would infuse the company with an additional $380,000,000. In addition, some that currently do not prepay may be enticed to step up to the plate themselves. If getting a good deal encouraged 500,000 additional subscribers to prepay, that would add another $50,000,000 to the mix.

FAMILY PLAN

A second subscription runs $6.99 per month. Both Sirius and XM have marketed this for years, and recently the marketing efforts have been stepped up. Why not sweeten the deal during this special period. Add a year on a second subscription, and get it for $60 instead of the normal $84. If 500,000 new family plan subscriptions were added that normally would not have, the added revenue would be another $30,000,000.

Such programs are not free from dangers. Selling the subscription at a lower price devalues the product. You have to be careful with how you do this. It is for this reason that the program should run for a very limited time and for a very specific reason. Right now there is a natural reason in the announcement of the merged company programming finally being launched on October 5th. This program should also be limited to October 31st.

Another impact would be in the company financials. All prepayments are deferred revenue and count as a liability on the financial statements. The silver lining is that the company “pays off” that liability by delivering the very service that they already deliver anyway. As the service is delivered to the prepay customers, the deferred revenue column will decrease.

Because the company is getting revenue up front, it will also impact future cash flow. If the consumer has already paid, they will not be paying in future months. For this reason, the company needs to do this in a disciplined manner so as not to throw the financials and cash flows out of whack going forward.

The goal here is to increase the cash position to an extent where Sirius XM Radio is no longer at the mercy of the financial institutions, and can negotiate from a position of strength. For this program to succeed, it is important that it be mass marketed. That will mean costs, but the goal is to get at least another $300,000,000 or more into the coffers without additional debt.

It is currently a situation of taking a whack on the chin in the way of high interest rates on borrowed money OR creating a bit of unsettlement in the financial statements for a quarter or two. Personally I believe that the company has avenues to explore that buy not only time, but negotiating power as well. At this point, such a solution is more palatable than the debt overhang, and the perception that comes with it. Additionally, the marketing efforts will offer longer term benefits as the company goes into the all important fourth quarter.

While this is a napkin sketch overview, Cash Is King. Get some cash into the company, and gain leverage.

Position - Long SIRI

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This article has 25 comments:

  •  
    Sep 17 07:30 AM
    Tyler thats an excellent Idea- I'm already a multi car radio SUB-Siri n XM plus internet radio for house-also note after 4 years a large Stockholder so this is really important.. Maybe Find out how many SUBStockholders Siri have on hand --that is one area no one has mentioned yet -- I have 2 very expensive reasons for SiRi XM to suceed,, I can pay foreward anytime , We have a 2 year plan with siri and 1 year with XM , for what I pay siri is small change to what I pay my ATT combo bill(350-420 per month) . Look into the SUB STOCKHOLDERS -- you might be surprised.. Thai Siri XM Lover
    Reply
  •  
    Sep 17 07:40 AM
    Those are all great ideas, will siri/xm take any of them and run with it, is entirely different, you would think they'd know this allready. In my opinion they have so many untapped avenues to go down, but I don't see anything happening. So much content going to waste. Would it be possible for existing shareholders to buy the co. outright? If enough shareholders/subs got together, say a few million, it would not take much money from each to just buy the whole co., I'm not sure how this would happen or if it even could, but I'd rather invest more in the co. than let someone else have it for peanuts, and lose what I've got invested in it now, just a thought.
    Reply
  •  
    Sep 17 08:41 AM
    I have three Sirius radios, I like the idea.
    Reply
  •  
    Sep 17 08:56 AM
    I still like the idea of Subscribers Shareholders each donating $15.00 $20,00 to the company
    I know I would do it to protect my investment.
    For the donation we would get a guarantee of no reverse splits and the company NOT going private.
    I don't think it would be viewed as a desperate move by Mel but only show the love of the product by Subscribers and Shareholders. I think we should write Sirius XM with this idea and have an article submitted.
    I would think that it would get a SIRIUS amount of press.
    I saw this idea in a forum post and truthfully thought it to be a great idea.
    Reply
  •  
    Sep 17 08:56 AM
    Good ideas, and Im sure Sirius is doing everything to improve cash on hand, as I have stated before, most of Sirius's yearly reported losses have already occured.
    Reply
  •  
    Sep 17 09:01 AM
    Count me in for $1000!


    On Sep 17 08:56 AM WJDJFD wrote:

    > I still like the idea of Subscribers Shareholders each donating $15.00
    > $20,00 to the company
    > I know I would do it to protect my investment.
    > For the donation we would get a guarantee of no reverse splits and
    > the company NOT going private.
    > I don't think it would be viewed as a desperate move by Mel but only
    > show the love of the product by Subscribers and Shareholders. I think
    > we should write Sirius XM with this idea and have an article submitted.
    >
    > I would think that it would get a SIRIUS amount of press.
    > I saw this idea in a forum post and truthfully thought it to be a
    > great idea.
    Reply
  •  
    Sep 17 09:16 AM
    I also think that this would back Mel into a corner of his true intensions of the companies future plans. It's our company and when it pops we should all be there for the ride.
    In fact I would be willing to donate each time the o9 payments are due.
    What would it cost me a tank of gas LOL
    Reply
  •  
    Sep 17 10:28 AM
    Tyler, I think you have done it. Your ideas are just what this stock and company needs. If the problem with the stock rising is the debt due in February, let pay it off or down in December. I would be willing to subscribe in the Best Of, and not only pre-pay for it but my annual subscription as well. Let us spread this concept to other subscribers, investors and to Mel.
    Reply
  •  
    Sep 17 10:28 AM
    I would go for every prepay deal Tyler mentions. I am in it for good. Might as well pay and forget it.
    Reply
  •  
    Sep 17 10:35 AM
    Didn't Cramer state something about he couldn't understand the love for the company by it's investers or something like that.
    We have an opportunity to say FU to GS
    We have the chance to send a message to the market
    We have the chance to show that we are NOT the unsophisticated shareholders.
    Someone on the forum stated that Sirius XM should send out a memo suggesting this idea. I say don't waste the money.
    We have close to 300 hundred stations to get this idea out.
    Hmmmmmm Unsophisticated Investers Revolution LOL
    I can hear Howard on his station now Promoting The Revolution.
    Not to be viewed by the market as desperate act by the company but clearly stating the fact that the shareholders alone decided that enough is enough.
    Reply
  •  
    Sep 17 10:45 AM
    Why not charge all subscriber an infrastructure upgrade or programming enhancement fee of $6. The $6 dollars could be spread out over three payment of $2. This would be roughly $115 million. The cable companies do it all the time.
    Reply
  •  
    Sep 17 10:58 AM
    Send all these ideas to Sirius
    Reply
  •  
    Sep 17 11:03 AM
    All great ideas. Why not a "rights" offering of something like a convertible, subordinated preferred issue to existing shareholders and/or subscribers. We know the company, and I believe that many of us would volunteer to make such an investment and protect our interests.
    Reply
  •  
    Sep 17 11:05 AM
    excellent article!

    the revenue generation programs you proposed along with the previously annunciated synergies plus the cost savings/reduction in previous proposals by shareholders - all together will provide siri with the funds to meet its immediate debt problem..

    i hope management is paying attention.
    Reply
  •  
    Sep 17 11:38 AM
    while we are talking about creative ways for siri to get cash instead of borrowing how about out of the box stuff. Like getting siri products their own spot in these tech dept stores more away from the aftermarket car stereo section where some stupid kid is invariably checking out how loud the subwoofers can go. Appealing to the more broad audience, pay the store to have them put their siri stuff over by the apple crap. I don't know a female who owns a siri radio. Maybe thats just me. If all else fails how about some commercials, I know thats a slippery slope, but, at least there's money in it long siri
    Reply
  •  
    Sep 17 11:49 AM
    Has anyone seen a comercial since the merger ?
    They were stating that Sirius had 19 mil subscribers before the merge lol
    Now nothing that I have seen.
    I thought once Mel anounced the Oct 6th date that we would have seen some commercials.
    Reply
  •  
    Sep 17 12:27 PM
    Let's get back to the basics and look at what the "Best of" packages have to offer. XM subscribers are making out like bandits in having the ability to get the NFL and Howard Stern (both are Sirius's two "big fetches"). Sirius subscribers are getting knocked back big time. XM's "big fetch" in Major League Baseball is not even included on the Best of!! Instead, they get Oprah and The Virus (Stern > Virus).

    Anyone know what is up with this??? It's a simple fundamental and a lot of money being lost by Sirius in not having MLB on the Best of XM list for Sirius subscribers.
    Reply
  •  
    Sep 17 12:34 PM
    Watching the price of SIRI stock fall gives me the sinking feeling that management may again end up going to the vulture/predator financial community for funding instead of allowing its own shareholder/subscriber... to participate in any of the many ways described above. I am afraid that such vulture/predators will demand paper with a high percentage return that is also convertible into stock at a ridiculously low and dilutive price. Management could then vote themselves huge bonuses as a reward for saving the company. Considering these dilutive effects and the underlying value of the unique assets owned by SIRI, I think that management has an almost fiduciary obligation to first seek financial assistance from its own large community of shareholder/subscriber... before taking any such action.
    Reply
  •  
    Sep 17 12:52 PM
    I am starting to wonder how serious, sirious is about success. The ideas you gave in the artical are great and as a business owner I have used them in the past. Go to your client base to help before going to any bank. The fact that they have not makes me wounder, how much will Mel walk away with if sirious goes belly up?
    Reply
  •  
    Sep 17 01:21 PM
    Well if we did offer these idea's to SiriusXm and made it public and he instead took a bad deal with a bank or the company went belly up stating that he had no other choices. I think we would have a pretty good chance of a successful lawsuit. lol
    Reply
  •  
    Sep 17 06:08 PM
    I own 30000 sh and for me to pay a one time fee of 10 or 20 dollars makes all the sense in the world. I am all for it. Even if you only own 1000 shares, what is 1o bucks to protect your 900 investment? This is really a no brainer.
    AND, I would absolutely pay in advance for service. I know I will be a user for years to come and if SIRI can use my $$ now, I would be HONORED to pay them now. If everybody felt this way, we could say FU to everybody and have a great service along with a great investment.

    LETS DO IT!!!! The publicity would be unbelievable!!!!!
    Reply
  •  
    Sep 17 11:14 PM
    Bring back the LIFETIME!!!!!

    I am lifetime Sirius Everything.... bring it back, I'll buy another radio ASAP!
    Reply
  •  
    Sep 17 11:35 PM
    If we look at history, we see many times were one individual made the difference.

    I hope I can help that along.

    I am asking ever investor and/or listener to make a sacrifice, if you believe in this company and love the service as I do!


    What if Sirius offered a lifetime sub? Or a discounted 5 year sub. To get access to cash from its listeners?

    Let’s say 9 million subs buy a 5 year at 450.00 = 4.05 billion dollars!
    Let’s say 4 million subs buy a 5 year at 450.00 = 1.80 billion dollars!

    This could help them with the cash problem they are having.


    I would buy one, maybe two!
    That is a 340.00 discount!

    Short term fix for a long term problem!


    Maybe the investors and listeners should take things into their own hands and renew or bump up their sub!

    Buy one as a gift for someone this Christmas and f*ck over the hedge funds and Goldman sucks!

    This is the chance the little guy can stick it to the big guy i.e. David and Goliath

    I plan on extending my current sub., to two years and purchasing another.

    I am a long term investor and I see good things for Sirius.

    They just need to get past this bad time in the market.

    What do you guys say?

    Can we do this; consider it a loan to Sirius for a stock payback in the end!
    Reply
  •  
    Sep 18 09:22 AM
    I think the idea of donations may have an adverse effect with the public of a company with it's tin cup full of pencils out for charity. I like Tyler's other ideas about packages, though. I think the ad blitz will start when the plans and new radios are actually available.
    Reply
  •  
    Sep 18 01:48 PM
    great ideas=send it to this dead head no brain"analyst&quo... that started the tumble below a buck.......... April showers bring May flowers


    NEW YORK, Sept 9 (Reuters) - Sirius XM Radio (SIRI) forecast revenue and subscriber growth for 2009 that were short of some analysts' expectations, driving its shares down more than 11 percent to an historical low on Tuesday.

    In the first forecast since its satellite radio merger closed in July, Sirius XM said it expected to have 19.5 million subscribers by the end of 2008, and about 21.5 million subscribers by the end of 2009.

    The forecast fell short of several analysts' views, including that of Janco Partners analyst April Horace, who had expected about 23 million subscribers in 2009, up from the 18.5 million when the merger was completed. Some analysts had seen subscribers as high as 24 million.

    Reply
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