The Homa Files

After more than a year of government review (largely instigated by a powerful “over the air” radio lobby led by the National Association of Broadcasters), it looks like the merger between XM Satellite Radio and Sirius Satellite Radio — is finally going to happen.

in March, the Justice Department approved the merger.  Last month (June), FCC Chairman Kevin Martin gave his ok, saying:  “I am recommending that with the voluntary commitments they’ve offered, on balance, this transaction would be in the public interest. They have voluntarily committed to setting forth price constraints, so the prices for consumers do not increase; smaller packages at lower prices; an open standard for radios; the sale of interoperable radios; and additional public interest programming for noncommercial use and for qualified entities who have not been traditionally represented.”

Two of the five FCC members commission quickly followed Martin’s lead and  announced that they would cast votes to approve the deal.

Now, their are reports that at least one of two other members of the FCC (John Adelstein, Deborah Taylor Tate), is ready give the merger the majority vote it needs provided that XM-Sirius up the ante by freezing prices for six years, by making 25% of their satellite capacity available for public-interest and minority programming, and by paying a $2o million fine for some minor technical violations of FCC transmission rules.

For more details:
http://online.wsj.com/article/SB121683130281477651.html

Performance Update

The companies broke even financially, and ended the 1st quarter of 2008 with a total of almost 18 million subscribers — 9.33 for XM, 8.64 for Sirius. (Reminder: The original “Bass Model” research studies projected the market would be at least 25 million).

XM’s subscriber acquisition costs (SAC), a component of cost per gross addition (CPGA), were $73.  CPGA in was $99 for XM, $91 for Sirius

XM converted  53.3 percent of OEM installations (i.e. radios already installed in new cars)to subscriptions. XM’s monthly churn rate was 1.77 percent.

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TEST QUESTION: Given a monthly subscription price of $12.99,  what’s the customer life time value (CLTV) of an average satellite radio subscriber? Answer below

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Observations

1. The prolonged merger approval process — which took longer than the approval of the Exxon-Mobil merger — certainly validates the political clout of the “over the air” media companies.  To a reasonably objective person (me), this one was a no-brainer.

2. Finally, I’ll be able to get the NFL and MLB on the same service.

3. I still think that converting about half of the OEM units pre-installed in new cars is cause for concern, not celebration.  Any marketer worth his / her salt wouldn’t sleep well at night until the conversion ration was at least over 75%. 

4. My Lexus RX-350 didn’t come with either XM or Sirius pre-installed.  The dealer treated the installation as a minor annoyance, and said less than half of their customers opt for satellite radio..

5. Big question: too late to matter? My sense: the buzz is gone and momentum  is gone.  Your views?

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Next up: Back to taxes …

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Answer to CLTV Question:
Assuming nil marginal operating costs per customer (though there would be some), and a 5% annual discount rate ( .4% monthly):
CLTV = [MS$ / (C% + DR%)] – CGAC
MS$ = monthly subscription = $12.99
C% = churn rate =  .0177
C% + DR% = .0177 + .004 = .0217
[MS$ / (C% + DR%)]  = $12.99 / .0217 = $598.61
$598.61 – CGAC = $598.61 – $95 (avg for XM & SIRI) +
$503.61

This entry was posted on July 25, 2008 at 6:30 am and is filed under Government & Politics, Happenings, Media, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.