Sirius XM Prepares for IP/Satellite Radio Service for Internet-Connected Vehicles

Sirius XM executives didn’t provide much detail on how its satellite service could be combined with IP, but the dual offering will likely be part of expanding the Sirius 2.0 platform that’s being built into Chrysler vehicles and will appear in models from three other automotive manufacturers in 2013, company officials said. Sirius had hoped to have the first of the Sirius 2.0-equipped vehicles available by mid-2012 (CED Dec 6 p3).

The 2.0 platform debuted in standalone Sirius XM receivers late last year and has since added channels including an on-demand service (CED Aug 8 p3). A personalized radio project that will launch by year-end will be offered to Internet subscribers to tailor music channels to their tastes, company officials said. The 2.0 platform also is part of Sirius XM’s efforts to attract more subscribers to its premium channels as well as an all-access package that provides the service for a smartphone in addition to satellite receivers. “There is a demand for more connectivity with their cars; there is a two-way relationship that can be built,” CEO Mel Karmazin said.

As evidence of the growing two-way service, Sirius XM forged an agreement with Nissan to supply telematics with a goal of eventually building them into the same chip module that powers satellite receivers, company officials said. Combining IP with satellite is “something we are spending a lot of time and focus on,” said James Meyer, president of operations and sales. While Ford Sync and other services have sought to supply Internet access to vehicles, “we haven’t seen a business model that has worked that well yet,” Karmazin said. And while Ford Sync has had some IP content available, including music, it hasn’t had a “negative impact” on Sirius XM, he said.

Sirius XM’s Q3 gross subscriber acquisition cost (SAC) shrank to $51 from $55 a year earlier, due partly to lower pricing for the chip modules that power satellite receivers. While Sirius XM supplies four to five chipset modules to automakers, it will narrow the assortment longer term and gross SAC will “trend down as we roll out” new designs, Karmazin said. Sirius’s gross SAC also will benefit as used cars become a larger part of its service revenue. Sirius XM is selling the satellite service through 7,000 used car dealers, up from about 2,800 a year earlier.

Sirius XM’s Q3 net income declined to $74.5 million from $104.1 million a year earlier despite revenue rising 13.6 percent to $865 million. Sirius XM added 446,000 net subscribers in Q3, up from 112,000 a year ago. Sirius attracted 371,000 net self-pay subscribers in Q3, up from 7,000 a year earlier, while paid promotional additions were 75,000, down from 106,000. It ended the quarter with 23.4 million subscribers. It gained 1.5 million net subscribers through the first nine months of the year and will “meet or exceed” a 1.8 million forecast by year-end, Karmazin said. Average revenue per subscriber rose 4.1 percent to $12.14 and quarterly monthly churn was 1.95 percent, despite a 1.82 percent churn in September, company officials said. The ARPU was 8 cents higher than Evercore’s forecast, analyst Bryan Kraft said. Sirius ended the quarter with 6.2 million trial subscriptions, up from 5.5 million a year ago.

A decision on Sirius XM’s suit against SoundExchange over royalty rates is expected by Dec. 14, said David Frear, chief financial officer. Final arguments were in October. Sirius XM filed an antitrust suit against SoundExchange earlier this year in U.S. District Court, New York, over royalty rates paid to music labels for performance rights.

Sirius XM’s launch of the Space Systems Loral-built Sirius FM-6 satellite is expected by May, having been delayed by more than a year. FM-6 is a geostationary replacement in a three-satellite constellation at 63.4 degrees west, but isn’t likely to go into service until 2015, company officials have said.