Sirius XM Battles for Subscribers

(page 2 of 2)

Sirius increased its full-year 2009 guidance for adjusted income from operations to more than $400 million, from $350 million, on account of cost-cutting. "They've exceeded our expectations on expenses," says David Bank, an analyst with RBC Capital Markets, who has a "sector perform" rating on Sirius shares.

While the iPhone app has been a hit with existing users of the service, some of whom have had to buy pricier plans to get it, it's brought in few new subscribers, Karmazin said. The app also lacks such key satellite radio content as shock jock Stern, whom many listeners crave.

Cash for Clunkers Hits Subscribers

The federal government's cash-for-clunkers program, which gives consumers who trade in old cars credit for new, more fuel-efficient ones, may also have a muted effect on satellite radio sales. Most trade-in buyers have opted for smaller, less expensive cars that don't come equipped with the radios, according to Efraim Levy, an automotive analyst with Standard & Poor's. Car sales in 2010 should increase 15%, to 11.6 million passenger vehicles. But new auto sales won't start delivering paying subscribers to Sirius until early next year at the soonest, since Sirius offers many car buyers six-month free trials.

What's more, as some Sirius subscribers trade in their cars, the company may actually lose paying customers, at least for a while. Take Rick Wamre. In July, the 51-year-old Dallas neighborhood magazine publisher used the clunkers program to trade in his 1995 Ford (F) Explorer for a new Volkswagen (VOWG.DE) Jetta. That means his old paid subscription turned into a free six-month trial.

Prices are going up, too. This summer, Sirius began tacking on a $2 monthly fee for most subscriptions that covers royalties to the recording industry for songs Sirius plays.

Another wild card: Stern's lucrative contract will run out in 2010. If Stern retires, as he's threatened to do, some of his faithful listeners could drop Sirius' service when he leaves. "I'd make sure that Howard is there," says Sean Ross, who writes a column for the online radio industry newsletter Radio-Info.com. "He is their calling card and the closest thing they've got to a killer app."

More Howard won't come cheap; Sirius paid Stern $500 million for his initial five-year contract, signed in 2004.

Then there's the threat from Internet radio services such as Pandora, which can stream music into wireless-enabled cars, such as certain Ford models.

"They have a lot more competition," says Ross. "I expect they will continue to grow, but it will be modest. They are in a rapidly changing world."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

Business Exchange

Track and share business topics across the Web.