Sirius-XM suffers: recession or confusion?

Chris Forrester

Sirius-XM lost 2% of its subscribers in Q1, leaving it with 18.6m paid-up subs. CEO Mel Karmazin blamed the lower figures on the recession and the state of the US auto-industry where depressed sales have led to slower take-up. Most new cars have satellite radio built in, and a ‘free’ subscription for the first year’s ownership.

Karmazin told analysts that: “Sirius- XM is a cash flow growth story. We posted our second consecutive quarter of positive adjusted EBITDA – and this will continue,” he said. Indeed, the pay-radio broadcaster has gone further and raised its projection for 2009 cash flow – now predicting at least $350 million, up from the previous projection of $300m. “We really like our subscription-driven revenue model,” Karmazin stated unequivocally.

This phrase was seen as something of a dig at fellow director Greg Maffei, representing John Malone’s Liberty Media, who had seemingly suggested that there could be a non-subscription future for Sirius-XM. Maffei’s theory is not without logic, after all, a 200 channel coast-to-coast advertising-supported radio system would give current broadcasters something to be worried about. But neither the FCC nor the NAB would stand for such a change in Sirius-XM’s operating license.

The broadcaster’s Q1 pro forma revenues rose 5% to $605.5 million. Now that Sirius and XM are now a single company the cash-flow improvements and operating expense savings are beginning to kick in. Operating costs for the merged company decreased 23% year-over-year.