By Rick Aristotle Munarriz (TMFBreakerRick)
June 23, 2006
So let me get this straight. Higher gas prices are weighing down the adoption process of satellite radio? Earlier this week, Bank of America analyst Jonathan Jacoby lowered his price targets on Sirius (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR) to $4.50 and $22, respectively — and it’s partly based on $3 gasoline?
To be fair, Jacoby was spot-on in citing other reasons for the sector’s slowdown, including reduced marketing expenditures, delays in innovative products, and the gradual fade after Howard Stern’s initial media blitz nearly six months ago. There’s also the inescapable truth that all hot growth trajectories eventually have to stabilize.
But higher gas prices hurting XM and Sirius? If anything, one could argue that they’re actually helping the satellite-radio upstarts.
Pump up the volume
Sure, it hurts to see more disposable income funneled into costlier fill-ups. I can see where some thrifty souls could shave $13 a month from their budgets by simply forgoing satellite-radio subscriptions.
Beyond that, just about every scenario involving higher gas prices seems to play right into the hands of XM and Sirius.
- Pain at the pump finds consumers trading in their larger cars for smaller hybrids. Great. Folks are bringing in cars that they have owned for three, five, or seven years — before factory-installed receivers were the norm — and snapping up fuel-efficient rides that often come equipped with either XM or Sirius. Last month, I traded in my old automobile for an XM-stocked car; I’ve been so smitten by XM that I haven’t even bothered to program my FM presets.
- Consumers who aren’t buying fuel-friendly cars are curbing their driving habits. This has some observers believing that satellite-radio subscriptions provide a lesser value. Hogwash! If more commuters join carpools, one cool commute enhanced with satellite radio could entice an entire carload of passengers.
- Even if people keep their own cars parked in favor of public transportation, it will only enhance the value of the new wave of portable satellite radio receivers, which often double as digital music players. And when they’re not in traffic, subscribers can still listen to streams of XM and Sirius over the Internet at no extra cost.
- New-subscriber revenues from car dealers pale in comparison to those coming from retail channels like Best Buy (NYSE: BBY). Analysts might assume that the retail space is a more brutal battlefield. After all, instead of the cozy duopoly they enjoy among automakers, the satellite-radio firms must share store shelves with Apple (Nasdaq: AAPL) iPods and countless other MP3 players. But XM and Sirius struck their deals with automakers at a more desperate point in their histories, conceding too much; their OEM and direct sales are actually more lucrative than factory car installations.
Taking the long way home with slow growth
Weakness in year-over-year subscriber growth wasn’t evident at Sirius last January, when it was feasting on Stern fans’ migration from terrestrial radio. Instead, it showed up at XM, where the largest provider managed to sign up just 5% more net new subscribers in the March quarter than the 541,140 new sets of ears it had bagged in last year’s first quarter.
A 102% spike in quarterly revenue helped obfuscate the lull at XM. It stemmed from a 30% monthly service price hike the company initiated last spring, and a healthy holiday spurt that found XM claiming 72% more total subscribers at the end of the period. Yes, for every little number you may see at XM or Sirius, you’ll see some pretty big numbers, too.
This isn’t just about raw subscribers, although XM and Sirius should still collectively wrap up 2006 with at least five million more total subscribers than they began the year with. Sector salvation is more about embracing what that larger audience means.
Because of the substantial fixed overhead in running a satellite radio service, and the steep costs related to acquiring new customers, XM and Sirius’s income statements look awfully bloodshot at present. The low variable expenses will turn that around in a hurry once the companies get over the breakeven bar. Investors can’t see that far, even if we’re just quarters away from the fiscal Visine. They prefer to carp about satellite radio’s high acquisition costs while condemning its slowdown in new subscriptions. Think about that.
Despite the market’s skepticism, I don’t believe that the medium is merely a cattle call for listeners. I’m more enamored with satellite radio’s prospects to maximize its earnings potential as its technology improves. The new portable receivers let listeners hook up with Napster (Nasdaq: NAPS) to buy digital downloads or interact directly with sponsors. Even online streams can be monetized. It may not happen overnight, but the market will come around. Satellite radio enjoys a captive audience with the juiciest demographics, and XM and Sirius haven’t even begun to think of ways to make money from them.
Maybe that’s why Sirius CEO Mel Karmazin plunked down $4.5 million to buy another million shares of his company’s stock last month. Maybe that’s why Jacoby, despite cooling on XM, still has a price target that represents a 70% premium to its current share price.
I arrived brutally early in this corner of the market. I recommended shares of XM to Motley Fool Rule Breakers newsletter subscribers last year, and the stock has since been battered — and deep fried. I’m humbled and a bit envious that investors today can pick up shares in a quality company in the teens — and Sirius for less than a fiver — after singing XM’s praises last year in the high $20s.
Was I wrong then? Ask me again in a few years. Tomorrow is a long way away, I know. Hit me up for a little gas money if you need help getting there.
You can join Rick and the rest of the Motley Fool Rule Breakers team as they seek to uncover promising growth stocks. A free 30-day guest pass will grant you access to the many interactive features of the service, along with this week’s new monthly issue.
Longtime Fool contributor Rick Munarriz loves satellite radio so much that he subscribes to both XM and Sirius. He doesn’t own shares in any of the companies mentioned in this story, though. Best Buy is a Motley Fool Stock Advisor pick, while Bank of America is a Motley Fool Income Investor pick. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow’s ultimate growth stocks a day early.
The comeback is nearly complete for Opie and Anthony.
It was just four years ago when the raucous radio duo became shocked jocks, yanked off the air for their infamous “sex in St. Patrick’s Cathedral” stunt. The pair are back now as satellite radio stars and terrestrial radio saviors - doing shows in both formats, and luring back listeners lost by David Lee Roth.
“Oddly enough, our goal a few years ago was just to get work,” said Anthony Cumia, one-half of the once-reviled team. “We wanted to get a job.”
Now they have two. From 6 a.m. to 9 a.m., they host a syndicated terrestrial radio program for CBS. And then, for the next two hours, Opie and Anthony bring the act to their home of the last 20 months, XM Satellite Radio.
The move made them the first broadcasters to make the shift from satellite back to terrestrial radio. And it allowed them to take over some of the stations where their nemesis, Howard Stern, ruled the ratings before his jump to Sirius Satellite Radio.
“It’s the best of both worlds,” said Greg “Opie” Hughes. “We wanted to do this 18 months ago, when we heard Howard was leaving, but unfortunately CBS was still a little too scared of us. They had to fail miserably to see things our way.”
The high-profile failure was Roth, and the former Van Halen frontman disappeared less than four months after stepping in for Stern. In their first full month back on terrestrial, Opie and Anthony repaired much of the ratings damage left by David Lee.
In New York, Philadelphia and Boston, according to Arbitron, the number of listeners aged 18 to 34 basically tripled in all three markets during an average 15-minute stretch of show - although they’re not at the Stern level yet.
The pair was dumped by CBS Radio after an August 2002 stunt where they aired a live account of listeners having sex in St. Patrick’s Cathedral. When they finally returned in October 2004, Opie and Anthony bolted for the unexpurgated environs of satellite radio.
But Cumia said the pair never doubted they could make their show work under the watchful eye of the Federal Communications Commission.
“On the XM show, the content we were putting across wasn’t really outside FCC boundaries,” he said. “The subject matter itself, if the stories were told the right way, was fine for FM radio.”
The duo initially returned on seven stations at the end of April; on Monday, WJFK-FM in Washington will become the 11th station to carry the syndicated program. More stations are expected to join soon.
“I’m not at all surprised about O&A’s rapid recovery of their audience - they’re talented pros and they have very strong name recognition,” said Tom Taylor, editor of the trade publication Inside Radio.
Opie offers another explanation for their sudden success: “It just shows there’s nothing to listen to. How starved were these people?”
Either way, the success provides vindication for the pair.
“We’re happy to be in this position, it’s the best of our careers,” said Cumia. “A couple of years back, I never thought I’d be saying that. Our goal is to make what we call the greatest comeback in radio history.”
Source: Forbes
JVC is getting hip to the digital media age as it brings streaming audio to 5 new products
In a recent press release JVC announced the company will hop on the digital media bandwagon by offering a line of audio and video set top hardware which will support connectivity to PCs to stream music to the home theater.
JVC will be launching five models of audio/video receivers that feature 7.1-channel surround sound and will also have USB audio inputs built in to them. We are assuming this will be a single-directional USB port. Two of these models will have wireless USB connections built in which are said to operate at around or up to 100 feet away from a wireless access point.
Additionally, HDMI will also be built in to two of these models, the RX-D702B and the RX-D411S/412B (silver/black). These models will have 2 HDMI inputs and 1 HDMI output to a compatible HDTV. Two other models will not feature the HDMI inputs/outputs, but they will have component output with the ability to up-convert composite and S-Video sources.
To add to the digital connectivity JVC has included compatibility with XM Satellite Radio equipment. JVC’s press release claims:
The new JVC RX-D411S/412B and RX-D211S/212B receivers are XM Satellite Radio-ready and so have the ability to access XM Satellite Radio through XM Connect and Play, an optional tuner that connects through a single cable – no power cord or audio cables are required. All XM Satellite Radio functions are operated through the receiver’s remote and information is shown on the receiver’s display.
The included remote also has a few buttons to control Sirius Satellite Radio tuners offered by JVC as an added bonus to give consumers the option between the two satellite radio providers.
The entire line will also feature JVC’s Hybrid Feedback digital amplifier which has a small package but is said to pack quite a punch to assure the output of sound with little to no loss of quality. This technology helps shrink down the size of the receiver to a lower profile.
Further details on the 5 new models along with pricing for each is included in the press release but make sure you do a quick search online for lower prices before hitting your local brick and mortar electronics retailer.