I was unaware SIRIs SACs were that much higher. Why is that? I would expect the SAC to be pretty much a fixed cost, with per subscriber cost declining as more subscribers are added. Are they subsidizing equip to an extreme, which would be a variable cost?
SACs have variable and fixed components -- it is the VSACs you have to be concerned about.
XM's SACs, last Q, were at $57. SIRI's were something like $230. What's really bad, though, is that while XM's are still dropping (Roady2 SACs are supposedly in the under $40 range), SIRI's have been climbing. They ended last year at $222, which was an improvement over Q303's outrageous $500+. Then, in Q1 it was back to $248 followed by Q2 $222. But they've already said Q3 will be higher than Q2 as they clear out the older hardware. They've said full year SACs for '04 will be under $200, but I'd wager it will be more in the area of $220 or better.
The problem here is that XM is in the position of being able to really cut hardware prices for XMAS without getting hurt, while SIRI, if they cut to match them, will be hurt badly.
I think the outlook for SIRI is positive, as they are clearly starting to get some traction (finally); but they are going to have some damned ugly quarters to go through first. The Street is going to beat SIRI up about its increasing losses over the next several quarters just as they have XM. Meanwhile, XM's Q3 is going to look great (actually showing a profit, I suspect, since they have $140M in insurance proceeds that SHOULD be reported this quarter. Even without it, the loss is going to be far less than any in the past).
Yes, SIRI is still subsidizing equipment substantially. They are also spending "tens of millions" promoting the NFL contract, which is going to be expensed in Q3/Q4.
I could be wrong, but I think it is going to be bloody. |
