Jim Meyer, Sirius XM CEO, At Morgan Stanley TMT Conference

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  • Important stat is penetration rate in new cars; this is now in the 70-75% range.
  • this builds a double acquisition chance: new and then used
  • have invested heavily to monetize used car channel
  • the conversion rate on used cars is not as high as on new. it is not just about income levels.
  • the used market may be a little more sensitive to price.
  • it is critical to get the trial started early – this matters.
  • they try various offers to see what will move the needle. they also test their cadence. this has become more sophisticated.
  • 1/3 of used cars are sold by new dealers; 1/3 by independents; 1/3 are private transactions. they are nailing it in the first group.
  • they are now moving into the channel where you go to get your vehicle serviced. they also continue to work with insurance and finance companies. this is harder given privacy issues.

Sirius XM
  • the car industry changes slowly. they are coming out with the 360L product. Meyer does not care how people get the product, i.e. via sat, IP, etc. they are not wedded to satellites.
  • it is not just compelling content. it must also be easy to use. 360L is a very easy to use interface. you should not care how you’re getting the signal. 360L is two-way which allows Sirius to enhance the offering. also, it will make it easy for customers to renew and get information.
  • there are 40 vehicles on the road running tests. they have learned a lot and they are excited about its prospects.
  • 360L should make content discovery easier.
  • they are deep in discussions with all OEMs on the rollout of 360L. The first car should be on the road Q1, 2018.
  • they should have been more aggressive in their IP offering. they now have hundreds of people working on it. They have a highly rated app that works well. they fixed a lot of stuff and it can now roll out on any device. This should expand. It is all about getting the service more easily outside the vehicle.
  • in-home engagement drives down churn.
  • they do not need an acquisition to do IP. Radio is a $25 billion business. Sirius comprises 25%. A lot of the balance is free radio. Should Sirius pursue that space? They are looking at it but have not found anything. Some of the business models look weak.
  • They are guiding 1.3 million net ads this year. They beat guidance last year because of churn performance. this may be the best indicator of customer satisfaction.
  • the year started well. the economy is good. they watch home starts because it correlates to the truck market. they are looking for 17 million new cars. this would be great.
  • they think churn rates should be steady but it is early in the year.
  • churn performance last year was better a result of a lot of blocking and tackling. the marketing organization is expanded. the elasticity of product was strong last year as they worked through a price increase. They worry when they raise prices. they do not assume they can keep raising prices but were pleased to rate hike in 2016.
  • they are in 100% of luxury cars. car companies do not want Sirius in all standard models. Penetration in this segment will probably not change much.
  • they are spending more time on packaging. they are not in the ARPU business; they are in the cash flow business. they are testing a lot of things to improve this. they do not see ARPU going down. number one reason for churn is customers who do not want to pay.
  • there will probably need tailored offerings to reach lower income households. this needs to be done without cannibalization.
  • car business changes slowly. they just signed off on the 2022 year model for connected vehicles. After 2020 most vehicle makers will have an embedded modem to own the relationship with the customer and get more data to do that.
  • 360L should future proof their product to be competitive with new connectivity offerings.
  • They are looking hard at opportunities in the connected vehicle space.
  • There will be more Agero rollouts in 2017.
  • Satisfaction levels with Sirius content are strong. People pay for great content. They must evolve as the population ages. Biggest opportunity in next 3-5 years is Generation Y. Millenials don’t pay. They look at many content opportunities. Howard is somewhat unique. They would love to find another.
  • Most of the big content renewal deals are done.
  • Music labels don’t think Sirius pays enough; they think they pay too much. this will be settled by the Copyright Royalty Board. Meyer is optimistic that they can reach a reasonable rate.
  • The popularity of country channels is off the chart. the labels need Sirius to create country stars. relationship with content providers is strong.
  • Leverage target is 4X. they are below that. this is still the target, they have lots of firepower. they returned $500 million in Q4 2016. they have repurchased $8 billion of stock; this has been expanded by the board to $10 billion. they are funding the growth opportunities. they are looking at acquisitions but they will not be distracted.
  • They initiated the dividend to reach a class of investors who only buy stocks that pay a dividend. They are reviewing if this is the case. They like their capital allocation strategy.
  • Vast majority of capital will go towards buybacks.
  • Meyer has met with Ted Weschler 3 or 4 weeks ago and other times in the past. They are thrilled to have Berkshire Hathaway as an investor.
  • Sirius’s royalties are not related to streaming royalty rates. it is a different dynamic.

Article by Greg Speicher

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