Business Matters: Sirius XM Raises Forecast for Subscriber Growth

Sirius XM Radio finds growth.

(from Billboard Magazine, October 15, 2012) Growing popularity for satellite radio is expanding the customer base for stations looking to build and retain more profits. For the third time this year, Sirius XM radio has raised the forecast for new subscribers after a third quarter boom of 2.01 million new subscribers since the same point last year. After ending last year’s third quarter with 21.35 million total customers, Sirius raised their yearly forecast by 200,000 subscribers, looking at even more profitability for the well-known satellite radio service.

Before Sirius and XM merged, financial troubles seemed to plague the company, something they do not have to worry about today. As of the first six months of 2012, Sirius earned a net income before taxes of $248 million. Despite rising income, Sirius XM still continues to fight for lowering paid out royalty rates to label companies to further increase profitability. Currently, the radio pays 7.5% of revenues to SoundExchange, which is then distributed 50% to labels and 45% to artists. Sirius has been looking to lower their royalty rate to 7%, but found trouble with SoundExchange and the Association of American Independent Music, ending in a lawsuit for allegedly interfering with their efforts.

Even after this year’s quarterly, multi-million subscriber growth, business analysts project even larger growth in the future. Bank of America has projected Sirius XM’s free cash flow to average between 20-35% annual growth rates through 2016, and with the rising customer base, artists and labels hope to see a rise in profits after royalties. Even though the Copyright Royalty Board lowered Sirius’ royalty rate, there is now a set rate, labeled the “zone of reasonableness” at a staggering maximum of 13%, almost double what Sirius XM is paying today.

Today, Sirius XM is pleased to have found more profitability and the largest customer base than ever before.  Even though royalty rates are low, artists are satisfied due to a significant rising in the number of subscriptions, meaning more profitability on their end of the deal.