COMPANY PROFILE Sirius XM Radio Inc. REFERENCE CODE: 787AC6F2-4390-407B-9275-22C140208C81 PUBLICATION DATE: 9 Nov 2012 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.
TABLE OF CONTENTS TABLE OF CONTENTS Company Overview...3 Key Facts...3...4 Sirius XM Radio Inc. Page 2
Company Overview COMPANY OVERVIEW Sirius XM Radio Inc. (Sirius XM Radio or "the company") is engaged in broadcasting music, sports, news, talk, entertainment, traffic, and weather channels for a subscription fee through proprietary satellite radio systems: the SIRIUS system and the XM system. The company operates in the US and Canada. Sirius XM Radio is headquartered New York City, New York and employed approximately 1,526 people as of December 31, 2011. The company recorded revenues of $3,014.5 million during the fiscal year ended December 2011 (FY2011), an increase of 7% over FY2010. The operating profit of the company was $676.1 million during FY2011, an increase of 45.3% over FY2010. The net profit was $427 million in FY2011 compared to a net profit of $43 million in FY2010. KEY FACTS Head Office Phone Fax Web Address Revenue / turnover (USD Mn) Financial Year End Employees NASDAQ Ticker Sirius XM Radio Inc. 1221 Avenue of the Americas 36th Floor New York City New York 10020 USA 1 212 584 5100 http://www.sirius.com 3,014.5 December 1,526 SIRI Sirius XM Radio Inc. Page 3
SWOT ANALYSIS Sirius XM Radio Inc. (Sirius XM Radio or "the company") is engaged in broadcasting music, sports, news, talk, entertainment, traffic, and weather channels for a subscription fee through the proprietary satellite radio systems: the SIRIUS system and the XM system. The company s strong market position provides it a competitive advantage over its peers. However, intense competition could result in lower subscription, advertising and other revenue, which could impact the company s business and financial condition. Strengths Strong market position Multi-platform offering is a competitive advantage Increasing profits and margins Opportunities Positive outlook for online/digital radio services in the US Poised to benefit from the growing Hispanic population Weaknesses Dependence on automakers Threats Intense competition Government regulations Weak economic outlook for the US Strengths Strong market position Sirius XM Radio has strong market position. The company is the world s largest radio broadcaster measured by revenue and one of the world's largest pure-play audio entertainment companies. Sirius XM Radio is also the second largest media business in the US based on the total basic paid subscribers. The company had a subscriber base of 22.3 million at the end of the first quarter of FY2012 compared to DirecTV (20 million subscribers), Dish Network (14.1 million) and Time Warner Cable (12.5 million). According to industry estimates, Sirius XM Radio holds an estimated market share of 70% of pre-installed satellite radio in new cars sold in the US. It is also the dominant player in the pay radio market. Over the years, the company has successfully gained market share and emerged as a formidable player in the industry. The company enjoys wide audience and has access to large cross selling opportunities. Sirius XM Radio dominates the satellite radio market and enjoys significant scale advantages compared to its peers. Sirius XM Radio Inc. Page 4
Multi-platform offering is a competitive advantage Sirius XM Radio offers content through multiple platforms. The company offers broadcasting services through hardware, internet and mobile. Hardware primarily includes the units sold through automotive original equipment manufacturers (OEMs). The company offers content through its website. It also provides its content to ipad, iphone, BlackBerry and Android-powered smartphone users through mobile applications. Furthermore, Sirius XM Radio is developing applications for televisions and Blu-Ray players. Radio broadcasters, including the company, have the advantages of creating the content once which generates revenues at multiple points. Increasing number of platforms that Sirius XM Radio distributes content on, leads to higher audience numbers and hence, increases revenue generating opportunities. The company's presence across several platforms is a significant competitive advantage as other broadcasters like internet radio are usually restricted to a single platform. Therefore, the multi-platform presence enhances the revenue generating opportunities and provides competitive advantage as the company enjoys multiple touch points and thus wider audience. Increasing profits and margins Sirius XM Radio witnessed a strong growth in its profitability. The company's operating profit increased from $228.3 million in FY2009 to $676.1 million in FY2011, representing a CAGR of 72%. In addition, Sirius XM Radio's operating margins increased from 9.2% in FY2009 to 22.4% in FY2011. Similarly, the company recorded a net profit of $427 million in FY2011 compared to net profit of $43.1 million in FY2010 and a net loss of $538.2 million in FY2009. Sirius XM Radio's net margins increased from -21.8% in FY2009 to 14.2% in FY2011. Increasing profits and margins reflects the efficient cost management and sound decision making of Sirius XM Radio, which could be leveraged to fund growth plans in the future. Weaknesses Dependence on automakers Sirius XM Radio's subscription growth is largely dependent on the sales through automakers. During the last few years, most of the company s new subscription growth was derived from purchasers and lessees of new and previously owned automobiles. As a result, the sale and lease of vehicles with satellite radios was an important source of subscribers for Sirius XM Radio's satellite radio services. Automotive production and sales are dependent on many factors, including the availability of consumer credit, general economic conditions, consumer confidence and fuel costs. Any decline in the vehicle sales could reduce the subscriber growth of the company and impact its sales. Opportunities Sirius XM Radio Inc. Page 5
Positive outlook for online/digital radio services in the US The demand for online/digital radio services are expected to increase in the coming years. According to industry estimates, the US radio broadcasting industry generated approximately $480 million in online/digital revenues in 2011. The market is projected to grow at a CAGR of over 13% to reach approximately $760 million by the end of 2015. Sirius XM Radio has a significant presence in the online radio broadcasting market and will benefit from the trends in the channel. The company offers SiriusXM 2.0, a satellite and internet services. The company also offers music and other channels through applications for Apple, Blackberry and Android powered mobile devices. Sirius XM Radio's presence in the mobile market will find support from the growth of content consumption through smartphones and other mobile personal communication devices. Although the company has low exposure to the internet radio, the presence in the online/digital radio market will enhance the avenues for revenue growth, further catalyzed by the growth trends in the channel. Poised to benefit from the growing Hispanic population The company has increased its focus on offering exclusive programs targeting the Hispanic population in the US. According to the US Census Bureau, the Hispanic population reached approximately 52 million by the end of second half of 2011, representing about 17% of the total US population. The US Hispanic population is estimated to reach 133 million by mid 2050, constituting approximately 30% of the US population by that date. The company has made several focused efforts to attract the Hispanic customers. Sirius XM Radio leased four channels from National Latino Broadcasting on a long term basis. In October 2011, the company launched an expanded channel lineup, including new music, sports and comedy channels as well as SiriusXM Latino, a suite of Latin channels featuring a variety of commercial-free music, plus programming from leading providers of Spanish-language sports, news, talk and entertainment. The company s increased focus on offering Spanish radio channels and the growing population of Hispanics will provide it an opportunity to attract more customers and increase its market share in coming years. Threats Intense competition The company faces significant competition for both listeners and advertisers. In addition to pre-recorded entertainment purchased or playing in cars, homes and using portable players, Sirius XM Radio compete with several other providers of radio or other audio services. Some of the company s new, digital competitors are making in-roads into automobiles, where the company is currently the prominent alternative to traditional AM/FM radio. Sirius XM Radio s services compete with traditional AM/FM radio. Traditional free AM/FM radio reduces the likelihood that customers would be willing to pay for the company s subscription services. Sirius XM Radio Inc. Page 6
Sirius XM Radio also faces competition from high definition (HD) radio broadcasters. HD radio stations do not charge a subscription fee for their digital signals but do generally carry advertising. A group of major broadcast radio networks have created a coalition to jointly market digital radio services. According to this coalition, over 2,100 radio stations are currently broadcasting primary signals with HD radio technology and broadcasting more than 1,300 additional FM multicast channels (HD2/HD3), and manufacturers are marketing and distributing digital receivers. In addition, internet radio and internet enabled smartphones have been consistently competing for the audio entertainment consumption. Several large media companies like Clear Channel, CBS and Pandora, make high fidelity digital streams available through the internet for free or, in some cases, for a fraction of the cost of a satellite radio subscription. These services compete directly with Sirius XM Radio s services, at home, in the automobile, and wherever audio entertainment is consumed. Moreover, the company also faces competition from advanced in-dash information systems, direct broadcast satellite and cable audio service providers, traffic news service providers, and other digital media service providers. The company s other competitors include Spotify, Rhapsody International, Citadel Broadcasting, Cumulus Media, Emmis Communications, Entravision Communications, and Westwood One. Intense competition could result in lower subscription, advertising and other revenue and could increase Sirius XM Radio s marketing, promotion or other expenses, consequently impacting the operational performance and market share in coming years. Government regulations The company's business is subjected to extensive government regulations. Sirius XM Radio is regulated by the Federal Communications Commission (FCC) under the Communications Act of 1934, principally with respect to: the licensing of satellite systems; preventing interference with or to other users of radio frequencies; and compliance with FCC rules established specifically for the US satellites and satellite radio services. Any assignment or transfer of control of the company s FCC licenses must be approved by the FCC. The FCC s order approving the merger requires Sirius XM Radio to comply with certain voluntary commitments. The company is required to obtain export licenses from the US government to export certain ground control equipment, satellite communications/control services and technical data related to its satellites and their operations. The delivery of such equipment, services and technical data to destinations outside the US and to foreign persons is subject to strict export control and prior approval requirements from the US government, including prohibitions on the sharing of certain satellite-related goods and services with China. In addition, Sirius XM Radio is subjected to several other government regulations. Changes in law or regulations relating to communications policy or to matters impacting the company s services could adversely impact Sirius XM Radio business and financial condition. Weak economic outlook for the US Sirius XM Radio Inc. Page 7
The US economy has experienced a protracted slowdown, and the future economic environment is expected to be challenging. The recent macroeconomic data, state-level regional data, and the increased volatility in the financial markets in the US shows significant downside risks to the economic growth in the near term. In addition, factors such as weak household balance sheets and confidence, relatively tight financial conditions, and continued fiscal consolidation are expected to halt the growth. Moreover, the US economy is expected to face serious risk from the beginning of 2013 due to the proposed spending cuts and tax increases (fiscal cliff) that are slated to be implemented by the end of 2012. The combined effect of these measures could result in a huge fiscal contraction, which would impact the economic recovery. According to industry sources, fiscal cliff would reduce the growth rate to nil on an annual basis in 2013, and the economy is likely fall into a recession. Such challenging economic conditions are expected to have an impact on Sirius XM Radio operations. A continuation or further weakening of these economic conditions could lead to further reductions in consumer demand for the company s services. Weak economic conditions in the US could further impact Sirius XM Radio s business and financial condition. Sirius XM Radio Inc. Page 8
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