SiriusXM Third-Quarter Earnings: Broadcaster Pays Less, Makes More from Each Customer

Robin Marchant/Getty Images for SiriusXM
SiriusXM Studios on June 12, 2015 in New York City. 

In a statement on his company's third-quarter earnings, SiriusXM CEO Jim Mayer wrote yesterday that the satellite radio broadcaster "grew self-pay subscribers by 385,000 and turned in record quarterly high levels of revenue and adjusted EBITDA. Additionally, we attained our highest-ever ARPU and adjusted EBITDA margin and lowest-ever SAC per installation."

Let's break those down.

"Self-pay subscribers" is the metric SiriusXM uses for customers who elect to subscribe to the service as opposed to receiving it bundled with the purchase of a car or other device -- a useful metric for gauging consumer interest in the product. SiriusXM's net self-pay additions were 345,000 over the quarter, or 115,000 per month. (Those numbers are down sharply year-over-year due to a substantial increase in promotional subscribers in 2015.) 

An an apples-to-oranges comparison, Spotify added about 1.66 million users a month between March and September of this year -- globally, for a service that moves between phone and tablet and car and desk. SiriusXM's 64,000 per month, in the U.S. and Canada only, were signing up for a service umbilically linked to specific hardware.

SiriusXM pays out roughly 21.35 percent of total revenues in royalties and exclusive content fees. However, SiriusXM benefits substantially from grandfathered discounts afforded it in 1998 when the Digital Millennium Copyright Act was passed; as such it has been able to negotiate with regulators for a below-market royalty rate for music licensing. Those rates are in the process of ratcheting up, from 10.5 percent of gross revenues (paid to SoundExchange) this year to 11 percent in 2017. (Pandora pays about 67 percent of its revenues to content acquisition costs, which include direct licensing deals. Spotify pays about 83 percent. Bear in mind that these aren't direct comparisons -- but are still stark differences.)

Those "high levels of revenue" were $1.27 billion in earnings over the quarter, over $100 million above the corresponding period a year early. EBITDA -- earnings before interest, taxes, depreciation and amortization -- stands at $492 million. (EBITDA is a measure of earnings that gives investors and analysts a way to compare earnings between similar businesses -- in SiriusXM's case there sort of... aren't any -- because it removes from the books currency fluctuations, varying tax rates, debt and loans.)

Average revenue per user, or ARPU, in an extremely important metric for any media business, and especially subscription content providers, derived by taking total revenue ($1.27 billion) and dividing it by the number total subscribers (30.9 million) --  SiriusXM's rose year-over-year from $12.67 to $13.04. Complimenting that figure is the decrease in SAC, or subscriber acquisition costs, that SiriusXM saw over the quarter, having dropped from $34 to $28. Essentially, the broadcaster is making more from each customer, and paying less to do so.

Updated, 12:57pm, Oct. 31:  A more detailed breakdown of SiriusXM's royalty payments was added to this article.


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