Sam wrote:
> I don't know why so many people can't see the immense potential
> there is in Sirius.  In my opinion, they are executing their business
> plan almost flawlessly, spending up front to ensure a good profit in
> the future.

> Can't people understand the enormous investment required to get (and
> keep) subscribers and therefore earn the associated subscription and
> advertisement revenue?  Is there a way to make money in satellite radio
> without customers?  Well...then maybe it's a good thing Sirius is
> investing heavily in building their customer base.

> Satellite radio is a business where there are huge up-front costs, but
> the costs associated with providing the service to one customer is
> (relatively speaking) not that different than the cost of providing the
> same service to tens of millions of customers.  See the enormous
> potential for profit with a large subscriber base?  Sirius is quickly
> adding subscribers and it won't be long until they have crossed the
> break-even point to become free cash flow positive; after that, each
> additional customer means (eventually) even more cash flow in the right
> direction.  This milestone is planned for the end of 2006, and I have
> no reason to believe that they won't achieve it on schedule.  After
> all, they do have a pretty good track record for achieving their
> goals/guidance.

> Now for a bit more on spending:
> Many people can't understand and are worried about how Sirius keeps
> taking in more revenue, yet somehow increasing spending even more.
> While it is true that Sirius is launching a new satellite and making
> many other investments to ensure they have the competitive edge, I
> think at least part of the reason for the increasing spending is
> Subscriber Acquisition Cost (SAC).  A large part of SAC is the cost of
> producing satellite radios.  The way I understand it, the radios cost
> Sirius more than they cost the customer - just like the cell phones
> you get for signing a contract for cell phone service, so Sirius
> doesn't really make a profit on a customer unless they subscribe for
> over a year (SAC=$131 and ARPU = 11.16/month * 12 = $133.92/year).  Now
> think about the cost of adding 600K new subs a quarter at a SAC of $131
> each... At their present rate, that's at least 2.4M new subs a year
> at a cost of $314.4M a year.  See how signing up more subs every year
> can cause increased spending each year and how growing the business
> costs money?  My point is, Sirius is simply investing up front and
> depending on their customers staying around after the first year to
> become the real money-makers, and if the customers are satisfied with
> the content and quality of service-they will.

> I feel a little like the Lone Ranger here though... To me it makes good
> business sense.  Does anyone else see things this way?  Are there
> problems with my understanding of the situation other than my not
> taking into account the incredible short-sightedness of most stock
> purchasers?  Notice I didn't say anything about investors?  I think
> investors can see what I'm saying, and understand that profit will
> eventually come, and that the potential for very good profit is high.