Sirius XM CFO Discusses Effects of Price Hike in 2012
"When you raise prices, you're going to suppress demand," David Frear says, but predicts financial benefits and says "it's a good thing for the business."
NEW YORK - Ahead of a price increase next year, the first in the company's 10-year history, Sirius XM Radio CFO David Frear on Monday was asked about the subscriber impact he expects from the price hike.
"When you raise prices, you're going to suppress demand," he told the annual UBS Global Media and Communications Conference. "I would expect that..we would have lower conversion of new car sales to subs" and higher churn of self-paid users.
But Sirius, which previously said that it would increase the price of its most popular service package by $1.50 per month, expects to "end up with more subscribers, revenue and free cash flow," he added. "It's a good thing for the business."
Given that it is "much easier" to keep a subscriber than to convert a new one, "we'll work hard to retain every sub we have today," Frear vowed.
He also told investors that Sirius has begun notifying customers about the price increases, highlighting that "we haven't so far [had[ much response" or complaint calls. But since the hikes kick in at different times for different users, taking about 18 months to work their way through the user base, and since many customers pay by credit cards, much of any potential price shock may still come.
Asked about his company's longer-term pricing strategy, the Sirius CFO said that because most users pay in advance, it takes about 18 months for price hikes to fully work themselves through the user base. As a result, "annual price increases are hard," Frear said. But since Sirius hasn't raised prices in a decade, "this will go through, do well with our subs, and then we'll consider future price increases."
Frear was also asked if John Malone's Liberty Media could increase its stake in Sirius to more than 50 percent after it gets a chance to do so in March. "I really don't know," Frear replied. "You'd have to ask [Liberty CEO] Greg [Maffei]" who will also appear at the conference.