SIRIUS XM satellite service provider

Satellite radio service provider SIRIUS XM Radio Inc. (SIRI - Analyst Report) received a shot in the arm as Standard & Poor's (S&P) upgraded its credit rating from "B+" to "BB-". S&P declared that improved operating performance and declining debt leverage of SIRIUX XM are the primary reasons for this upgrade.

Overall, the S&P rating outlook for SIRIUS XM is stable. Recently, the company achieved a milestone, touching the 20 million subscriber base, which is a historic high. SIRIUS XM is now steadily moving toward stability, following the bankruptcy it was facing just a year ago.

During the third quarter of 2010, SIRIUS XM reported a significant improvement with respect to several operating metrics. Average revenue per user was $11.81 compared to $10.09 in the year-ago quarter. Conversion rate was 48.1% compared to 46.2% in the year-ago quarter.

At the end of the third quarter, the company's debt leverage was 9.9x compared to a massive 29.5x at the end of fiscal 2009. Debt-to-capitalization ratio was 0.91 compared to 0.97 at the end of fiscal 2009.

SIRIUS XM's business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both XM and SIRIUS satellite radio services. Improving U.S. economic conditions that resulted in the recovery of auto sector sales together with better-than-expected consumer spending enabled the company to vastly improve results.

SIRIUS XM owns an extensive satellite network covering the whole of the U.S. that provides audio content streamed over 130 channels. After Comcast Corp. (CMCSA - Analyst Report), the company is the second-largest entertainment subscription service provider in the U.S.

SIRIUS XM declared that despite facing severe economic turmoil and competitive pressure, it acquired the last 10 million subscribers faster than the first 10 million. The company now expects to add 1.3 million net subscribers in 2010, much higher than its previous prediction of 1.1 million. Importantly, this is the fourth time that management has raised its subscriber guidance for 2010. Management is hopeful that its year-end 2010 subscriber base will touch 20.1 million.

On December 9, SIRIUS XM announced that the company entered into a new 5-year agreement with its star performer Howard Stern who hosts a talk-show in SIRIUS XM. Many analysts consider the performance of Howard Stern as one of the main reasons for the company's gradual recovery in last couple years. Stern's existing contract size is $500 million for 5 years that will come to an end by end 2010. However, the company did not disclosed the financial terms of the new contract.

SIRIUS XM competes with other broadcast radio companies such as Cumulus Media Inc. (CMLS - Analyst Report) and Westwood One Inc. (WWON - Snapshot Report). We maintain our long-term Neutral recommendation for SIRIUS XM.

Sirius FM-5 (Radiosat 5) Set To Sound Off

Sirius FM-5 satellite logo Following the delivery, on May 22nd, of the Proton M booster rocket designated for the SIRIUS FM-5 launch, the aforementioned spacecraft was delivered to the Baikonur Cosmodrome on May 26th.

After passing through customs, the spacecraft was transferred to building 92A-50 for testing and integration. The satellite, built by Space Systems/Loral on the 1300 bus for SIRIUS XM Radio, is scheduled to be the fifth Proton launch of 2009 and the third ILS mission of the year. SIRIUS FM-5 will be inserted into a geostationary orbit and will supplement the existing fleet of SIRIUS satellites.

Space Systems/Loral (SS/L) announced in June 2006 that it has been chosen by Sirius Satellite Radio Inc. to build Sirius FM-5, a powerful new geostationary satellite for use in its satellite radio service. Sirius FM-5 will carry an X-band uplink and S-band downlink payload. The satellite will be one of the most powerful ever constructed, with end-of-life power capability at more than 20 kilowatts. Sirius FM-5 is based on SS/L's flight proven and reliable LS-1300 platform and will have a specified service life of 15 years. It will carry a range of technologies, including a 9-meter unfurlable reflector, which will allow for highly-concentrated transmissions to small, advanced devices.

As part of its commitment to Sirius, Loral has agreed to provide to Sirius a vendor financing facility of up to $100 million. The satellite will supplement from its geostationary position the three other Sirius satellites in highly elliptical orbits, all manufactured by SS/L.

Free Access to Sirius Radio Service

Sirius XM Radio has quietly fixed a bug in its satellite radio system that provided a way for former subscribers to gain free access to the Sirius service since 2002, according to security vendor TippingPoint Technologies. TippingPoint found out about the issue when it was reported to the company's Zero Day Initiative, which pays hackers for technical details on security bugs. TippingPoint relayed its information on the issue to Sirius on July 10.

The situation shines a light on what could become a new problem for the radio network, following the July merger of Sirius and XM: SATELLITE PIRACY. Industry watchers say that with a combined audience of more than 18.5 million Sirius XM subscribers, pirates may now have the incentive they need to create illegal devices that can receive Sirius XM signals. The July 10 problem, which Sirius has apparently now resolved according to TippingPoint, was in the deactivation process used to cancel subscriptions. It seems to be really an oversight on Sirius's side. It's just kind of sloppy, and in the end it really hurts their bottom line. For example, the flaw could have been exploited to build black market satellite radio receivers that would never be deactivated, Forslof said. Although TippingPoint does not know how many people are aware of the issue, the person who reported the bug to TippingPoint said that "multiple people were doing this".

TippingPoint, a division of 3Com, lists the issue on its Web site as having medium severity, but the flaw does not affect the security of Sirius users. Also, it does not affect devices designed to use XM Satellite radio, which was recently acquired by Sirius XM. Sirius XM had little to say about TippingPoint's findings. "Sirius XM does not comment on security issues though we do invest in our technologies to insure our service is protected for our subscribers," the company said in an e-mailed statement. "We are confident in the effectiveness of our technology." It is not clear exactly when Sirius fixed the bug or for how long it was possible to exploit it. Sirius first began offering service under that name in 2002 and the bug apparently existed then.

Piracy already costs the satellite TV industry hundreds of millions of dollars each year, according to Jimmy Schaeffler, chief service officer with The Carmel Group, a digital entertainment consulting firm. With some TV packages priced at close to $100 per month, (Sirius Everything Plus service is $16.99 per month) pirates have focused on satellite TV. However, we view a move to satellite radio piracy as "inevitable," now that Sirius and XM have merged. That's because pirates can now reach a much larger market of nearly 20 million Sirius XM radio subscribers! A pirate can find true value from figuring out how to hack them. A search of online forums turns up anecdotal evidence that some Sirius subscribers may have been able to evade the company's deactivation signals and at least one reference to a cracked Sirius Sportster radio, selling for US$400.