As the first audio company to report first quarter results, SiriusXM offered a glimpse into how the COVID-19 pandemic affected operations and the impact it may have moving through the remainder of the year. “The world has changed very dramatically and very rapidly, since the onset of the COVID-19 health and economic crisis,” CEO Jim Meyer told analysts during the company’s earnings call Tuesday morning.
From an operational standpoint, SiriusXM, like countless other businesses, quickly and fundamentally changed the way it works. “We migrated 5,500 employees and contractors to work from home in mere days,” Meyer explained.
The satcaster’s call centers, which are crucial to attracting and retaining subscribers, experienced what he called “substantial disruption.” Staffing levels fell 50% to 60%, which meant customers spent more time on hold or just hung up altogether. That reduced the company’s ability to handle customer needs and support sales campaigns, Meyer explained. Ultimately, IT and other departments made it possible for 2,500 call center agents to work-at-home while “significantly” increasing online chat capability. In fact, the shift to a work-from-home model has SiriusXM (and likely other companies) thinking about continuing some aspects of this new operational model even after it’s safe for employees to return to the call centers.
With far fewer Americans commuting to work, SiriusXM promoted online streaming as a primary distribution vehicle, making its streaming service free for a limited period to drive awareness of its online offerings. “With most of us staying home, we see an opportunity to get more Americans to stream SiriusXM, as well as a unique occasion to get our existing subscribers to stream more,” Meyer said, adding that the amount of listening in the car is “significantly down” during the last 6 to 8 weeks.
SiriusXM derives 80% of its revenue from subscription fees, making it less vulnerable to advertising downturns like the one currently rocking the media world. “It's difficult to predict what the next 3 to 6 months will bring. Our ad revenues will take a hit, just like everyone else,” Meyer said. “But with an 80-20 subscription advertising mix, SiriusXM is better positioned than most companies to weather this storm.” Still, roping new subscribers is dependent on converting free trials into paid subs from new and used vehicle sales and leases. And with auto sales slumping from the pandemic, the satcaster will feel the pain but not until later in the year. “So far in April, new and used car trial starts, a close proxy for sales, are down roughly 55% to 60%,” CFO David Frear said. “However, lower auto sales today flows through to fewer conversion opportunities three months from now. We will see the biggest effect of this lower top of the funnel activity in the third quarter.”
Howard Contract Renewal Talks
With Howard Stern’s contract expiring at the end of 2020, analysts were eager to ask about how efforts to renew the flagship personality are faring. “I've been really clear. I want Howard Stern to be on SiriusXM for as long as Howard wants to work,” Meyer said. The CEO and his star morning man “chat quite often,” Meyer said, adding that he plans to begin formal in-person meetings with Stern’s longtime agent, Don Buchwald, once it is safe to do so. “I'm not concerned that we won't find a way together to try to find a path forward,” Meyer said.
SiriusXM added 69,000 net new self-pay subscribers in the first quarter, taking its total self-pay subs to 30.0 million. Total company revenues, including wholly owned subsidiary Pandora, increased 5% on a pro forma basis to $2.0 billion. Net income was $293 million compared to $162 million in the prior year period.
At the company’s satellite radio business, first quarter revenue grew 6% to $1.6 billion, thanks to a 2% increase in total subscribers and 3% growth in average revenue per user to $13.95. At Pandora, first quarter ad revenue reached a first-quarter high of $241 million, up 4% over the first quarter of 2019.