XM Radio 2009 Annual Report Download - page 129

an increase in our revenues and an increase in the statutory royalty rate for the performance of sound
recordings.
•2008 vs. 2007: For the years ended December 31, 2008 and 2007, revenue share and royalties were
$280,852 and $146,715, respectively, which represents an increase of 91%, or $134,137. The increase was
primarily attributable to an increase in our revenues, the $91,132 effect of including XM’s revenue share and
royalty expense as a result of the Merger and an increase in the statutory royalty rate due for the performance
of sound recordings.
We expect these costs to increase as our revenues grow, as we expand our distribution of SIRIUS and XM
radios through automakers, and as a result of statutory increases in the royalty rate for the performance of sound
recordings.
Customer Service and Billing. Customer service and billing expenses include costs associated with the
operation of third party customer service centers and our subscriber management systems as well as bad debt
expense.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, customer service and billing expenses
were $234,456 and $165,036, respectively, which represents an increase of 42%, or $69,420. The increase
was primarily due to the inclusion of XM’s customer and billing expense as a result of the Merger and
increased bad debt expense due to the current economic environment.
•2008 vs. 2007: For the years ended December 31, 2008 and 2007, customer service and billing expenses
were $165,036 and $93,817, respectively, which represents an increase of 76%, or $71,219, primarily due to
the Merger. XM’s customer services and billing expense accounted for $59,767 during the year ended
December 31, 2008. The remaining increase was primarily attributed to higher call center operating costs
necessary to accommodate the increase in our subscriber base and higher total transaction fees on the larger
customer base.
We expect our customer care and billing expenses to decrease on a per subscriber basis, but increase overall as
our subscriber base grows due to increased call center operating costs, transaction fees and bad debt expense
associated with a larger subscriber base.
Cost of Equipment. Cost of equipment includes costs from the sale of SIRIUS and XM radios, components
and accessories.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, cost of equipment was $40,188 and
$46,091, respectively, which represents a decrease of 13%, or $5,903. This was mainly due to lower sales
volume through our direct to consumer channel, lower inventory related charges and lower product and
component sales, partially offset by the inclusion of XM’s cost of equipment expense as a result of the
Merger.
•2008 vs. 2007: For the years ended December 31, 2008 and 2007, cost of equipment was $46,091 and
$35,817, respectively, which represents an increase of 29%, or $10,274. The Merger related increase of
approximately $12,299 was partially offset by lower product costs.
We expect cost of equipment to vary in the future with changes in sales through our direct to consumer
distribution channel.
Sales and Marketing. Sales and marketing expenses include costs for advertising, media and production,
including promotional events and sponsorships; cooperative marketing; customer retention and personnel. Coop-
erative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of
advertising and other product awareness activities.
•2009 vs. 2008: For the years ended December 31, 2009 and 2008, sales and marketing expenses were
$228,956 and $231,937, respectively, which represents a decrease of 1%, or $2,981. The decrease was due to
reductions in consumer advertising and cooperative marketing, personnel costs and third party distribution
support expenses, partially offset by the inclusion of XM’s sales and marketing expense.
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