XM Radio 2011 Annual Report Download - page 4

2011, Standard & Poor’s upgraded our corporate
family debt rating from “BB-” to “BB” and Moody’s
upgraded our corporate family debt rating from “B3”
to “B2.” We continue to reduce our leverage; how-
ever, you should not expect us to reduce our debt to
zero. Properly and conservatively managed, debt can
be a useful tool to increase stockholder returns.
Today, our debt is reasonable in light of our oper-
ations and financial performance, allowing our board
of directors to evaluate acquisitions or a return of
capital to stockholders within the confines of our
present capital structure.
I was also very pleased with our performance in 2011
in light of the events during the year. The tragedy in
Japan and the flooding in Thailand introduced
uncertainties in our supply chain and those of many
automakers. Through it all the company executed its
business plan nimbly and thoughtfully. We remained
true to our core plan, but demonstrated the flexibility
to adapt quickly to new inputs and changing business
conditions.
Looking ahead, we are well positioned to build on
our accomplishments in 2011, and there are a number
of factors that have us optimistic about our prospects
for 2012, including:
•Expected Continued Subscriber Growth. We
continue to be optimistic about our ability to grow
subscribers in the year ahead. In fact, we expect to
break our all-time record high for subscribers by
the end of 2012. Contributing to our optimism is
that the consensus estimates for auto sales in 2012
began the year at approximately 13.7 million,
which would be the highest number since 2007,
and that estimate now appears conservative. The
car is often our first point of entry with a sub-
scriber and we believe the improving auto industry
will provide a further boost for subscriber growth.
•Pricing Increase To Drive Top-Line Revenue
Growth. Effective January 1, 2012, we raised the
base price of our service by just under 12%,
following the expiration of agreements with the
FCC that restricted our ability to implement certain
price increases. Coupled with the expected
increase in our subscriber base, the move will
improve our revenue, which we expect to grow to
$3.3 billion in 2012. This was the first increase in
the core price in the history of Sirius service, and
only the second increase ever on the XM platform.
Increasing prices is never an easy decision, and the
struggling economy and high unemployment rate,
which has affected so many of our subscribers,
only made that decision harder. Still, initial con-
sumer reaction to the price changes has, in general,
met our expectations.
•Previously-Owned Vehicles Represent a Sig-
nificant Growth Opportunity. Our program to
introduce buyers and lessees of certified
pre-owned vehicles to SiriusXM has been very
well received and the results have been encourag-
ing. In 2011, we announced a program to provide
purchasers of non-certified pre-owned vehicles of
any brand with a complementary three-month trial
of SiriusXM, including vehicles sold by participat-
ing Chevy, Buick, GMC, Cadillac, Nissan and
Infiniti dealerships. In 2012, we are expanding this
program to include Chrysler, Dodge, Jeep and Ram
Truck dealers, and have broadened the reach of
these programs by working directly with some of
the country’s largest automotive dealer groups,
such as AutoNation. Currently, there are over
4,000 dealers nationwide in our non-certified
pre-owned vehicle program and more automotive
brands and dealer groups will be announced later
this year. We expect the pre-owned vehicle market
will be a major growth opportunity in the coming
years.
•Exciting New Services. In 2012, we will introduce
a variety of new services to broaden the avail-
ability of our suite of premium content. You will
also see our service on more devices, particularly
devices in your pocket and your home. We are
most excited about our planned on-demand service
across our Internet-based platforms, such as
smartphones, and other connected devices that will
enable subscribers to access a continuously
updated library of some of our best content and
listen on their own schedules. We expect this serv-
ice to drive demand for our Internet add-on option,
and our all access tier, which will improve average
revenue per user and make our service a must-have
for consumers. This product will differentiate us
from our Internet-based competitors, who do not
have anything remotely approaching the depth and
breadth of our non-music online offerings.
We also expect to debut personalized radio on
these same Internet-based platforms, which will
enable subscribers to tailor music to their own
preferences. Similarly, our additional SiriusXM
2.0 channels, including the suite of Hispanic chan-
nels, will be available at no extra charge to sub-
scribers who have a SiriusXM 2.0-capable satellite
radio. Automakers are moving quickly to adopt
this technology. Chrysler has already announced