SIRIUS SERVICE IS LAUNCHED IN 4 MARKETS
Sirius Satellite Radio shares were down more than 5% in late-afternoon trading Thurs. even though company met its Feb. 14 target of launching commercially in introductory markets of Denver, Houston, Jackson, Miss., and Phoenix.
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Senior Sirius executives and their partnering retailers said they generally were pleased with first-day successes. But there also appeared possible kinks in Sirius armor, including acknowledgments by CEO Joseph Clayton that spot receiver shortages were expected in days ahead and doubts he expressed that Sirius would sign up 200,000 activated subscribers by year- end 2002 as required under covenants of term loan agreement with Lehman Bros. Sirius used 4 launch markets to test variety of merchandising strategies. In Houston, Sirius service was offered for standard $12.95 monthly subscription fee. Customers in Jackson were lured with 30-day money-back guarantee offer on hardware, installation and service. In Denver, purchases of Sirius receivers qualified for $50 rebate. Phoenix customers were offered 3 months of service free when signing up for one- year subscription.
Of all promotional launch activities, biggest fanfare was for debut in Jackson and its flamboyant independent retailer Cowboy Maloney’s, same site from which Clayton-led RCA introduced first Digital Satellite System (DSS) receivers to which satellite radio comparisons have been drawn. Cowboy Maloney’s CEO Con Maloney said 1,000 customers were lined up outside retailer’s door at 8 a.m. early opening to get first crack at Sirius receivers and land autographs from country music star Randy Travis, who with others performed at “VIP gala” launch party Wed. evening. Maloney told us he couldn’t gauge how many receivers had been sold in first hours, but said car audio department would book no more than 25 installations per day at start to assure systems performed to specifications. He said average installation took about 45 min.
Clayton said Sirius receivers were available in about 200 storefronts in 4 markets. He said Sirius expected spot shortages in fledgling days of debut, adding that total supply of 10,000- 15,000 receivers would be on hand in next few weeks. In prospectus supplement filed with SEC Jan. 7, Sirius said radios from Jensen, Kenwood and Panasonic would be available through 220 storefronts on or after Feb. 14 “in quantities that we expect will be sufficient to meet initial demand.” Filing also said Matsushita had finished building facility capable of producing 1,750 receivers per day.
Responding to our question whether Sirius was confident of reaching 200,000 activated subscriptions by Dec. 31 as required under covenant of Lehman Bros. loan agreement, Clayton said he was comfortable with analysts’ projections that company would achieve total subscription pool of 150,000-200,000. He said that if Sirius fell short of target, “we can always rework our covenants,” which he said was common business practice today. Other covenants in Lehman Bros. agreement require Sirius to have increasing number of subscribers each quarter through maturity of loan Dec. 31, 2005. Covenants also stipulate minimum and increasing cash flow targets, before subscription activation costs, including $4,425,000 for calendar year 2002.