EarningsCenter

Sirius Shows How to Play a Price Hike Without Getting the Blues

×
Sirius RadioSirius XM Radio (SIRI) is the latest company to raise its prices and totally get away with it.

The satellite radio service provider posted better-than-expected subscriber growth in its latest quarter, despite increasing its monthly rate by 12% in January.

Sirius XM added 405,000 more subscribers than those that canceled during the first three months of the year. While 65% of its existing self-pay customers are still paying the original $12.95 monthly rate, anyone joining this year gets the new rate of $14.49 a month.

Followers of the media giant should be encouraged by the quarterly report it released Tuesday morning. Churn and the conversion rate of new-car buyers turning into paying customers after their free trials run out are holding up just fine. There was no bump in either metric despite the increase.

The shocking nugget in all of this is that most will argue that the price hike wasn't necessary. Programming and content costs at Sirius XM have actually been declining. Sirius XM is raising rates simply because it can -- and the public is OK with that.

Knowing How Much Is Too Much

It was an entirely different scene at Netflix (NFLX) last summer. The video-service giant chose to begin charging separately for its streaming service while knocking $2 off a month on its DVD-based plans. The result of the blended pricing strategy was that while non-streaming customers would be paying less, some customers would pay as much as 60% more for the service.

Netflix could point to escalating streaming costs to justify the move -- unlike Sirius XM and its declining content costs -- but the public didn't see it that way. Netflix suffered a big hit during its summer quarter. Now, streaming accounts are growing again, though Netflix shed millions of its disc-based customers.



Sirius XM isn't the only consumer-facing company to raise its prices lately. Netflix rival Redbox -- owned by the coin counters at Coinstar (CSTR) -- rolled out a 20% increase on DVD rentals. The daily rate went from $1 to $1.20.

How are things going for Redbox? Well, it raised its revenue guidance a few weeks ago. Customers obviously aren't flinching, even though Netflix's competing disc-based service is cheaper than it was a year ago.

Likewise, Costco (COST) didn't face a lot of resistance when it increased its annual membership rate by 10% last year. The move probably wasn't necessary. Costco can always pass on rising costs through the warehouse club's merchandise. However, bargain-seeking shoppers looking to buy their groceries in bulk stuck around.

An improving economy obviously helps. Sirius XM, Redbox, and Costco probably wouldn't have been able to get away with these moves if we were falling back into another recession. However, it's also important to keep the increases modest -- as all three companies have done -- and to communicate the moves effectively.

If your service or product is worth more than what folks are currently paying, reasonable increases are apparently acceptable. If it doesn't play out that way, then maybe the service or product wasn't as valuable or as in demand as you imagined.

Longtime Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Netflix and Costco Wholesale.

Increase your money and finance knowledge from home

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Economics 101

Intro to economics. But fun.

View Course »

Add a Comment

*0 / 3000 Character Maximum

13 Comments

Filter by:
darinw40@mail.com

Those who subscribe to this and who have pay TV...have more money than they know what to do with...most people are just trying to afford gas and food nowadays...a free alternative is Iheart Radio with a FM transmitter you plug into your headphone jack on your phone ( if you can afford a smart phone that is)...and you can tailor your own station with 0 commercials

May 03 2012 at 5:15 AM Report abuse rate up rate down Reply
hkidher1

It came with a free trial with my new car, the trial membership just ran out and I won't continue with a subscription. Someone bothers me about having to pay for radio, when I can listen to it for free.

May 02 2012 at 10:14 PM Report abuse rate up rate down Reply
TONY BELL

Here is the bottom line, You do not need satellite radio, you do not need cable TV. If you don't like the rates Don't buy them

May 02 2012 at 2:43 PM Report abuse +1 rate up rate down Reply
thescot

Not only did they raide the rate they also inckuded a $15 for royalty fees. I told them either take off the fees or cancel my membership, they cancelled the fee.

May 02 2012 at 1:42 PM Report abuse rate up rate down Reply
Pete

I dumped it about 3 years ago. Don't miss it one bit.

May 02 2012 at 1:05 PM Report abuse +1 rate up rate down Reply
skiapp

i loved my xm radio ... however being retired it was an added expense....what i didnt know is that when your subscription ends they leave it on for 30 more days then dont bill you for it...and 2 or 3 mos later you get a bill from a collecttion agancy ......how do you pay a bill that you thought was turned off....only to find out they didnt even send a bill for what they decided to leave on....and the nerve to turn it to a collection agency on top of spending your money without your permission.... but i do miss the xm....what ever happened to a phone call asking would you like us to leave it on yes or no

May 02 2012 at 10:03 AM Report abuse +1 rate up rate down Reply
dsb1252

I called yesterday (05/01) to cancel my account due to the price hike. They asked if I would stay on for another year for $92.70. I'll try for one more year at the reduced rate but not continue at the current rate of 173.88 + tax and fees.

May 02 2012 at 10:02 AM Report abuse +1 rate up rate down Reply
gloriasw1966

I am a Costco member. They raised their rate $5 A YEAR which I did not find objectionable ($55 a year/$4.58 a month). However, I would never pay for Sirius XM radio ($173.88 a year/$14.49 a month) . I had it on my new car until 2 days ago and probably listened to it for 1/2 hour -- in a total of 3 months free). Did not really care for it but tried listening and it did nothing for me. When my 6 months free of On-Star runs out, I will not renew that either, much more expensive than the above two put together. I would rather put that money towards food/gas or whatever comes up unexpectedly. As far as I am concerned Sirius XM and On-Star are luxuries I can live without. Just my opinion folks. I am 67 and have lived without them my whole life---don't need them now. Thanks for listening, oops, reading!

May 02 2012 at 9:55 AM Report abuse rate up rate down Reply
jkwlcxn

Really? The numbers look so good because they extended XM service for 2 months free after I cancelled.
That will skew the numbers.

May 02 2012 at 9:54 AM Report abuse +1 rate up rate down Reply
bob

Zero.Zero

May 02 2012 at 9:38 AM Report abuse rate up rate down Reply