1.3 Million Reasons to Like Sirius XM

Sirius XM Radio (Nasdaq: SIRI  ) initiated its subscriber guidance last week. The satellite radio giant expects to close out 2012 with 1.3 million more subscribers than it has now.
Some investors aren't impressed. Didn't Sirius XM tack on 1.7 million net accounts last year and 1.4 million more subs the year before that? Auto analysts see 2012 as the strongest year for new car sales in years. If new car smell is the lifeblood for satellite radio growth, why is CEO Mel Karmazin being so conservative?
Well, let's go over why closing out this year with 23.2 million subscribers won't be so shabby after all.
There's no such thing as an immaterial price increase
Sirius XM initiated a price increase last month. The company estimates that it will take 18 months for the hike to work its way through its existing members, but new accounts are getting hit with the 12% increase right away.
How can that not influence the conversion decision?
Let's set aside Netflix's (Nasdaq: NFLX  ) poorly received summertime plan to split its DVD plans from its streaming service. The move -- which essentially boosted prices by as much as 60% -- led to a flood of defections during the third quarter, and DVD plan subscribers continue to move on.
Let's look at the more modest increases at Costco (Nasdaq: COST  ) and Coinstar's (Nasdaq: CSTR  ) Redbox.
Warehouse club giant Costco bumped its annual memberships 10% higher in October. Redbox increased the price of its DVD rentals by 20% to $1.20 a night a few weeks later.
Redbox parent Coinstar still pulled through with blowout quarterly results during the holiday quarter. Analysts see modest growth out of Costco when it reports later this month. However, the strong numbers don't mean that the hig! her pric es didn't scare away at least some customers. Price matters. How can it not?
Applause for 1.3 million
There is a finite number of potential Sirius XM subscribers, and it's not simply the number of cars on the road. There is certainly potential for Sirius XM on boats, planes, and even at home, but let's look at the auto market where radio is largely consumed.
Peer-to-peer auto-sharing leader RelayRides claims that the average driver spends an average of just an hour a day on the road. Paying $14.49 a month -- or nearly $16 a month after tacking on the unpopular $1.42 monthly U.S. music royalty fee -- isn't going to be the same value proposition for a driver that's just using the car to shuttle the kids to school or make a short commute to work as it is for trucker or a courier. The higher the price, the smaller the potential market.
Sirius XM made it clear during last week's call. Karmazin claims that churn will increase from 1.9% last year to 2.1% this year based on the increase alone.
Let's work the math here. Churn is essentially the monthly rate of users canceling the service. At 2.1%, we're talking about roughly 460,000 cancellations a month for Sirius and XM services. The difference between 2.1% and 1.9% is close to 44,000 members. This isn't a big number, but over the course of the year we're talking about more than 500,000 subscribers canceling because of the price increase.
If it wasn't for the increase, one can argue that Sirius XM would be targeting 1.8 million net new subscribers this year.
Off the assembly line
More cars do mean more factory-installed receivers. That's great. Unfortunately, conversion rates -- the number of drivers who turn into paying subscribers once their free trial offers end -- have been inching lower over the past year. Just 44% of drivers are sticking with satellite radio, compared to 45% during the fourth quarter of 2010 and 46.4% during the fourth quarter of 2009.
Is it the pop! ularity of free streaming alternatives for smartphone owners? Pandora (NYSE: P  ) struck several new deals last month, bringing its tally to 23 automotive partners for seamless digital listening. Is it the maturing market? It can be rightfully argued that many of today's new cars are simply being bought by owners replacing their existing service.
Regardless of the reason, conversion rates at this year's higher price points are likely to continue to inch lower.
This isn't the end of the world for Sirius XM. This is a scalable model, and we're talking about simple math. Fewer additions paying more is still good business. There's a reason why Sirius XM expects revenue to climb 10% this year, while targeting adjusted EBITDA to rise by nearly 20%.
We also can't forget that Karmazin has been historically conservative in his outlooks. A year ago at this time, Sirius XM was only expecting to add 1.4 million more subscribers to its rolls in 2011. Reality delivered 1.7 million new members.
So cheer up, investors. The subscriber guidance isn't that bad based on the headwinds -- and it's probably too low based on Sirius XM's history of where it sets the bar.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.

Colleges slashing tuition, offering 3-year degrees

NEW YORK (CNNMoney) -- A growing number of colleges are taking extreme measures to attract more students by cutting tuition or speeding up the rate at which they graduate.
While some private colleges are introducing double-digit percentage cuts in tuition or freezing prices altogether, other schools are offering three-year degree programs or four-year graduation guarantees.
In part, these schools are responding to consumers' concerns about the rising cost of college, said Tony Pals, spokesman for the National Association of Independent Colleges and Universities. "These types of initiatives have been used to some degree in the past, but have become increasingly prevalent since the economic downturn -- and we expect to continue to see them spread," he said.
But colleges have their own motivations as well. By offering a more competitive price, they are ultimately hoping to attract more students -- and increase their bottom line, said Mark Kantrowitz, publisher of financial aid website Finaid.org.
"This is about boosting enrollment, local competition and improving an individual school's finances rather than any noble purpose," Kantrowitz said.
While making school more affordable for students has become more common, it's still far from a widespread trend. Many more schools continue to hike tuition, he said. Overall, tuition at private colleges has been increasing more than 4% each year for the past three years, according to the National Association of Independent Colleges and Universities.
Tuition at a discount: After seeing enrollment decline for the first time in a decade, the University of Charleston, in West Virginia, cut its tuition by 22% to $19,500 per year.
In addition, Seton Hall University in New Jersey, Lincoln College in Illinois, and Pennsylvania's Cabrini College have all slashed tuition by at least 10% for the upcoming academic year.

5 colleges slashing tuition

But there's a tradeoff: ! "Te mporary tuition cuts and freezes are usually accompanied by financial aid cuts -- so the money isn't all going back to students," Kantrowitz said.
The University of Charleston, for example, may be slashing tuition but it's also reducing the amount of financial assistance that's available to students to $10 million from $15 million.
Instead of making cuts, other schools are freezing tuition at current levels or giving students four-year tuition guarantees.
For the upcoming academic year, Burlington College in Vermont is guaranteeing it won't increase tuition for four years. Mount Holyoke College in Massachusetts is also holding tuition steady -- its first tuition freeze since 1968.
"[C]olleges and universities cannot continue to threaten access and add to already burgeoning loan burdens for students," Mount Holyoke president Lynn Pasquerella said in a statement.
Pals said at least 14 additional colleges have frozen tuition for the upcoming school year -- the highest number of tuition freezes on record.
Other colleges are joining forces with community colleges to increase enrollment and lower costs for students.
Baylor University in Texas, for example, is offering a pilot program this fall where students can take most of their classes at a local community college for a year or two before transferring to Baylor, where they will eventually graduate.
Texas students enrolled in the program that take 12 hours at McLennan Community College and three hours at Baylor will pay about $20,000 per year -- less than half of Baylor's $45,000 annual cost, including tuition, fees, and room and board.
A degree in four years or less: With average tuition at four-year private colleges costing $28,500 a year, according to the College Board, failing to graduate on time is a costly proposition. As a result, some colleges are reducing the time it takes to graduate or guaranteeing that students will get their degree in four years.
Beginn ing next year, Ashland University in Ohio is granting bachelor's degrees that can be completed in three years instead of four -- saving students an estimated $34,000 in tuition costs and giving them a year's head start in the work force.

College 101: Everything you need to know

Ohio's Baldwin-Wallace College is introducing a "Four-Year Graduation Guarantee" program this fall. Under the program, the school guarantees that students who meet certain requirements, like maintaining a GPA of 2.0 or higher, will graduate in four years. If not, the college will pay for the extra time.
Some colleges are taking it a step further by offering joint-degree programs that allow students to graduate with both a bachelor's and master's degree in four years. Simmons College in Boston is offering joint-degrees in areas including social work and public policy, while Wilson College in Pennsylvania is launching a program that lets students graduate with both a bachelor's and master's degree in humanities.
Meanwhile, Lipscomb University in Tennessee is reducing the number of credits students need to take to graduate on time from 132 hours to 126 hours for the 2012 school year -- the equivalent of about two classes.

How much does college actually cost?

While tuition cuts and freezes likely won't have an impact on the quality of the education that the colleges provide -- unless enrollments increase so much that the student-to-teacher ratio climbs too high -- some fast-tracked degrees are another matter, Kantrowitz said.
"If you eliminate core requirements to become more job-focused, it may allow you to cut a semester off, but the purpose of core requirements is to teach the very basic skills like the ability to write and read critically that also have an impact on job performance," he said.