Scoping Sirius' Curious Car Count

Sirius CFO Dave Frear says he recognizes that the two companies have different policies when it comes to counting subscribers, but he downplays the significance.

Frear says Sirius' lot-counting practice doesn't apply to all cars with factory-installed radios. He adds that overall it represents less than 10% of total subscribers.

"There's a distinction without a difference," says Frear.

But an XM representative disagrees.

"It's important for people to understand that we have a different way of counting subscribers," says the XM rep. "We count people who have made an active effort to try the service, not by counting cars on the lots."

Of course, there are no federal guidelines governing how companies count subscribers. And it is not surprising to see companies put the best spin they can on the numbers they tally.

Counting cars, or even nonpaying users on promotional plans as XM does, doesn't just pump up subscriber growth numbers. It can also help spread the cost of acquiring customers -- a huge cost for these cash-burning companies -- across a broader base. To be fair, while XM includes promotional users in its subscriber total, it discloses its number of freeloaders in its quarterly filings.

Beyond growth, Wall Street tends to judge upstarts by subscriber acquisition costs, which reflect the amount of money it takes to reel in a new user. For big-buck bonfires like XM and Sirius, lowering acquisition costs can help soothe the Street.

Sirius finance chief Frear says the analysts he has briefed on the new car issue "have decided that it's a big yawn."

Frear says he counts the car as a subscriber because that's when the car company pays Sirius for the radio subscription. He says Sirius receives the one-year subscription money upfront from the carmaker and defers the revenue by booking it in monthly installments or amortizing it over the life of the service contract. Sirius also books the subscriber acquisition costs upfront.