Everyone seems so concerned about what the pending merger between XM (Nasdaq: XMSR ) and Sirius (Nasdaq: SIRI ) will mean in the short term that few are venturing further out to see what a satellite-radio provider may look like in the future.
That's why I come in peace.
I've got the long-term answers you crave because I've seen the future. I've spent the past few weeks bouncing back and forth between today and 2010, to deliver glimpses on what some of my favorite companies will look like. It may sound funny, but today I'm going to get Sirius.
The 2010 reality
Yes, XM and Sirius are now one. Regulators finally signed off on the deal in March of 2008. Investors cheered the pairing of two money-losing companies at first, and watching over a combined 17.3 million subscribers at the time really did materialize into some substantial income-statement improvement.
The reality that would shape itself out over the two post-merger years offered both challenges and opportunities.
Perhaps the biggest downer is that satellite radio is no longer the monster it was in the auto showroom. Back in 2008, everyone was excited about digital programming and the upsell promise of Sirius' delivery of backseat video.
Unfortunately, most cars here in 2010 come with chunky hard drives. They were a novelty back in 2008, used mostly to pitch voice-activated MP3 track retrieval, but they've taken on a life of their own these days.
Cars with Wi-Fi-tethered storage retrieve customized content overnight. An odd assortment of companies -- from Google (Nasdaq: GOOG ) to your local newspaper to local terrestrial-radio stations -- populate your hard drive with news that matters to you.
Content providers compete for your eardrums, so you can handpick things like "Local Band Song of the Day," your favorite sport team's scores, entertainment news on only the celebrities you care about, and stock-specific quotes and news.
The first wave of content providers wanted to charge subscription fees, but Google's ad-supported model eventually became the standard approach. With backseat video monitors also tied to those hard drives, the kid-friendly programming that Sirius figured would provide incremental revenue becomes a tough subscription sell, when it's pitted against purchased or rented content from online sources such as Apple (Nasdaq: AAPL ) and Amazon.com (Nasdaq: AMZN ) , which deliver digital music, movies, and shows into your AutoDrives.
Now that commuters are overwhelmed with choices, those $13-a-month satellite-radio subscriptions were the first things to go. That doesn't mean satellite radio is in retreat, though. Sirius XM did surpass the 20 million subscriber mark early in 2010. The key here is that a lot of those accounts are now on cheaper pricing tiers.
Don't let the lower subscription fees bring you down. Sirius XM is refreshingly profitable -- on an operating basis, at least -- in 2010. Certain doors closed, but new doors also flung open wide.
The latest generation of satellite-radio receivers is responsive. If you're hearing a song you would like to own, a simple button push buys you the track in digital form. Advertisers pay more for airtime on the commercial channels because interested listeners can push a button to receive more information.
It may sound crazy to you in the passive 2008, but one of the more popular channels on Sirius XM is a shopping channel. Who would have thought e-commerce could work in an aural format? The key is in the product mix. Folks gravitate to the category-specific broadcasts, especially the monstrous closeout deals that are sometimes available during the Overstock.com (Nasdaq: OSTK ) -sponsored Overstock Hour. A PIN-verified button push later, and that discounted Bose speaker system or Lost: Complete DVD collection is on its way to you.
Affiliate revenue and licensing are the moving parts in the Sirius XM engine in 2010. And there's more going on than just syndicating content through non-satellite means, the way XM was already doing through CBS (NYSE: CBS ) and television deals. Some of the more popular XM and Sirius music channels have become popular brands and have inspired everything from monthly digital release compilations to terrestrial-radio music shows.
Sirius XM is even monetizing its Web streams, thanks to targeted advertising, as well as a lo-fi ad-supported model for non-subscribers that somehow draws an audience of empty-pocketed music buffs.
In a nutshell, the Sirius that you know in 2008 is a shell of the company that it has evolved into in 2010. Some of the evolution was forced, but it all paid off in the end. Oh, and speaking of paid off, the company is now a respected debt-free programming giant that isn't flooding the market with shares outstanding.
That may be the biggest surprise, but it's also a refreshingly welcome one to shareholders who saw it through the storm.
Rick's other unauthorized and completely fictional treks into 2010 in recent weeks: