Can Apple Save Sirius XM Radio?

High on the wish list of Sirius XM Radio (Nasdaq: SIRI  ) subscribers -- and no doubt battered shareholders -- is an iPhone app. With its fast-growing wireless subscriber base, Apple's (Nasdaq: AAPL  ) revolutionary smartphone is a natural platform.  

With shares closing at an all-time low of $0.14 last week and Sirius XM slashing subscriber targets in recent weeks, an iPhone tie-in would be just the ticket in generating buzz for Sirius XM's scarred investors as well as a great customer retention tool.

I'm not building the hype to tease you. At least one company is working on an iTunes App that will let iPhone owners -- and Wi-Fi-tethered iPod touch jockeys -- stream their active satellite radio subscriptions through their portable devices. Surprisingly, that company isn't Sirius XM.

Don't be a Playr hater
StarPlayr is no stranger to riding Sirius XM's coattails. The company already offers a more advanced streaming alternative for PC and Mac users over the in-house Sirius XM solution.

There is no firm release date for StarPlayr's iPhone application, but the developer's product list has appetizing screenshots with cool features including album artwork, song lyrics, and the monetization gems of ad serving and the ability to purchase the current track through iTunes.

Why is a third party developer beating Sirius XM to the punch? It's a fair question. Maybe the radio giant doesn't want to devote too many of its resources toward developing platforms beyond its receivers. XM and Sirius have been providing Web streaming of its networks for a few years now. Access is included at no additional cost to existing subscribers, though the company also sells stand-alone streaming plans. Sirius XM has never bragged about its Web-only subscriber counts during its conference calls, so it's safe to assume that it's a limited audience. There is too much competition in cyberspace, with the pervasiveness of free Internet radio making it difficult to justify aggressively marketing a premium Web product.

It's a near-sighted approach. Sirius XM should take a page out of the Netflix (Nasdaq: NFLX  ) playbook. Seriously.

Nothing but Netflix
Netflix launched a PC-based streaming service in January of 2007. It isn't a profit center. Netflix doesn't charge members for access. There is no advertising on the streams. If anything, it's actually a loss leader, since Netflix still has to foot the bandwidth tab and pay participating studios their royalties.

So what's in it for Netflix? Member loyalty, as measured by the company's low churn rate, is solid. The on-demand streams at no additional cost also help Netflix stand apart from its media-serving rivals.

Like Netflix, Sirius XM also leans on a Web streaming service to keep customers close and happy. However, Netflix has been raising the stakes this year by reaching out to Blu-ray player makers, set-top box manufacturers, and even Xbox 360 and TiVo (Nasdaq: TIVO  ) owners. Making it more convenient for subscribers to consume celluloid on their own terms is the biggest secret to Netflix's success.

In short, SiriusXM should be all over this, even if StarPlayr has to do the grunt work.

So much to gain and even more to lose
The iPhone is huge. Market research firm Nielsen pegs the active iPhone user base at 3.6 million as of October, and growing. That may seem like a small audience for a platform like satrad with 18.9 million current subscribers, but let's dig a little deeper into the iPhone audience.

Nielsen estimates that 98% of iPhone users take advantage of the smartphone's Web connectivity and that 70% consume music through their phones. Millions of influential iPhone users are streaming music on their devices. Some of the top apps include:

  • Pandora's music discovery streams.
  • CBS' (NYSE: CBS  ) Last.fm Web radio.
  • Time Warner's (NYSE: TWX  ) AOL Music.

Sirius XM can't afford to ignore this audience. Even with a superior product, it's hard to compete against free apps pitching free music.

There is Internet buzz building over StarPlayr's iPhone client hitting Apple's store later this week. Whether or not a Thanksgiving release is accurate, Sirius XM needs to make sure that it's actively finding a way to reach this growing audience.

Oh, and let it do it the right way. Sirius XM has offered streamlined programming plans through conventional handsets and even Research In Motion's (Nasdaq: RIMM  ) BlackBerry earlier this year. The flaw in all of these seldom-discussed deals is that wireless phone users may have no problem buying costly ringtones but music subscriptions have historically been a harder sell.

Sirius XM needs to approach the iPhone as a way to retain its existing subscribers, just like Netflix with its home-theater digital delivery invasion. The market also wouldn't mind if Sirius XM was paddling new revenue streams like online advertising and digital media sales.

With the stock at $0.14 a share and the company only looking to add 200,000 net new subs this quarter, it's worth a shot. What does it have to lose that it hasn't lost already?

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Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story, save for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2008, at 3:37 PM, herbenar wrote:

    Hey Rick, can you also include the fact that SIRI needs to ride the AAPL marketing coattails as well? They need to wake up to the real world and realize that playing few and far between commercials during NFL games is the marketing plan of dinosaurs.

  • Report this Comment On November 24, 2008, at 3:54 PM, MikeRehling wrote:

    The first serious comment on Sirius XM you have had, good advice. Hope they take it!

  • Report this Comment On November 24, 2008, at 3:59 PM, acny wrote:

    I think this could be apple second coming ,and bail siri out just think your listen to song on siri and you want it ,,, you press a button on your siri it sends it to itunes for a purchase and its downloaded to siri device or copy to your itunes account ,,, apple creates more revenue , and siri is in heaven and lets not forget video streams

  • Report this Comment On November 24, 2008, at 10:03 PM, NealBarkett wrote:

    Rick, I'm trying to get Sirius Xm to go to a format of "National Sponsorship". Here is roughly how it would work: All channels that do not have commercials(Music,Comedy,Simulcasts,Etc.) Would be banded together and have an hourly sponsor. There would be no "quote" commercials, just a DJ or Announcer mentioning a few times during the hour who's the sponsor. Example: "We'd like to thank our friends @ Coca-Cola for sponsoring this hour of Sixtys on 6".(maybe even ad a tag line) "Things go better with Coke"(I know that tags outdated but u get the point). Now to sweeten the pot for the sponsor, you display their name or logo on the participating channels radio screens. Now comes the payoff! For this National Exposure say u charge a rate of only $5,000 per hour (since advertising budgets have been cut) now times that by 24 hours per day X's 365 days per year ='s over $420,000,000 of new added revenue. It would not cost much to implement and I can't see it upsetting the programming being injected in a very fluid way. I've sent this on to Mel Karmazen's office but of course I'm not sure it got into his hands or ended up in the garbage. But I would very much appreciate your honest feed back. Thanks!

  • Report this Comment On November 25, 2008, at 10:01 AM, draland wrote:

    Everyday at/or new Low for SIRI............How long can that go on !!

  • Report this Comment On November 25, 2008, at 2:43 PM, shortandlong wrote:

    I used to stream Sirius on my HTC windows mobile pda since 2006..thanks to geekstoolbox app Sirius WM5. It was great because it was a true mobile platform. BUT, it also proved that you must be on a 3G network to receive uninterrupted streaming data (slower networks work too but unpredictable). This also means a good battery lasts about 1 hour, maybe 1.5 hours to power 3G speeds...my battery lasts a max of 15 mins now when continuosly streaming.

    So before we conclude that Apple could be a saviour...please remeber folks..the IPHONES even don't allow you to replace a battery...I'm not sure how long they hold a charge when new and continuosly streaming.

    Also I don't see why the need for satellites anymore, since our mobile broadband network is pretty widespread and growing.

    Positions: Sold Siri stock at a loss and quit Sirius a year ago..I was unhappy with the number of Non-Live shows days and an increase in Ads on Howard 100. Also there are tons of free music streaming sites out there with higer bit rates than Sirius.

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