Will Ford Kill Sirius XM?

Ford (NYSE: F  ) and Sirius XM Radio (Nasdaq: SIRI  ) go together like chocolate and peanut butter, but new technology threatens to leave this Reese's in pieces.

Ford CEO Alan Mulally was part of The Wall Street Journal's D8 executive conference last week, discussing the automaker's advances in digital entertainment. The integration of web-connected smartphones with dashboard consoles promises to more of a challenge than an opportunity for Sirius XM.

Satellite radio hasn't had a problem winning over drivers who've tired of ad-laden terrestrial stations. But its premium price gets harder to justify when free and ad-supported alternatives begin to multiply.

Ford was one of the earliest Sirius cheerleaders, and both companies have enjoyed a win-win situation ever since. Satellite radio service practically sells itself. Most carmakers provide factory-installed receivers along with several months of service. Within 90 days of the end of the trial offers, 45% of the car owners become self-paying customers.

Sirius XM's fate has been tied closely to the auto industry. It's no surprise that the only two quarters that found the satrad star losing more subscribers than it gained -- the first half of 2009 -- were also bleak times for carmakers.

The "cash for clunkers" campaign jumpstarted automaker sales, and both the car companies and Sirius XM haven't looked back since.

Everything but the kitchen Sync
In an effort to remain on the cutting edge, Ford approached Microsoft (Nasdaq: MSFT  ) to develop an interactive entertainment and information platform. Ford introduced Sync three years ago, built on top of the Microsoft Auto operating system.

The ability to call up voice-activated tunes sitting on your iPod -- and have them play through your car's sound system -- was pretty cool at the time, but clearly that hasn't gotten in the way of Sirius XM's growth. Satellite radio has tacked on millions of subscribers since Sync's debut.

However, the growing popularity of smartphones -- most notably Apple's (Nasdaq: AAPL  ) app-running, Internet-surfing iPhone -- is taking on-the-go music where no iPod has gone before.

Ford introduced MyFord Touch earlier this year at the Consumer Electronics Show. The system raises the bar with a customizable touchscreen, steering-wheel controls, and voice activation for everything from climate control to ambient lighting. There's also turn-by-turn navigation, which translates into more pain for GPS guru Garmin (Nasdaq: GRMN  ) .

On-demand weather and traffic reports begin to stray into Sirius XM's territory, but clearly, the real threat to the 19-million strong broadcaster comes in MyFord Touch's seamless connectivity to audio entertainment.

Bluetooth technology allows smartphones to work without any wiring fuss. MP3 collections are old hat, since Sync has been spitting that out through its speakers for years. The real challenge here is the instant access to countless web stations and music-discovery applications as a result of 3G -- and now Sprint's (NYSE: S  ) speedier 4G in select markets -- connectivity.

This morning's Journal contains edited excerpts of Mulally's remarks. Sirius XM and terrestrial radio aren't mentioned at all, but music discovery site Pandora got a whole paragraph.

"We got together with Pandora," Mulally says. "Now you can do everything you want with Pandora, and yet you're not doing it with your fingers."

That's right. There's no need for poking screens or twisting knobs to scour through the unlimited amount of ear candy available. This also makes driving a bit safer, since drivers can even have their incoming texts read out to them as they drive.

Sirius XM will still survive Sync
Thankfully, satellite radio has several things working in its favor.

For starters, Ford has an incentive to keep satellite radio alive. Carmakers with activated satellite radios receive a piece of the action, explaining why even used-car showrooms are starting to hop on the promotional bandwagon. Thus, Ford has to manage technological introductions that will wow drivers without sacrificing its Sirius cash cow.

Another saving grace for Sirius XM is that it can afford content that online radio stations -- and even commercial broadcasters -- cannot. Complete sporting-league coverage and original Howard Stern and Oprah Winfrey programming don't come cheap. Even Stern's former terrestrial boss, CBS (NYSE: CBS  ) , is in no position to match any kind of offer that Sirius XM may present to keep its top celebrity around after his five-year deal expires in December.

Sirius XM may find more subscribers opting for lower-priced non-music plans, but satellite radio won't go away now that it's finally profitable.

Satellite radio didn't destroy terrestrial radio; it simply made the environment a little more challenging. Digital convergence will do the same thing.

Will in-car connectivity help or hurt Sirius XM? Share your thoughts in the comment box below.

Microsoft and Sprint Nextel are Motley Fool Inside Value selections. Apple and Ford Motor are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (24)

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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 June 07, 2010, at 3:22 PM, king4life wrote:

    AT&T new pricing plan will destroy Pandora.

    If Verizon follows with their own, they really will be toast.

    SIRI doesn't need the iPhone App.

    No one I know uses Sprint and smart phone in the same sentence. Do you?

    The trend is away from Driver's using Smart Phones anyway in he car. Especially since texting kills people!

  • Report this Comment On June 07, 2010, at 3:48 PM, doubting wrote:

    Rick,

    It has been long time since you have used such provocative headlines. I am truly disappointed. You know better than many that you cannot and must not compare sirius with pandora. The only thing in common they have is that pandora has a fraction of sirius's content, that is music. Sirius is so much more than Pandora, and you know this. On top of that, sirius has its own on-orbit and ground infrastructure whereas pandora does not and fully depends on internet providers, and you know that their fees are going up and together with royalties will kill pandora. You also know that pandora mostly depends on advertisement. How are they going to advertise in a car? The anwser should be obvoius to anyone - vocally, which means that they bring themselves down to the level of terrestial radio. I am deeply disappointed with this headline because you appeared to have been one of the few turning around on sirius.

  • Report this Comment On June 07, 2010, at 4:43 PM, Milligram46 wrote:

    Admittedly a focus group of one. The only reason I've kept my XM subscription is for the MLB and the ability to listen to my home team games despite being on the other side of the country. In my vehicle equipped with XM when it comes to music, I listen to MP3s 99% of the time.

  • Report this Comment On June 07, 2010, at 7:01 PM, PokerRon wrote:

    I don't think Ford would be stupid enough to drop SiriusXM. You cannot compare Sirius with Pandora and MP3s. Sirius entertainment is ACTIVE, whereas the other is INERT, or lacking human content, and prone, in the long run, to be boring.

  • Report this Comment On June 07, 2010, at 7:17 PM, ragedmaximus wrote:

    IF FORD would make the new mustang look like a ford gt for the mustang price IT WOULD KILL the competition!!!!!!!! until then the mustang is an ugly pig of a car ARE YOU LISTENING FORD!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! new ford mustangs are the old ford gt you get this......??????

  • Report this Comment On June 07, 2010, at 7:17 PM, ragedmaximus wrote:

    k

  • Report this Comment On June 07, 2010, at 7:46 PM, dwatson102 wrote:

    Ask any 10 Sirius/XM subscribers why they pay for it and you will get a dozen or more good answers. Some will say music, of different genres. Some like talk/politics they can't get elsewhere. Some are fans of comedy (4 channels). Some are there for exclusive specials and coverage of major events. And some are subscribers for sports. I suspect most of these programs are available somewhere on the internet. Emphasis on "somewhere". Finding what you want (assuming you know where to look) while driving down the road is difficult and dangerous. With XM it is all there, all the time, at the touch of a button. They wil get my XM from when they pry my radios from my cold dead hands.

    Doug

  • Report this Comment On June 07, 2010, at 9:08 PM, rookie2009 wrote:

    CNBC,Greatful Dead,NFL.....I keep my Sirius because I'm waiting for Foolish Radio!!!!!

  • Report this Comment On June 07, 2010, at 9:24 PM, Jackinknuckles wrote:

    Rick,

    You're a moron, just like Tse, whatever here name is. Your only over paid bashers. I read your crap on Dendreon as well, great thing I didn't pay attention to you. I made 100k! What did you make? Your articles are useless and baseless. The Foolish brothers should fire you. No wonder you're not an investment firm!!!

  • Report this Comment On June 07, 2010, at 10:10 PM, potiusmori wrote:

    Rick, I have to agree with other posters that this is a misleading title at best for your article. I do however wish to ask why you think Sync will be a "Sirius XM" killer, when Sirius XM is what powers much of the Sync system's back-end for gas prices, traffic, and so on? See the following: http://media.ford.com/article_display.cfm?article_id=27489

  • Report this Comment On June 07, 2010, at 11:53 PM, TMFBreakerRick wrote:

    potiusmori, the Sirius Travel Link release was for the old Sync system where folks would have to pay a premium.

    Ford is now pushing many of these features provided without a subscription (for the first 3 years of ownership) through Microsoft Tellme.

    http://media.ford.com/article_display.cfm?article_id=32714

    The point remains that the more that cars and web-conencted smartphones converge the easier the free access to online information.

  • Report this Comment On June 07, 2010, at 11:56 PM, TMFBreakerRick wrote:

    And just to clear one thing up relative to some of the comments. The headline is in the form of a question, because it's questioning the very D8 notion that the connected car in the digital age may have outgrown its older toys. It hasn't, and my conclusion is that Sirius XM will in fact survive the digital convergence.

  • Report this Comment On June 08, 2010, at 1:25 AM, stan8331 wrote:

    Internet radio may whittle away at Sirius from the margins, but I don't see it being a major threat at this point. Simplicity and ease of use are far more critical in the car, versus the home. Sirius has that advantage, plus ubiquitous coverage, plus an ace-in-the-hole: popular proprietary content.

    Sirius will face downward pressure on pricing, but so will everyone else in the mobile entertainment industry. Sirius has a technological advantage that will continue to exist for quite some time into the future. I think the issue of how well the company does in the marketplace will largely be determined by the choices its management team makes in maintaining and increasing perceived value for customers.

    Any company who try to stand pat with existing technology in today's world are likely to be road-kill within a few years (if not months). Sirius has no exemption from that harsh reality, but I think the current generation of mobile Internet radio is very unlikely to decimate the Sirius subscriber base.

  • Report this Comment On June 08, 2010, at 5:29 AM, plange01 wrote:

    sirius has been dead for some time.it was a nice idea but never had much chance of making money.

  • Report this Comment On June 08, 2010, at 9:13 AM, looserstreet wrote:

    On June 08, 2010, at 5:29 AM, plange01 wrote:

    sirius has been dead for some time.it was a nice idea but never had much chance of making money.

    WHAT PLANET ARE U FROM ????

  • Report this Comment On June 08, 2010, at 9:21 AM, wolfwuf wrote:

    Rick...Please the headline was in the form of a question? Right and that's perfect for yellow journalism not someone who supposedly writes a business column. Is the question worth asking yes, as a provacative headline ...cheap shot.

    Is the new sync enterainment interesting absolutely and it will be interesting to find out how sirius fits in. Pandora really is the ugly sister. Its nice of you to ask her to the prom.

    Content Rick, content ...there are many of us who don't want a million gadgets and don't listen to a lot of music.

  • Report this Comment On June 08, 2010, at 9:31 AM, Forgiven21306 wrote:

    You are wrong. I should get a job in journalism. If it does not matter that you are wrong, anyone can do it.

    I have a 2009 Ford F150 and have used the line in feature and blue tooth feature with the Sync function. It does not work well at all. I only use it when I am in a urban area. The connectivity is very poor usually. It depends on the cellular towers and they are not very reliable. I ended up right back where I started listening to Sirius which has been the best option I have had for the last 6 years since I got my first subscription.

    I don't think Sirius has anything to worry about from any alternative that uses cellular technology to stream music. It is like trying to watch the old UHF TV stations, sometimes you can see the picture through the snow. You are probably to young to remember UHF channels.

  • Report this Comment On June 08, 2010, at 10:25 AM, only1ferret wrote:

    "Satellite radio didn't destroy terrestrial radio; it simply made the environment a little more challenging."

    Really? I wouldn't know since I haven't listened to terrestrial radio since I got my Sirius 4 years ago.

    Is AM radio still around too?

  • Report this Comment On June 08, 2010, at 1:34 PM, crhillyer wrote:

    I get stuck listening to Sirius XM at the resturant I work in. I can't stand it. I only know a few people who have a subscription. I personally would rather listen to local radio stations. I like the local news, traffic, weather etc. and really don't mind the ads. Yes AM is still around and stronger than ever. In fact thats what i listen to most. I don't think the point of the article was that new advancements will kill off Sirius, but in this case could threaten its relationship with Ford and if that goes away could really put a crimp in thier new subscriber base, and thier profitablility.

  • Report this Comment On June 08, 2010, at 8:16 PM, wackjob69 wrote:

    As a daily listener to Sirius, it IS better then the current alternatives. That said, the rock n roll music programming has gone downhill since they (sirius) switched to XM programming. Predictable music rotation, less variety, and you rarely hear a "live" version of a song even if the "live' version was the one that was played the most on aor radio. As someone that listens at least 8 hours a day, I think I have a pretty well informed opinion here. We have too many "loft" type stations, and what happened to the punk channel? Do we really need Faction to be more talk then music? Bring back Buzzsaw, and please bring back The Vault and I'll change my mind, because for now I'm only subscribing for Stern and Bubba. Not everyone's cup of tea I understand. Just my opinion. BTW, FM terrestrial radio in all major markets has been generic crap for years. I listen to AM to hear local news and baseball. The rock channels are veering dangerously close to the bad programming of terrestrial FM.

  • Report this Comment On June 09, 2010, at 1:16 PM, DJDynamicNC wrote:

    Pandora monetizes through advertising. If people start car-streaming Pandora in large enough numbers to make it worth it, they'll begin to throw in some audio ads. There goes the appeal.

  • Report this Comment On June 10, 2010, at 9:07 AM, patricia63 wrote:

    I was the first in line when Sirius hit the market, even bought a new car for that reason, I now have 2 vehicles with Satalite Radio and one portable for the beach. I have tried plugging my Ipod into my car but what fun is always knowing the next song...boring.. Pandora ??? Please don't get me started !! I am still puzzled by people complaining about $12 for 100+ stations...yet, those same people probably have cable billl through the roof !! Bet those same people wouldn't dare watch a commercial during a movie... SiriusXM is the BEST !

  • Report this Comment On June 11, 2010, at 6:55 PM, webjawns wrote:

    Pandora will NOT replace Sirius XM. Pandora is 100% music, which is in turn based on your particular listening history and likes/dislikes. Sirius XM is a very different concept. I tried Pandora out for a few months, and at the most I felt that it was a novel concept, but it didn't grab me like Sirius XM. I haven't listened to it since. Pandora has a certain amount of value, but its limited in scope.

    Sirius XM has the best of ALL worlds. There's no one that can't find something they like on Sirius XM - weather, news, political talk radio, Martha Stewart, Howard Stern, every type of music, foreign language stations, etc. Sirius has nothing to worry about.

  • Report this Comment On June 12, 2010, at 9:02 AM, TimoDOZ wrote:

    The cell phone platform technologies may still be morphing into something 4 or 5 G, but there will always be people like me at 58 who regard cell phones as some kind of social disease. That said my wife shares a Trac phone with her mother. Still they have not enough IT savvy to even set up a voice mail box and they keep it turned off, just turning it on when they want to make a call or when they are EXPECTING someone to call. I like my Sirius Radio but am not and would not ever be a stock holder based on what I have been through with them and their customer service. Here is a company that expects their customers to pay a $2 fee just to pay a bill? It took me 2 months to get my disputed account settled with them. With in two weeks of that they were calling me up asking why I canceled. I explained that I would not pay for crap like Howard Stern and the Playboy channel, where young women are on the radio all day long pretending to be feeling each other up. I like a lot of men used to read Playboy and of course enjoyed the photography. Then like the Sirius it got too expensive. There is a lot of witless material on Sirius like that, that I would never pay for. When merging Sirius told Congress they would be willing to offer ala carte pricing. They lied! After a brief discussion with their flunky soliciting my renewal I was transferred to an empowered person. We were able to come to terms based on the really bad experience they had created with me. Sirius is better than Terrestrial no doubt, but they are way over priced in this economy. But then they still cost less than half of the social disease options. I often listen to music over the internet from my desktop. Some idiot at Sirius wanted to sell me a internet service at a discount. Talk about out of touch with reality. It is so enjoyable being a troglodyte. When they ask for my cell #, I smile and tell them I just got a microwave oven last month . A slight exaggeration! And so there is a nearly 100% saturation of the market for cell phones. Some of those people will die of brain cancer. My daughter went to a funeral of a high school girl friend a few years ago. She dropped her cell phone on the floor of the pickup truck. That resulted in a collision with a 50 year old oak tree, when she tried to pick it up. Two years ago the graduation at our high school involved another Memorial service for two young fellows who crossed over in their Hyundai and met up with a honey wagon. My favorite is when you sit there minding your own business at a bus or subway stop and some professional evacuation orifice comes up and stands right next to you and then flips it open and starts loudly prattling on endlessly in Chat. I just stare at them until they interrupt their anti-social behavior and ask, "Excuse me, can I help you?" I just keep staring at them. That usually ends in their moving to a different location where they can annoy someone else. Then there are the funerals and interments where you can't even pray with out some inappropriate ring tone. Cell phones are raising narcissism to new never before known levels in American culture.

    As much as we hate these dreadful people we love them as customers. So while I would NEVER after not being a very happy Sirius customer own their stock I love Telecom. For every one driving a vehicle who wins a Darwin Award. There are ten more 9-12 year olds stepping up into their void. You can not hope to find better customers than these techno-phile IT obsessed narcissists! These are people who will sell their food bought with food stamps to pay for their phone bill. They will pay that phone bill and the late fees before they will buy food for their children. I own the Alltel and Verizon bonds, & shares in BLIAF, CTL,OTT, UZV,& VZ. I am beyond being annoyed by women in a grocery store providing the blow by blow of their shopping the produce section as three 6-11 year olds who have not had their riddlen fly around the place as if they were on coke. As Arlo often observes, "That's America!" Who ever thought the New York State Thruway would be closed by fatals due to distracted driving! Be careful out there, there are so many that want to take some of the rest of us with them! Even the deer tremble!

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