Internet music site Pandora announced this week that it now has 60 million registered users. Pandora has gotten a lot of traction via Apple's
Mac Greer: What do you see as the greatest competitive threat to Sirius right now?
Ryan Saghir: I would say the largest threat continues to be terrestrial radio, because most of the listening is done in cars, but the most emerging threat is most definitely the Internet radio and mobile audio services. And I would say specifically, Pandora is one to worry about. If iTunes decides to really tap into cloud-based streaming services, they have got a strong competitor on their hands.
Greer: And is there a dark horse out there? When I talked to Spencer Osborne last week, he mentioned that at some point Google
Saghir: I wouldn't put it past Google. Of course, Google is exploring all their options. They have got a lot of smart people there, and we saw a glimmer of this when Google included audio search, when they included results from Lala, they included results from a lot of these streaming services. When you type in a song to their search bar, they have so much opportunity to tap into that space if they wanted to. Just knowing Google, they would always provide it as a free alternative; they wouldn't do it as a monthly subscription. And I think whether it is Google, whether it is any of these sorts of services, Sirius XM is going to be competing with a free service, and so they have to really stay on top of being a premium provider of exclusive content, and that is really what they need to focus, [home] in on that and make that available across all the platforms.
Greer: And let's talk Pandora. They have obviously gotten a lot of traction with the mobile and iPhone markets. They just announced that they now have 60 million registered listeners. They had an estimated 50 million in revenue last year and an estimated $30 million of that went to paying royalties, so obviously they are paying a hefty chunk of that in royalties. Pandora's founder, Tim Westergren, recently said that in the last year, he has finally cracked the nut on how to effectively monetize a streaming radio service, "our intention is to build a radio business that looks a lot like the traditional radio business with a scalable mechanism for selling national and local advertising, so we can do everything from big-branded national campaigns to local pizza joint specials." So with all that in mind, what is your take on the Pandora business model?
Saghir: Initially, I questioned Pandora because they took a stand that was very much opposing the music industry, and if there is ever an industry that you don't want to oppose, it is the music industry, especially if that is your business. They [Pandora] seem to have the benefit of consumer momentum. People use the service and they love the service, and so that is really what drives them forward. They have the mass, and when it comes to an Internet radio provider, they really have the great mass. That is how ultimately they are able to tap into those systems and they are able to tap into those advertising revenues, because they have such a huge listener base, a listener base that doesn't look like it is going to stop growing.
And now looking at how they continue to grow and continue to branch out into different techniques for advertising, it looks like they may have an interesting business model ahead, but man, they are paying a lot when it comes to royalties. While they have cracked the nut and they are working on being profitable, they still have a long road ahead of them. I think it's still very, very nascent in terms of the overall grand scheme of things, but man, that is something to keep an eye out on. Sirius XM and any terrestrial radio and any other competitors out there should not be sticking their head in the sand when it comes to Pandora. Pandora is a force to be reckoned with, and they are growing.
Greer: What is the greatest threat to Pandora? Is it that royalty piece and the fact that if that ends up getting renegotiated or if that landscape shifts, then it potentially just undoes the whole business?
Saghir: One hundred percent. That is the scariest thing about Pandora is they have an utmost dependency on the music that they play. Without that music, they are nothing. So when you have a service like Slacker, who has worked out individual deals with each of the record labels on an individual basis, not necessarily through fighting them in courts and the way that Pandora has approached it. Slacker taps into a lot more, a deeper library and has already worked out all those legal ramifications where Pandora has that hanging over them. There is a sword hanging over Pandora's head constantly. That is their biggest risk. If they just make the music industry just a little bit pissed off, then they could lose out on an entire revenue model. That is very, very scary.
Greer: In January, Pandora announced a deal with Ford to include Pandora in its voice-activated Sync system. Do you think Pandora can make significant inroads with automakers and really encroach on some of Sirius XM's territory there?
Saghir: Yeah, most definitely. And it is tapping into the audience that is a core; it is a small audience, but it is a loud audience. It is an influential audience. That is the early adopters. Not everybody is going to use Pandora in their car; Ford understands that. Ford is positioning themselves as being a technology leader, as being revolutionary in terms of thinking. They are tapping into the early adopters showing if you want the most advanced, the top-of-the-line, you want Ford, you want Pandora. They have really positioned themselves as being thought leaders and pioneers, and I think that appeals to early adopters. And let's face it, early adopters spread the word, and they are the influencers when it comes to your mom and your dad.
Greer: And three years from now, do you think Pandora is a stand-alone company, or do they end up getting acquired by someone like Google?
Saghir: I could see them getting acquired, and I could see someone like Google or AOL
What do you think is the greatest threat to Pandora? What's the greatest threat to Sirius? In a cage match, which company is still standing three years from now? Post your comments below.