In this week's earnings call, Sirius XM
Mac Greer: Spencer, what most surprised you about this earnings report?
Spencer Osborne: I think the biggest surprise was the way they kind of slipped in satellite radio 2.0. Mel just kind of brought it up. At first I was like, is he announcing something new or is he just kind of putting on a tag line out there? But I think it is very smart for them to do that now because August is typically the month where they are laying out new hardware, and a lot of people have been asking me the question, "Hey, is there anything new coming out this year? Aren't they going to have any new products?"
They are working on something that is above and beyond simply dressing up a radio with a little bit of a different look and calling it something new. They are making a shift and it gives people a lot of things to speculate about. And I think it gives the Street something to look at, aside from the numbers, and say, "Gee, I wonder what this satellite radio 2.0 is?" Believe it or not, it is stuff like that that institutional investors are looking for. "Hey, those numbers are great, but what are you going to do for me tomorrow?" So that hint has now been dropped, so what are you going to do for me tomorrow?
I think satellite radio is still cutting edge, but there are a lot of different competitors out there that are vying for the ears of listeners. I think that satellite radio just piqued a lot of people's interest by having satellite radio 2.0. My email box filled up relatively quickly on that, rather than on any of the numbers of the call.
Greer: As you mentioned, Mel Karmazin announced that Sirius XM will be launching it in retail stores of the 2011 holiday season, so we have a little more than a year before we see what it is. His quote was, "Our next generation of satellite radios are expected to offer more choices for the consumer and contain functionality that does not exist today." So we don't have specifics, but let's do some speculating. Spencer, what would you like to see in satellite radio 2.0?
Osborne: I'd like to see them get a little more interactive, perhaps get a device that could interact with the car, with the Web, have Wi-Fi and that connectivity. You have satellite radio today in your car, it just tells you what channel you are on and you might have a little bit of streaming information about what the show is or what the song is, but let's see it hop to a new level, where you can kind of tag something, get some more information. I think that is what consumers want. They want a one-stop shop and I think satellite radio has a lot of potential to be able to kind of help consumers along with that.
Greer: And Ryan, what do you want to see?
Ryan Saghir: Well, I think definitely as we are seeing across a whole bunch of subscriptions models, especially if you look at cable and satellite TV, I think on-demand is something that consumers are increasingly getting used to. Sirius XM was probably waiting to see if this is actually a paradigm shift in consumer behavior and I think it has been proven that on-demand is something that consumers do want. They want to be able to call up something on their own timeline. We have had time shifting for quite some time for satellite radio where you can record and listen to it on your own basis, but you still had to wait for the programming to actually hit the air. So to be able to call and download something, whether it be through Internet connectivity or any sort of method, I don't know how they would do it, but I think on-demand would be one of the key shifts and then definitely the ability to customize.
Mel had brought up Internet radio and terrestrial radio and said that satellite radio is able to monetize on those consumers better than Internet radio and better than terrestrial radio. So they [Sirius XM] are definitely watching the sector. Obviously, they have to be watching what Pandora and Slacker, as well as any of the innovations that terrestrial radio is doing, and to be able to see the vote up and vote down or the heart or hate, any of those kinds of concepts. There is a lot of data that those Internet radio providers get back. They get a lot of feedback about what works and what doesn't work, and it happens almost in real time. That sort of data is very, very valuable and I think that is also probably the next key shift. If they have an on-demand service and the ability to customize your playlist by hating and hearting, or thumbs-up or thumbs-down, that would be something I would really like to see. And I'd hope they'd be able to deliver that in the year period that they are promising.
Greer: And do you think with satellite radio 2.0, think there is a possibility of a big-name partnership? Someone like Google
Osborne: I will jump on it a little bit here. I don't think Google is going to go there. They are going to do their own thing and go their own direction and Google Music is something that is kind of being bandied about right now. You are hearing a lot of discussion about cloud-based services and getting iTunes in a cloud-based service. I don't think it is necessarily partnerships in the sense that we have always come to expect in the past. I think it is more of an issue of connectivity. I think in the smartphone side of it, if they have a product that can integrate with a smartphone, and to what Ryan is saying, something like Sirius Hits 1or XM 20 on 20, where the users and the listeners determine the order of the countdown. That can become so much more interactive, and with the cell phone network, you will be able to do that. I am in my car right now and my satellite radio is on, and Sirius XM has no idea what I am listening to, or even if I am listening. But if I am listening to a smart device through the Internet, now they know what I am listening to. I am logged in and they can see exactly what I am listening to. To make that aspect a little more interactive, and if the smartphone trend continues and people's satellite radio is more something that's attached to their hip than in their dashboard, then when they get in their car it connects up, I think that is some of the drive. I think Google and iTunes are going to kind of do their own thing, and will you be able to connect to them? Sure, in some way you will. You can tag songs now on the XM map or the SkyDock and download them later on iTunes. Those kinds of partnerships, absolutely, those will exist, but beyond that I think that it is going to be more relationships than partnerships.
Saghir: Yeah, I definitely don't see a partnership happening between Apple and Sirius XM or Google and Sirius XM; I don't see that happening at all. Because the main asset that Sirius XM brings to the table is content exclusivity. It is not the satellites. Nobody really cares that it is a satellite, whether you are listening to satellite or you are listening over your 3G connection or you are listening at home through the Internet, the delivery mechanism doesn't make a difference. It is the content that makes a difference. That is the real, true asset that Sirius XM has, and I don't think we are going to be willing to give that up so easily. They have tried experimentations at doing co-partnerships with terrestrial radio and they are good to have, but they are not must-haves.
My colleague Tim Beyers thinks Google is the path to Sirius riches.