Is Sirius XM 2.0 Enough?

As good as Sirius XM Radio (Nasdaq: SIRI  ) is today -- with record subscriber levels, low churn, and high conversation rates -- it'll be even better by the end of the year.

Sirius XM 2.0 is coming before the 2011 holidays, expanding on the platform's already broad content and offering enhanced interactive features. But in the face of growing competition, will this upgrade be enough?

Toyota (NYSE: TM  ) unveiled its Entune multimedia system last week, and I proposed that it'll leave a bit of a dent in Sirius XM's fortunes. The ability for Toyota drivers with smartphones to use voice command and in-vehicle controls to hear terrestrial radio stations from all over the county, stream Pandora's custom-tailored playlists, and even make restaurant or movie reservations will be huge.

Rival automakers haven't rested on their laurels. They announced numerous nifty goodies during last week's Consumer Electronics Show, all of which promise to leave the average dashboard looking pretty crowded.

Moving forward, beyond Toyota
Ford
(NYSE: F  ) is making Sync AppLink a preinstalled feature on its 2012 model year Mustangs. Forget about Sync's tune-ripping hard drive, or AppLink's ability to play Pandora. In this year's big news, drivers can tap Twitter updates through OpenBeak and stream news updates or their favorite podcasts through Stitcher.

General Motors (NYSE: GM  ) will offer OnStar -- which can even read back Facebook updates these days -- as an aftermarket installation on cars it didn't build.

Even the seemingly sleepy Hyundai is waking up, taking on GM's OnStar in the telematics space with its Blue Link platform. And yes, BlueLink will also let drivers update Facebook statuses and use speech-to-text technology for distraction-free texting on the road.

The carmakers aren't alone in rolling out such innovations. Research in Motion's (Nasdaq: RIMM  ) QNX subsidiary showed off its mobile office solution, which among its many features will read back emails on a BlackBerry.

In short, listening to the radio will no longer be the only way to fend off boredom during long drives. Folks behind the wheel will have podcasts to stream, Twitter feeds to check, and emails to listen to. This multitasking will be great for consumers trying to make the most of their previously idle time, but amid all these new activities, satellite -- and especially terrestrial -- radio could have a hard time standing out.

The evolution of satellite radio
No technology is permanent. Sirius XM shareholders should be grateful that CEO Mel Karmazin isn't taking the dashboard convergence of tomorrow lightly.

Satellite radio won't be a transitory technology if Sirius XM can stay one step ahead of the pack. Karmazin's been pumping up the prospects of Sirius XM 2.0, even if the technology may get in the way of near-term sales, as savvy consumers forgo upgrades now to wait for 2.0 models later this year. Let's hope the new system is better than advertised.

Sirius XM has revealed few details about its platform upgrade. We do know that the new receivers will be able to pull in more content. If that programming is compelling and original, great. If it simply means more music channels, the 2.0 platform will butt heads against Pandora and smaller music-discovery sites.

On the interactivity front, Sirius XM 2.0 will likely include easier ways to crank out stock quotes, sport scores, and weather. Keep in mind, though, that there are smartphone apps for all of these things. Garmin (Nasdaq: GRMN  ) will already be banging its head against the wall as automakers roll out free turn-by-turn navigation apps.

In short, a premium service must be considerably better than what's freely available. It must also be compelling enough to keep drivers listening to Sirius or XM in the face of the growing number of other ways they can keep themselves entertained behind the wheel.

Sirius XM fans have typically dismissed Pandora and Stitcher because of their steep learning curves, the iffy connectivity of mobile broadband, and the arrival of tiered data plans. Well, the automakers are dumbing down the learning curve, all of the major carriers are blanketing the country in 4G, and a funny thing happened on the road to tiered data plans.

Verizon Wireless will reportedly announce the anxiously anticipated arrival of the iPhone on its network -- supposedly with an unlimited data plan. That would buck the trend that AT&T (NYSE: T  ) started back in June. If consumers -- not carriers -- once more start calling the shots, AT&T could soon have to retreat if it wants to compete.

In short, in a year or two, many of the criticisms against wireless dashboard entertainment could be all but silenced.

Gartner analyst Thilo Koslowski tells The Wall Street Journal that half of all new premium vehicles in the county will support apps within two years.

This obviously doesn't mean that Sirius XM is toast. It didn't arrive at 20 million subscribers and consistent profitability as a fluke. However, just as satellite radio is superior to dashboard alternatives today, it will have to make sure that Sirius XM 2.0 raises the bar higher than where the industry will be in a model year or two.

Sirius XM can do it. It has the momentum. It has the proprietary content. The satellite service must simply make sure that it doesn't underestimate its challengers.

How will Sirius XM hold up by 2016, when Gartner's Koslowski predicts that most mass-market cars will support apps? Share your thoughts in the comment box below.

General Motors is a Motley Fool Inside Value choice. Ford Motor is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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 (11) | Recommend This Article (8)

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 January 10, 2011, at 3:30 PM, lowhook wrote:

    How many times in one day can you bash SIRI? I managed a 777% return since my investment all while seeing your negative articles. You can even take positive news and put a negative spin on it.

  • Report this Comment On January 10, 2011, at 3:52 PM, mlrinc10 wrote:

    I agree lowhook, 3 articles by early afternoon.....geez!

    Everybody seems to forget the aging boomers want convenience in their lives. We want to be able to turn it on and go without commercials; and there are alot of us and we can afford what the kiddies can't. So crank up those band usage fees nothing is free and pandora has competition also and that will only get worse. An internet jukebox.....wow, sooooooooooo cutting edge. not.

    Just stream youtube for that.

  • Report this Comment On January 10, 2011, at 4:11 PM, Brent2223 wrote:

    How do these OEM services connect? Internet based (3G/4G/wi-fi) or proprietary (ie satellites?) If the former, aren't these going to futher overburden the infastructure? If the latter, it this an opportunity for SIRI to provide connectivity? People are always talking up SIRI's content, but I'm wondering if their capacity is overlooked? Or is 4G going to put capicity concerns to bed?

  • Report this Comment On January 10, 2011, at 5:35 PM, JPS007 wrote:

    Once again, the author missed the point regarding online entertainment. Who cares about the delivery mechanism?

    Siriux Delivered exclusive content not available anyware else and music channels without commercials. Its as easy to use as existing radio (even easier). It passes the grandma test. Try that with any of the so called competing services.

    You can get Sirius XM it all over the USA. any I mean everywhere. Try getting cell phone signals in the mountains.

    Any how about those data charges? Is grandma really going to buy a smart phone? not likely.

    This article shold be rewritten by someone who can tell the complete unbiased story.

  • Report this Comment On January 10, 2011, at 5:44 PM, ItAintCool wrote:

    MF must be trying to really help their friends cover their short positions. 3 negative articles on SIRI in the same day. Even MF's SIRI cheerleader, Rick Aristotle Munarriz, starts to express doubts about SIRI in his own piece. Something is up. I feel the winds of change at MF starting to turn against SIRI for some new agenda.

  • Report this Comment On January 10, 2011, at 6:06 PM, baldheadeddork wrote:

    @Brent2223: The OEM services are going to connect with 3G/4G.

    Capacity problems will be greatly reduced as networks move to 4G. It's a much more efficient standard and carriers are going to use the opportunity to beef up their infrastructure where its needed.

    Bandwidth isn't a problem for streaming audio and basic internet apps like Facebook and Twitter. Doing it now on 3G isn't an issue, and 4G specifies at least 100 megabits per second of bandwidth for devices in cars and trains. You can get a good non-HD video stream at 100Mbps.

    Why not base it on satellites? The big reason is that satellites only make economic sense when all of the data moves from provider to listener. If you want to send a signal back to Sirius for your personal Facebook update or Pandora channels it would have to run through a 3G/4G outbound link to the internet and back to Sirius. This complexity and cost is why satellite high speed internet never got off the ground.

    I called this adaptation of streaming 3G/4G apps by automakers in the comment thread of a SIRI post a couple of weeks ago. I'm not bragging, as predictions go this was just a little riskier than the sun rising in the east. Ford's Sync system has become a huge competitive advantage for them. A large percentage of customers option up to get Sync, and those who have it as a major reason they'll go back to Ford when they buy again.

    But I think in the near future we'll see access priced into the cost of the car, the way lifetime 3G access can be priced into Amazon's Kindle. It's the next logical step. Offer a $1500 radio upgrade that includes 4G streaming for audio, navigation and a suite of apps. It would be a big feature for the automakers to offer, and by limiting the apps to low bandwidth functions like navigation and streaming audio the pricing would work, too.

  • Report this Comment On January 10, 2011, at 6:50 PM, 702nitro wrote:

    Sirius cannot afford to JUST SATISFY consumer's needs with (2.0); They must exceed all expectations and set a new standard for integrating media into the lives of the digital consumer.

  • Report this Comment On January 11, 2011, at 3:00 AM, NewSiriFan wrote:

    I've been wondering if we shareholders will have to really worry about any of this. Maybe we will be getting a buy out bid from Liberty Media in March. They believe in the company's long term value. If I were them, and wanted to take the company private, I'd strike while the price is low. Why wait for the stock value to go up any more. They can still get reasonably priced financing as interest rates are still low. Any thoughts?

  • Report this Comment On January 11, 2011, at 9:12 AM, Brent2223 wrote:

    baldheadeddork - thanks for the comments, very informative. This is the sort of info investors need to make informed long term decisions.

  • Report this Comment On January 11, 2011, at 9:35 AM, southernbeachguy wrote:

    My question is How does Pandora make money? Can they really stay in Business indefinitely without a revenue Stream? I can understand advertising on the Web page, but what most analyst are saying is they will grow subs via car radios. That doesn't generate cash! Also there still is that Cost associated to get an Internet connection to the Car........ that is about $60 per Month from the Cellular companies. I think I'd rather pay the $12 Sirus subscription fee.

  • Report this Comment On January 11, 2011, at 2:52 PM, 702nitro wrote:

    @southernbeachguy

    Pandora claims they have 60+ mil subscribers(from what I can remember), but out of those you can only count on a couple millions as active regular users. Then out of those millions, how many actually pay for the $30+ yearly subscription????

    The way I see it is, what will make or break Pandora and alike is the ability for the dashboard to have direct connectivity and that probably won't happen for another 3 years or so, because RIGHT NOW the main focus for providers is to beef up the infrastructure to keep up with the demand of the accelerated growth of the smartphone market. In 3 or so years, nearly every one will have a smartphone and at that time, carriers will then focus their shift and strategies to expand into the car.

    That is why I pin point that Sirius 2.0 is the game changer for Sirius and that they cannot fall short, or even satisfy, but must exceed all expectations and set a new standard. Sirius has about 2 years to get this right and leave the others behind in the dust, otherwise

    Sirius may just remain a slow, thriving, niche business.

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