GM's Gain May Be Sirius XM's Pain

General Motors (NYSE: GM  ) wants to woo wired drivers, and that may be a problem for Sirius XM Radio (NASDAQ: SIRI  ) .

The automaker announced on Monday during the Mobile World Congress that it's teaming up with AT&T (NYSE: T  ) to offer mobile hotspots providing 4G LTE connectivity to most of the 2015 model-year Chevy, Buick, GMC, and Cadillac vehicles that will begin rolling out next year.

GM is emphasizing the safety, security, and diagnostic features that convince drivers to pay up for speedy connections, but for many drivers it will ultimately boil down to entertainment. The ability to stream videos through backseat monitors and the ability to seamlessly stream audio through the dashboard will be the magnetic features of the new service.

Where does this leave Sirius XM?

The good news is that GM has too much riding on Sirius XM. It was an early investor in satellite radio, and it's generating healthy royalty revenue now through GM drivers who are premium Sirius XM subscribers.

However, here's where things get hairy.

Satellite radio is no longer a differentiator for car makers. Every manufacturer is installing Sirius or XM receivers in most of their cars.

The automotive industry's push is to differentiate the experience by adding features that rival vehicles lack. There are plenty of car companies that offer connectivity on some models, and a growing number of cars let smartphone owners use Bluetooth to perform online tasks. However, GM offering 4G LTE connectivity -- at a price -- on most of its cars will be a game changer.

GM will push this, even if it means losing satellite radio commissions, because it will result in car sales.

Oh, it's gets even scarier.

What's the profile of the typical drivers who will choose to pay AT&T for fast online connectivity in their cars?

  • They are affluent enough to afford premium services in a car.
  • They spend enough time driving to justify a financial investment in a service.
  • They embrace new technology.

That pretty much sounds like the early adopters of satellite radio. The moment that they're paying for a connected car, shelling out $14.49 a month plus taxes and an escalating music royalty fee may not seem worth it when Pandora -- or whatever the hot streaming app at the time will be -- for free.

The saving grace for Sirius XM here is that it's been beefing up its own streaming platform to compete with Pandora, Spotify, and other popular digital platforms.

It also helps that the adoption rate for "mobile" mobile hotspots will be gradual at first. It will take time to become an industry standard. Let's hope Sirius XM makes the most of that time.

Out of this world
Despite Sirius XM being one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in our new premium report. To get started, just click here now.


Read/Post Comments (6) | Recommend This Article (4)

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 February 26, 2013, at 9:58 AM, SoBe305 wrote:

    Sirius XM are already moving in the direction of dinosaurs. Most new cars already provide bluetooth or wired integration with smart phones for streaming apps. Meanwhile, Sirius XM has unbundled their streaming service. Their streaming service was a good add on for people with satellite radio in their cars but who did not spend enough time in their cars to justify keeping their subscriptions. In addition, XM makes the cancellation of satellite service a very painful experience. What they do not realize people who would have tried their service are not willing to give their billing info to XM because they know that they will spend hours on hold and taking to convince a customer service rep they really want to cancel. In summary, XM will have a slow but unavoidable death.

  • Report this Comment On February 26, 2013, at 10:16 AM, lanciab wrote:

    GM is not thinking straight. Who buys cars for the benefit of the back seat passenger? So what happens if two adults are in the back seat? Who's going to pay for the DATA? Streaming video? So ATT is hoping that passengers or drivers will convert to unlimited data plan and bank the money. Very sneaky. NOT.

    Why isn't GM installing receivers for DirectTV in their cars? You know why?

    Because almost every passenger who watches anything else besides the scenery outside the car while it's moving gets CAR SICK! Yeah. That's the real reason. GM is wasting money on equipment that's not going to be cost effective. Another not so well thought out GM move to continue their reputation of making dumb moves.

  • Report this Comment On February 26, 2013, at 10:18 AM, 67vair wrote:

    sobe305, I guess you had a bad experience, but you are so wrong about sirius radio survival. It will continue to evolve and do quite well, despite what you think.

  • Report this Comment On February 26, 2013, at 10:22 AM, southernbeachguy wrote:

    Ok, I admit I am an Avid fan and investor of Sirus and they have TERRIBLE Customer service, but it's Content is SO GOOD that I am willing to do without a couple Starbucks a month to listen to Sirus. Besides that AT&T is not going to give their service away. I will venture to say that the extra wifi cost will be well over the $15 Sirus cost.

  • Report this Comment On February 26, 2013, at 10:30 AM, nofoolingforme wrote:

    It always comes back to content and Sirius is king in that department.

    Why do people pay a ton of money to get cable or satellite tv when they can buy an antenna and then watch for free? Content is the answer.

  • Report this Comment On February 26, 2013, at 1:06 PM, queenmilk wrote:

    The Schaeffler Company designed and are testing a unique concept car in India. This concept car is especially built for Indian driving. The Indian car is the result of Schaeffler’s intensive research and development towards optimizing drive train. This car reflects the Schaeffler Company’s vision for the future of drive train in Indi and other emerging markets.

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