Skeptics have been branding Sirius XM Radio (NASDAQ: SIRI ) as a transitory technology for years.
In their cynical perspectives, premium radio may be hot now, but it's simply a manner of time before the disruptor of terrestrial radio service gets disrupted itself.
The lead candidate for disruption is the connected car, as drivers with seamless access to online access can choose from the limitless number of apps that provider entertainment and edutainment on the open road.
Sirius XM naturally doesn't see it that way, and CFO David Frear had a chance to argue his company's side of the story at this week's Piper Jaffray Technology, Media and Telecommunications Conference.
Driving with the headlights on
Logic would seem to dictate that connectivity isn't Sirius XM's friend, but Frear believes that the ability to serve content via satellite is still a differentiator.
Sirius XM has never shied away from the Internet. It's been offering online streaming since 2003. It was originally included with every subscription, but now is offered as a stand-alone product. Customers can pay $14.49 a month for an Internet radio account. Existing receiver-based subscribers can pay $3.50 a month for online access.
However, the rub is that countless apps are available for less if not entirely free in ad-supported form.
Pandora's (NYSE: P ) recent move to begin charging mobile users who want more than 40 hours a month maybe a sign of desperation as it struggles to turn a profit, but it's also a testament to its popularity. It's attracting more than 67 million unique monthly users, consuming nearly 1.4 billion hours of content a month. Spotify is now up to 6 million premium subscriptions. These are companies growing faster than Sirius XM, and automakers will continue to make things easier for them to reach your ears as you drive.
Frear was slightly dismissive of the deal, pointing out how it will be great for AT&T wireless customers, but a much harder sell for the vast majority of GM drivers on other carriers.
He has a point. As the mobile market moves to shared data plans across several wireless devices it may seem odd to pair up with a single carrier. However, didn't automakers go through a similar situation years ago in offering either Sirius or XM at a time when the platforms were far more distinctive than they are today?
The car of tomorrow is here today
Frear isn't naive. He knows that connected cars will explode in popularity in the coming years. Sirius XM's moves to fortify its streaming offering -- from last year's addition of on-demand selections to its Pandora-esque MySXM personalized radio platform that rolled out in beta earlier this year -- anticipate a future where more audio is consumed through wireless devices.
However, Frear feels that his company has an advantage in being able to serve dozens of channels of programmed content that won't tax the bandwidth constraints and reach on the open road. This is an argument that may fade in time as connectivity grows faster and more reliable, but let's not end the discussion of connected cars by merely pointing out Sirius XM's advantages of satellite-served content and its built-in audience of nearly 24 million subscribers.
The Internet will threaten Sirius XM, but it will also be the same tool that makes Sirius XM better.
Frear didn't venture out this far on Tuesday, but let's talk about the merits of connectivity for Sirius XM's model.
- Won't advertisers be willing to pay more to reach users that are a push of a button away from receiving more product information?
- Isn't there more money to be made in selling song downloads or products that show guests are pitching if touching a screen or pushing a button can set that transaction in motion?
- We live in interactive times. Won't satellite radio become more engaging if listeners can be polled on topic issues or the song to play next?
Sure, the connected car will make things more competitive for Sirius XM. However, it will also give the media giant ways to make its service stickier and generate more revenue per subscriber.
Don't fear the connected car. Just be glad that Sirius XM is on top of the disruption process.
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 The Motley Fool's brand-new premium report. To get started, just click here now.