Did Amazon Just Kill Sirius and Pandora?

After breaking news that it would begin offering Prime Music for all Amazon Prime members, shares of Amazon fell on fear that it would harm the business's bottom line. However, is it possible investors got this one wrong and that, instead, the company's move could signal the decline of Sirius and Pandora?

Jun 21, 2014 at 3:00PM


Source: Amazon

On June 12, Amazon.com (NASDAQ:AMZN) announced a new feature to its Amazon Prime membership called Prime Music. Although some investors might find the development of the company's flagship product exciting, the market reacted by sending the business's shares down nearly 3% to $325.91. Is this a sign that Amazon's add-ons to Prime are diluting shareholder value, or will the company's service be so successful that it could threaten the existence of companies like Sirius XM Holdings (NASDAQ:SIRI) and Pandora Media (NYSE:P)?

Amazon's new service rocks... literally!
By paying the $99 yearly fee, individuals can become members of Amazon Prime. Included in the service is free two-day shipping on over 20 million items, access to over 40,000 movies and television shows via the company's Prime Instant Video service, and the ability to "borrow" more than half a million books through the company's Kindle library.


Source: Amazon

With over 20 million subscribers at last count, Amazon Prime can be expected to generate at least $2 billion in sales for Amazon this year. As a percentage of sales, this part of the business's operations is surprisingly small at 2% of forecasted revenue for the current fiscal year. Margins have yet to be disclosed on the service because it's too small relative to revenue for Amazon to have to disclose, but more likely than not, the company is using the service as more of a marketing tool designed to bring buyers to its website than anything. 

Now, with the addition of Prime Music, Amazon is bringing more than 1 million songs from top artists to its platform. On top of listening to the music you want at no extra charge, Prime Music allows users to create their own library and playlists, listen to the company's pre-set playlists, and receive song recommendations... all with no advertisements. To make things even sweeter, Amazon has made it possible for listeners to play their music on most any device and to download the music for offline listening to avoid data charges.

Will Amazon put Sirius and Pandora out to pasture?
One potential consequence of Prime Music is that it could mean trouble for Sirius and Pandora. Over the past five years, these streaming services have seen their sales soar and, in the case of Sirius, profits rise. Can these businesses stand up to a player whose market power surpasses theirs combined?

SIRI Revenue (Annual) Chart

SIRI Revenue (Annual) data by YCharts

Between 2009 and 2013, Pandora saw its revenue soar 674% from $55.2 million to $427.1 million. At the same time, Sirius's top line grew a more modest, but still impressive, 54% from $2.5 billion to $3.8 billion. During this timeframe, Pandora reported a net loss that widened from $16.8 million to $38.1 million as higher sales were offset by the soaring cost of content and growth initiatives. Sirius, however, saw some nice results, with its net loss of $352 million in 2009 turning into a net gain of $377.2 million.

Although Amazon has not provided official subscriber data related to its Prime memberships, the company's statement that its user count has surpassed the 20 million mark means that it's on par with Sirius' 25.6 million base (21.1 million or 82% of whom are paid users.) What's more is the fact that Amazon's service, which includes all of its other perks, is far cheaper than the $119.88 to $199 per year charged by Sirius. Possibly the only positive note for Sirius is that the company has its radios installed in over 50 million vehicles, which may serve as a deterrent from switching to Amazon's platform even in spite of cost-savings.

  Subscribers (millions) Annual Cost
Sirius XM 25.6 (21.1 paid) $119.88-$199.00
Pandora 76.2 (2.1 paid (est)) $36.00
Amazon 20+ $99.00

Source: Sirius, Pandora, and Amazon

Because of its revenue composition and the fact that the business has yet to turn a profit, Pandora might be even more susceptible to Amazon's entry into the music space. Currently, the streaming service charges just $36 per year for its Pandora One subscription but at just 18% of sales (versus the 82% of revenue it generates from advertisements), even it could be negatively affected by Prime Music's decision to avoid advertisements.

Foolish takeaway
Right now, Amazon is trying to be everything to everybody. While this is a noble ambition, shareholders appear to see the company's attempts as a distraction from value creation. In the long run, management may prove itself right but it's also possible that shareholders will end up with less money in their pockets if the company cannot use services like Prime Music to generate attractive returns. In the event that investors are wrong about Amazon's move, it could mean trouble for other streaming services like Sirius and Pandora because of the company's market presence and the cost and convenience factors at play.

Your cable company is scared, but you can get rich

Right now, a war is raging for a spot in YOUR living room and there are a number of companies set to benefit!  Is it possible that Amazon, Sirius, and Pandora are all set to gain from the momentous shift or are there even better ways to play the revolution?

You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Pandora Media. The Motley Fool owns shares of Amazon.com, Pandora Media, and Sirius XM Radio. 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. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information