SiriusXM (NASDAQ:SIRI) had serious problems even before it decided to fire Anthony Cumia, co-host of one of the few shows on the satellite radio service with a dedicated fan-base willing to pay to hear a particular program.
Satellite radio once provided programming that couldn't easily be duplicated easily elsewhere. Today, there's little to set it apart from its free competition. Taking away a host like Cumia only accentuates the fact that most of what SiriusXM sells subscriptions to is not exclusive content.
SiriusXM likely now faces a challenge to its continuing relevancy, even if it holds onto the handful of personalities it has exclusive rights to who bring in subscribers. That cupboard could become even emptier if Cumia's former co-hosts Greg "Opie" Hughes and Jim Norton follow him out the door when their contracts expire in October. Things would get far worse if Howard Stern -- the No. 1 subscription driver for SiriusXM -- retires or moves to another broadcast home when his deal ends in a year and a half. Firing Cumia for an off-air Twitter rant that might just accelerate the sinking of this ship.
Why is SiriusXM in trouble?
When Sirius and XM launched nationally as separate companies in 2002 their competition was local radio. Suddenly, listeners had a range of options based on what they liked -- rock, country, pop, jazz, opera, and even show tunes. The satellite companies also offered talk shows, sports (including games and talk), comedy, niche programs, and lots of stuff that had no place on local radio. Once the companies merged in 2008, SiriusXM had a broad range of music stations, rights to broadcast all the games for the major sports, and a small number of key personalities that lured in subscribers.
Even at the time of the merger, SiriusXM was still largely competing with local radio. Six years later, though, the company faces a very different landscape. Pandora (NYSE:P), Spotify, Apple's (NASDAQ:AAPL) iTunes Radio, and other services make it easy for anyone to create music channels that are even more heavily tuned to their particular interests than satellite radio. The huge rise in the number of major personalities hosting podcasts has also reduced the need for SiriusXM as a provider of talk.
That leaves satellite radio's two main draws as sports game broadcasts and Stern along with Opie and whatever show he puts together in the wake of Anthony's firing.
Can satellite radio be saved?
Satellite radio used to have a major advantage in that it is installed in most new cars and it's relatively easy to have it added to vehicles that don't have it pre-installed. For years SiriusXM grew as new people were exposed to the service as they bought cars and received a free trial. For years it was also uncommon for vehicles to have an easy way to connect a smart phone, which gave satellite a strong advantage. That's definitely not the case now.
An ever increasing number of people can easily stream content over a smartphone and it won't be long until nearly everyone can simply plug in or connect over Bluetooth. That will kill any advantage SiriusXM has in music. No programmed channel could ever match what Pandora, Spotify, and the others offer for free. If someone subscribes to SiriusXM for music only they can buy a Mostly Music subscription for $9.99 a month, which gives them access to over 80 programmed channels. Sign up for Pandora One and you pay half as much -- $4.99 a month -- for music channels based on your specific taste. Once you have the ability to stream Pandora in your car there is essentially no reason for a music-only listener to pay more for satellite radio.
In the world of talk, while I'm sure some listeners subscribe to SiriusXM for hosts such as Covino & Rich, Jay Thomas, or Jason Ellis, the vast majority of talk fans have been drawn in for Stern and/or Opie & Anthony. That is clearly reflected in the fact that Stern is paid somewhere between $80 million and $100 million a year (though that number has never been confirmed) while Cumia and Hughes each had contracts paying around $3 million annually. Only Christopher "Mad Dog" Russo and maybe Dr. Laura Schlessinger make anywhere close to seven figures working for SiriusXM as talk show hosts and most make far less than that.
Stern just turned 60 and already only works three days a week so his time as an active host is winding down. Hughes seems unlikely to sign a new deal if SiriusXM even wants him. SiriusXM could try to land other exclusive talk show content, but attempts to bring on big names have all failed. A deal with Oprah Winfrey cost the company tens of millions for essentially nothing. The same was true of a partnership with Martha Stewart and a show hosted by Rosie O'Donnell. The deal with popular terrestrial radio host Dr. Laura showed that just because people listened to a host for free did not mean they are willing to pay to hear him or her.
If it were easy to find the next Howard Stern or even the next Opie & Anthony then terrestrial radio would not still be struggling to find the next Stern eight years after he left.
The end may not be near, but it's coming
That leaves SiriusXM with its sports franchises, which are valuable only to fans who don't live in the same town as their favorite team.
Basically Sirius has very little exclusive programming that can't be matched. Podcasting has many more big names across a much wider array of content than SiriusXM. Adam Carolla, Chris Jericho, The Nerdist Podcast, Marc Maron, and pretty much every working comedian have regular shows as do big names like Director Kevin Smith, ESPN's Bill Simmons, and many more.
I pay $18.99 a month for a SiriusXM subscription for Stern and Opie & Anthony. I listen to a little comedy, some Covino & Rich and a little sports talk. Now, the only reason I stay is Stern. That's a hefty price to pay for one guy who does 12 hours of programming maybe 45 weeks a year when I have unlimited data on my Sprint phone and already have a backlog of podcasts to listen to as well as a Pandora account.
That's just one subscriber's story, but it's not hard to imagine a ton of SiriusXM subscribers wondering why they continue to pay that bill.
Daniel Kline is long Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple, 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.