Is Apple Really a Threat to Sirius XM?

Ever since Apple (NASDAQ: AAPL  ) made the shocking move to acquire Beats Music, the companies that deliver consumer audio programming like Pandora (NYSE: P  ) , Spotify, and Sirius XM (NASDAQ: SIRI  ) have had good reason to be on edge. Apple is a powerful company with a lot of customers and a lot of money to spend. Depending on its ambitions, it could wreak havoc in music and audio programming for years to come.

But is the tech giant and its newly acquired music company really that big of a threat to Sirius XM? Or has the satellite radio provider built itself a wide enough moat to withstand Apple's forays into Internet audio programming?

The answer to this question may come down to two things:

  • How deeply Apple establishes itself in the auto market.
  • How badly Apple wants to get into the business of generating its own original content.

The auto market is crucial, for the simple reason that so many of our listening hours happen at the wheel, commuting to and from work, traveling, or just taking a Sunday drive.

Outside of terrestrial radio, Sirius owns the U.S. auto market. It had nearly 26 million paying subscribers as of the end of last quarter, and it has an aggressive plan in place to continue expanding that. It is pursuing deals with auto makers that get its technology into new cars and getting buyers signed up. It is upping its efforts to connect with buyers of used cars already equipped with Sirius radio technology, a market it expects to eclipse the new car market in the coming years. It is also looking at growing its subscriber base by offering special deals to households that already have one radio installed in a car, using discounts to add the partners or children of current subscribers at a relatively low cost of acquisition.

All those efforts should continue helping Sirius to expand its subscriber base by at least the current 5% annual rate into the near future.

The tech giants eye cars
Both Apple and Google are looking to establish themselves in cars -- Google with Android Auto and Apple with CarPlay. Apple so far has commitments from 25 auto makers, including major players in the U.S. such as Ford, Toyota, Honda, Dodge, Chevrolet, Mazda, and Nissan.

But so far, CarPlay's features are far from revolutionary. It essentially stretches out some of your iPhone's features like iTunes, talk, text and mapping, into your dashboard and automotive sound system. The immediate threat to Sirius isn't apparent, since CarPlay isn't allowing car owners to do anything more than they could with their iPhone already -- in fact, they can do less from the dashboard since iTunes is available, but streaming services like Pandora are not.

In the short term, that doesn't hurt Sirius, and it may even help it since those 64% of Sirius subscribers who are also Pandora users  can't use CarPlay to use the popular music-streaming service.

The long-term picture will depend on what direction Apple and Google go with their car systems. Both are now trying to grow their own streaming services, so they will likely try to use their car players to that end.

Which brings us to original content
The biggest advantage Sirius has over competitors is its original content. CarPlay and MLB GameDay will allow baseball fans to listen to games in their cars. But it won't give them Howard Stern. CarPlay and iTunes will give them access to blues music, but it won't give them B.B. King in studio every weekend.

Sirius remains on the hunt for original programing, and as we've seen with Stern -- and a lesser extent with acts like Chris "Mad Dog" Russo and "Opie and Anthony" -- it isn't afraid to spend money to widen that moat.

That said, Apple happens to have a lot of cash. There was $140 billion in net cash on its balance sheet at the end of the last-reported quarter.

If it wanted to develop a richer audio-programming service, full of quality content not available anywhere else, it could. But that just doesn't seem worth it for the company, which earns its money selling iPhones, iPads, and Macs.

The Foolish bottom line
The audio-programming landscape is changing, and Sirius investors need to stay up to date on what key players like Pandora and now Apple and Google are doing. But the immediate threats that these companies pose are not worrisome. The long-term is still far too unclear for investors to make any hasty decisions.

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  • Report this Comment On July 28, 2014, at 9:05 AM, sirifair6 wrote:

    JEK,

    Apple has been a threat to sirius xm forever, or to be more exact, for the past ten years since the advent of i-pod. Now, it is i-phone where you can access or store any song you want. But this is still far from being a radio. It is a sophisticated version of a juke box. I doubt that apple or google or amazon will ever pursue true content in its entirety. If they do, they would choose to buy siri. Actually, they should have done this long time ago while siri was cheap. As to all others, they cannot simply afford to develop any type of content that could rival siri’s.

    Siri’s huge advantage over any one else is a decade of investment and development of business, and no matter how much money you have you cannot speed the time. It may take them a few years less but still it will be years of development that they do not have.

    I have been saying for years that music is a little bit of an icing on apple's cake and will unlikely be a driver. So, apple will continue focusing on what it does best - its gadgets where it is experiencing brutal competition unlike five years ago.

    I believe it is time to retire all these concerns about competition from the apples of the world. Siri's most viable competition remains anything free and in particular free radio as well as folks who do not care to pay for various reasons and choose free not matter how lousy it can be. Human nature! I would say that siri's greatest threat is the state of the economy since we are dealing with a 100% discretionary service. Fortunately, the economy is faring quite well and there is every reason to believe, barred any calamities, that the next ten years will be great. In the meantime, the odds are that the "addiction" to siri and siri's ubiquity will be expanding. If siri survived the worst recession in decades it will do fine in prospering economy. Do you doubt that?

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