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Sirius XM Radio (NASDAQ:SIRI)
Q3 2020 Earnings Call
Oct 22, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to Sirius XM's Holdings third-quarter 2020 results conference call. Today's conference is being recorded. [Operator instructions] At this time, I would like to turn the call over to Hooper Stevens, senior vice president, investor relations and finance. Mr.

Stevens, please go ahead.

Hooper Stevens -- Senior Vice President, Investor Relations, and Finance

Thank you, and good morning, everyone. Welcome to Sirius XM's third-quarter 2020 earnings conference call. Today, Jim Meyer, our chief executive officer, will be joined by Jennifer Witz, our president, sales, marketing, and operations; and our incoming chief executive officer. At the conclusion of our prepared remarks, management will be glad to take your questions.

Scott Greenstein, our president and chief content officer, will also be available for the Q&A portion of the call. First, I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

For more information about those risks and uncertainties, please view Sirius XM's SEC filings. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I would like to advise our listeners that today's results will include discussions about both actual results and pro forma adjusted results. All discussions of pro forma adjusted operating results assume the Pandora transaction closed January 1, 2018, and exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

I'll now hand the call over to Jim Meyer.

Jim Meyer -- Chief Executive Officer

Thanks, Hooper, and good morning. Thank you for joining our call today. My 32nd earnings call as CEO of Sirius XM. It is certainly bittersweet to know this will be my last call as Sirius XM's CEO.

It's been a true honor to lead the outstanding team here. And I've enjoyed the fun and sometimes challenging conversations with you on the Street. They've made us a stronger company. I'm very confident that in Jennifer Witz, our board has chosen the right leader for the next stage of Sirius XM's growth.

It's also important to acknowledge that Jennifer has a deep bench of talent behind her to help evolve and execute the company's strategy over the coming years. Although I'm looking forward to spending more time with my wife and family next year, I'm not quite out to pasture just yet. We have plenty of work to do this year to deliver on our subscriber and financial goals. And I will remain on Sirius XM's Board as vice chairman and continue to help Jennifer and the company wherever and whenever possible.

I am deeply proud of our long-term results and will remain highly invested in the company's ongoing success. Not only do we resume our practice of providing guidance on our second-quarter call, but happily, during the third quarter, we've now been able to resume what I like even better, increasing that guidance. The positive self-pay additions of 169,000 in the third quarter far exceeded the expectations we formed early during the pandemic. And these results and momentum support our new increased 2020 self-pay subscriber guidance of approximately 800,000, a figure we had already increased earlier last month.

Our core subscription business is humming along, with low churn, a rising ARPU, strengthening auto sales, and it's producing the excellent revenue and cash flow you've come to expect. Today, you also see a 46% sequential increase in advertising revenue during the quarter. Put another way, the 34% decline in ad revenue in the second quarter bounced back to a decline of only 6% in the third quarter. And in fact, in the month of September, advertising revenue actually increased year over year.

The business overall has excellent momentum going into year-end. Our new higher guidance now anticipates 2020 revenue adjusted EBITDA and free cash flow of approximately $7.85 billion, $2.475 billion and $1.6 billion, respectively. We are on track for an extraordinary year, and I am very confident in this guidance. The quality and relevance of our programming is at the core of our offering.

Our unyielding focus on fantastic new content, new features and digital product innovation continues to attract listeners at great scale while also solidifying our relationship in the entertainment industry. First, let me say a few words about Howard Stern. Howard tells me he's never been happier, and our relationship with Howard is very strong. He is producing fantastic content and the show has never ever been better.

We had very productive conversations regarding a long-term renewal of this agreement. From my perspective, we are far along, but it's never done until it's done. I am very confident we will have an agreement soon to announce shortly. Recently, Kevin Hart resigned his exclusive audio deal with us as well, increasing his involvement by heavily investing in new program for his channel, while also creating a new show and podcast just for Sirius XM, where he will interview top comedians.

Our relationship with LeBron and Maverick's UNINTERRUPTED enabled us to launch content on Pandora from within the NBA bubble. And we've added the popular Pat McAfee show to Mad Dog's Sports Radio channel. We successfully launched our full-time channel with the members of YouTube. Sirius XM and Pandora have resumed live concerts and events, of course, most of them virtual for now.

We've resumed live broadcast of major sports, including college football, the NBA and MLB playoff and every NFL game. We've also added programming that reflects the important issues in our country, launching Forward Progress, a new show focused on race, society and sports. We're covering the election on a wide number of channels and from every perspective, right, left and center. And on November 3, many of our own channels like Pulse, Urban View, Patriot and others will go live with 24/7 coverage.

We continue to work with major media brands who look to Sirius XM to extend their reach and audio. We expanded our CNN relationship with the launch of a full-time streaming channel, CNN Originals, which compile some of the best documentary work of CNN and HLN. Pandora's new innovative feature Modes continues to grow in popularity, with user adoption increasing 60% since last quarter. Modes provides a different way to curate your music.

As we advertise during the NBA playoffs with Tip-Off Mode, where the music is geared to the anticipation of the game. We find that listeners who use Modes spend an average of 7% more time on Pandora than nonusers. So expect more focus around Modes, including a timely Halloween Party Mode. As you can tell, there's tremendous energy in our content creation and digital product development.

Sirius XM really is a unique service. We truly believe that folks, personnel and curation matter, live matters, especially in sports and news. And while we will give consumers more choices, more personalization and more on-demand content like podcasts, Sirius XM subscribers will always enjoy an experience that is part community, an experience that is happening right now, everywhere that we all can share. With that, I'm pleased to turn the call over to our next Chief Executive Officer at Sirius XM Jennifer Witz for some more color on our operations.

Jennifer?

Jennifer Witz -- President, Sales, Marketing, and Operations

Thank you, Jim. It is a privilege to have spent much of my career with an outstanding leader who trust its team members to take big risks, own big decisions and relentlessly focus on the growth of the company. Jim has fostered an environment at Sirius XM, where expectations are high, integrity is paramount and everyone from junior employees to senior executives is expected to follow through 100% on their commitment. I intend to continue this culture of excellence at Sirius XM in the years to come.

I joined Sirius XM nearly the same month the company gained its first subscriber back in 2002. When leaving Viacom, I wanted to join an entrepreneurial growth company with a vision to create an entirely new industry and consumer experience. I'm a Brooklyn resident. I've always loved music and nothing thrills me more than attending one of our exclusive subscriber events, such as a special set in the Sirius XM studios by someone like the incredibly talented Taylor Swift.

I knew from day 1 at Sirius that our special blend of unique and curated content would be the heart of our value proposition, and we will always nurture, invest in and deliver the best possible content to our subscribers and listeners. Even today, when most of us are at home, it is a true pleasure to see the unmatched opportunities we create for our subscribers to connect with the artists and talent they love. Scott Greenstein and his team have done an excellent job in building our content offering. And we have a deep group of talent across our organization to help support our mission of continued growth and consistent execution.

We also value new insights and perspectives. And I'm very pleased to be welcoming Sean Sullivan next week as our new chief financial officer. During the third quarter, we faced dramatically fewer conversion opportunities than we originally modeled earlier this year. Stay-at-home orders sharply reduced second-quarter order sales and the associated three-month trials.

Despite this, the quick recovery in our conversion rate to near pre-COVID levels, steady churn of just 1.7% and strong performance in channels, like win-back produced 169,000 Sirius XM self-pay net adds. Our new subscriber guidance now twice raised since we resumed guidance this summer, implies that we will finish the year with self-pay net additions close to 90% of what we originally projected in January 2020, an extraordinary performance in this year's environment. This third quarter saw our best third-quarter churn in more than a decade, and puts us on track to potentially head to fourth consecutive year of declining churn. We did this with solid ARPU gains of 2% in the quarter.

And in fact, the subscription component of our ARPU rose closer to 3%. The rebounding auto sales, combined with rising penetration rates means trial starts are bouncing back, too, which sets us up well for the fourth quarter and for next year. Combined new and used car trial starts in the third quarter were actually up slightly year over year. And for the full quarter, SAAR was $15.3 million, down 10% from the third quarter of last year.

Sirius XM outperformed these numbers given the relative strength of consumer versus fleet sales, combined with our rising new car penetration rate, which reached approximately 78% in the quarter, up from 72% a year ago. The total U.S. enabled fleet size grew to approximately 132 million cars, up 9% versus this time last year. Strengthening and extending our OEM relationship has been one of my key goals during my time as president of the company.

Since the start of the third quarter, we've completed new expanded agreements with GM and BMW. We continue to expect these and other OEM agreements to push our factory penetration to 80% in the next few months and even a touch beyond that in the years to come. We have also made incorporation of 360L, our upgradable next-generation platform, a focus of these agreement, in order to provide the best possible consumer experience in future vehicles. The combination of satellite broadcast and streaming enables us to deliver vastly more content that is more personalized with a better interface and improve the efficiency and effectiveness of our marketing.

I'm very pleased that 360L has become the plan of record with every major OEM. We expect 360L will quickly grow to more than half of our new enabled vehicle sales in the next few years. The long tail opportunity in used cars rises because of our success in new cars, and it continues to represent a growing source of additions to the business. This year, used car penetration is up about 400 basis points to almost half of all used cars sold in America.

And the tail of growth in used cars lengthens because of our still rising new car penetration rate. One of our central goals in recent years has been to improve the Sirius XM streaming offering, drive out-of-car engagement among existing subscribers and acquire streaming-only subscribers who may not have a need for an in-car subscription. I can report steady progress and traction on all three of these fronts. By constantly improving our streaming apps and making streaming a part of our base package for most subscribers last year, we were able to satisfy a greater need for streaming while much of the country was locked down earlier this year.

That was a silver lining of the pandemic. The Stream Free promotion we ran earlier this year also resonated with Gen X and younger generations. We've recently expanded our agreement with the NFL to include additional streaming rights this season so that our customers with a streaming-only Sirius XM premier subscription get every NFL game, as well as our exclusive Sirius XM NFL radio channel. This makes our streaming-only package that much more attractive.

This is just one example of how we are working to ensure that our vast content resources are thoughtfully utilized across our various direct-to-consumer platform. As we look to the benefits of our Stitcher acquisition, the closing of which we just announced on Monday, not only do we gain greater exposure to podcasting, the fastest-growing segment of audio entertainment, but we hope to introduce Stitcher podcast and their creators to a wider audience and universe of listeners through our Pandora and Sirius XM platforms. And our platforms only become more attractive by highlighting this fantastic content and making it easier to access. Jim spoke about the quick rebound in our advertising revenue, and short-term considerations aside, we are assembling a powerful suite of audio advertising products across our platform.

The acquisitions of Stitcher and Simplecast complement our leading ad tech and digital audio sales capabilities at AdsWizz and Pandora. We now reach more than 150 million listeners across our combined properties and commercial relationships with every category of audio represented: music, sports, talk and podcast. We intend to use our technology and sales capabilities, combined with its tremendous multi-platform reach to enable easy and efficient monetization opportunities for content creators and audience targeting opportunities for advertisers. We are the leader in North American digital audio advertising, and this position is only getting stronger.

We continue pursuing all of these long-term goals and delivering on our increased guidance this year during an unprecedented environment for all of our employees. From working at home, dealing with unexpected child care challenges, and in some cases, even worrying about one's own health or the health of a relative, this year has been like no other, yet day in and day out, we continue our excellent performance. And for that, I would like to thank all of our dedicated employees. I also want to take this moment to thank Jim for everything he has done to build this company and for his incredible leadership as our CEO over the past eight years.

With that, I'll turn it back to Jim for some final remarks.

Jim Meyer -- Chief Executive Officer

Thanks very much, Jennifer. Since Sean is starting on Monday, I'll just make a few brief remarks on capital returns and the balance sheet. After suspending our share repurchases in March and buying back about $165 million of our shares in the second quarter, we increased the pace of our share repurchases in the third quarter to $486 million. Through September, year-to-date capital returns, including dividends, totaled nearly $1.1 billion, and we committed $428 million of additional capital to fund our acquisitions of Stitcher, Simplecast and our investment in SoundCloud.

We still expect to pay no federal cash taxes this year and a relatively small amount in 2021. We estimate capex this year in the range of $330 million, with the launch of SiriusXM 7 still expected later this year and the launch of SiriusXM 8 in the first half of 2021. At the end of the third quarter, our net debt to trailing 12-month adjusted EBITDA ratio was 3.1 times, and our $1.75 billion revolving credit facility was completely undrawn and fully available. Our capital allocation and leverage targets remain unchanged, and we expect to continue our share repurchases and in the final months of this year.

Jennifer and I feel excellent about the increased subscriber and financial guidance we've given you. With that, operator, let's open it up for Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions] We can take our first question from Sebastiano Petti of JP Morgan. Please go ahead.

Sebastiano Petti -- J.P. Morgan -- Analyst

Thanks for taking the question. Congratulations Jennifer in the new role and Jim good luck to you as you move on to the next stage of your career, not quite out to pasture, as you said. But just thinking through some of the extensions that you talked about in the quarter, whether it be BMW, GM, but also 360L, there's a penetration rate 80% next quarter, though, above that longer term. You touched on your revised 2020 self-pay net add guide, not too far off the 90% of where you started at the beginning of the year.

With the penetration rate rising, perhaps some pickup in churn is vehicle-related churn, continues as -- depending upon the economic activity. But putting it all together, I mean, as penetration goes higher, perhaps the economy stays -- doesn't go into a double dip here, how should we think about 2021 self-pay net adds? What are the different pieces that probably add up to where 2021 can shake out relative to where 2020 and 2019 levels came in?

Jim Meyer -- Chief Executive Officer

Well, Sebastiano, first, thank you very much for your kind words. Obviously, we're not going to give you our 2021 self-pay guidance yet, but I would expect we will give it to you early next year. But I think things are shaping up, certainly better than we would have expected six months ago. And I'll let Jennifer comment in a moment on -- particularly our new OEM agreements.

But I will tell you, for investors who are in our stock for the midterm and long term, these OEM agreements that have just been completed are a really strong foundation in our growth story. You're right, auto sales will cycle up and down. We can't -- we don't worry, we don't have anything to do with that. But when you think about those kinds of penetration rates, lay them out over the next five years and then take the residual used cars that come behind it with the same kinds of penetrate, it really is an outstanding funnel for trials.

And it just, I think, bodes very well for growth going forward. Jennifer, would you like to comment on the OEM agreements?

Jennifer Witz -- President, Sales, Marketing, and Operations

Yes. So we have announced a number of extensions, obviously, over the past several months and more recently, really strong agreements with GM and BMW that continue to bolster that penetration rate. And like we said, we are confident in hitting the 80% in the next few months. It's always subject to new model year releases.

But we have line of sight to even seeing that 80% tick up into next year. And of course, an increasing number of those vehicles will be equipped with 360L. We are on track to hit the 1.4 million enabled vehicles with 360L by the end of this year. And we've said that we expect that to triple going into next year.

And of course, today, I mentioned that in terms of the percentage of our enabled new car sales, we expect to see at least 50% of them 360L capable in the next few years. So that will just continue to expand. And the relationship we have with the OEMs has never been stronger. And the new technologies we are putting into these cars with the OEMs gives us incredible flexibility in terms of the the nature of the content that we can distribute with unlimited bandwidth, as well as more personalized capabilities, more interactive features.

And so I think we're really well-positioned, and that will continue to be a tailwind for us going into next year.

Sebastiano Petti -- J.P. Morgan -- Analyst

I think, certainly, Jennifer, you spent some time on the digital audio assets, which Sirius has compiled, whether it be with Pandora and AdsWizz, as well as the Stitcher and Simplecast acquisitions. Recent conferences, you talked about getting that business up to about $2 billion over the next several years or 20% of the larger overall business. What are the biggest pieces to get that model? What needs to kind of go right or where you see as the maybe low-hanging fruit over the next several years? Thank you so much.

Jim Meyer -- Chief Executive Officer

So we're off to what I would -- there, obviously, are three or four key pieces, and I'll comment on them, and I'll give you the good and the bad, OK? And I'll start with the negative, which is we still continue to battle a declining listener base at -- in our Pandora listener base. With that said, it is still by far the largest listener base in the U.S. market. And we're working really hard, really hard on that problem.

But offsetting that is we have seen increased listening by increased engagement by the listeners that are within the Pandora funnel, which helps our listening hours. And we're also, I think, really looking at investments in content and ways to bring certain types of really innovative things we've done in Sirius XM over to the Pandora platform to help with the earnings decline. Another point that I think is a good tailwind for us is that our monetization per unit of ad, and I won't get into the specifics of the different types of ads, Hooper can get into maybe later, if he'd like, but but when you average all those out, you're seeing increased monetization per unit. And that is also a good tailwind going forward.

Our relationship with SoundCloud has worked out great for us in terms of the bolstering, our advertising revenue by being their agent for all their advertising sales in the U.S. We're, obviously, out working on more of those types arrangements and I think you'll see shortly, and in fact, Jennifer announced her new organization that will be in place at the beginning of the year. And within that, she has combined all of our advertising sales under one organization, where I really do believe one plus one is going to end up giving us more than two. So this is an area both of us are quite focused on.

It's an area I believe is fertile for growth. By the way, the ad technology area, I think, is an area that we are spending quite a bit of time right now making sure we really understand what the right play is there, but there's no doubt in my mind that there is a play there. And all of those I certainly don't believe growing this to $2 billion is unrealistic at all.

Jennifer Witz -- President, Sales, Marketing, and Operations

Jim, if I could, I just would add on that, I think Sebastiano, it's really the three pieces, right? we've added Simplecast, hosting and analytics tools, primarily for podcasters, into our AdsWizz platform, which already is a leading ad insertion order-to-buy platform. And combined with that, massive salesforce we have, which we've had for 10-plus years under John Trimble, we have a scaled platform to be able to offer and continue to position ourselves as a leading digital audio ad sales platform for any media brand. So it's that combination of technology and sales capabilities that really positions us well in this space.

Operator

Your next question is from Jessica Reif Ehrlich of Bank of America Securities. Please go ahead.

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Thank you. I've got a couple of questions. First, given how strong churn has been for a number of years, how do you balance -- you continue subscriber growth extremely low churn, surprisingly low versus raising ARPU, raising prices.

Jim Meyer -- Chief Executive Officer

Jennifer, do you want to take that one? Or do you want to make a comment first? I think you start and I'll jump in.

Jennifer Witz -- President, Sales, Marketing, and Operations

Sure. Jess, we have a long history, as you know, of balancing overall revenue growth between subscriber growth and [Inaudible]. And that is how we look at it in terms of overall revenue growth. And we have, I think, a lot of opportunity to continue to relook at our packaging structure.

And we have expanding consumer demand, both at the high end and the low end, still to capture. And so we continue to look at that and modify it. But to your point, churn has really never been lower, and it's been, I think, a real bright spot over the last several months. We just see every component of churn in terms of its positive contribution, right? On the voluntary side, we continue to execute across the board, and the team is doing a great job, even, obviously, especially earlier this year when we struggled with call center operations and staffing.

And on the non-pay side, it's really surprising, even as we've alluded to, is how low our nonpaid churn is, especially on credit card and debit card entry rates. And we do believe, as we have said before, that this is really tied to lower consumer spending and higher savings level. So we'll see what happens as that turns around, I'm getting some feedback on the phone. And on the vehicle sales side -- churn related to that and vehicle related, as we see trials grow and rebound, we've started to see an increase there, but it's still down year over year.

And those -- all three components of churn have been just exceptional. And we don't see a change materially in that. We have said that we expect to be right around that 1.7%, and we balance that, obviously, with the pricing structure we have in place and expect to continue to do that.

Jim Meyer -- Chief Executive Officer

It's a great question because it's one that we debate quite often, as you can imagine -- not debate, but discuss quite often. And I will tell you, my conclusion is that based on the churn rates that we're seeing and based on a lot of that's going on right now and has been going on, the Jennifer reference, for instance, in packaging work, as you project out over the next three to five years, there's no doubt in my mind that we can continue to grow self-pay subscribers and continue to grow ARPU at the same time.

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Great. And lastly, related to -- I have two other topics. One is content and one is advertising. On content, you brought up how it turns.

So hopefully, it's per game. Can you give us some color on what you're looking for, for the next contract in terms of length of contracts and maybe the kind of the terms, the last one included the library, I think, 12 years, does that get extended for another 12? Or do you just move it out that contract? And can you give us an update on the Drake relationship? Like how will that evolve? What should we expect? And then, I have another one.

Jim Meyer -- Chief Executive Officer

Yes. So any question you asked is fair, number one. But I'm only going to answer part of it right now. I'll take Howard, and then I'll ask Scott to comment on Drake.

On that Howard discussions, I'd rather wait for some of those specifics until the deal is done. But I can tell you that where we are in the discussions today, we have a set of economics that Howard's teams happy with and I'm happy with. Obviously, we've got to get the deal completed. And it would be a -- certainly a long-term arrangement is what we contemplate.

But stay tuned there. And hopefully, we'll have more to say here pretty soon. Scott, can you comment on Drake, please?

Scott Greenstein -- President and Chief Content Officer

Sure. So a couple of things. So like most artists, Drake wants the time to release of the channel and some of the things we're going to do with Sirius and Pandora with the release of his album. I think like anything else and any other artist, you look at the landscape and the climate and everything else, and you want to pick the shot that you feel best your audience will respond to your music.

And as everybody knows, he's been -- other than a couple of singles, which he worked with us on deep quiet a lot. I think momentarily, we'll -- and I certainly don't want to speak for him, but we're in regular contact, both with him and his management team. And we have most of our assets already built. We're in discussions on some marketing ideas.

And we're really confident that as soon as he announces the release date of his album, which I anticipate to certainly not be too much longer, I don't think anything will go past our early first quarter. We'll be ready to go with it. And I think we are going to have some really interesting content, not only a unique channel, which will certainly have been print on it, but there'll be Pandora in the playlist category and some other things that I think will surprise people with some of the technology Pandora's been working on meeting, some ideas we have within. So we're pretty excited over that.

And the Artist channels are always going to be something that we focus on, that this is going to be I think, one of the more unique launches when we get there.

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Right. Looks like a different category. And then, my last question, I guess, to Jennifer, but it's maybe a two-part on advertising. What do you view as your biggest competition in digital audio? And then, what was the driver of advertising in September where it was finally positive.

And is that continuing into the fourth quarter?

Jim Meyer -- Chief Executive Officer

So let me take this one. First and foremost, I think we have multiple competitors, and I think it's not just audio dollars. For instance, I've had the pleasure of going on a couple of sales calls with our digital audio sales force, including Procter & Gamble, and I've learned that the way they manage their media is quite sophisticated and across several channels, which they let compete with each other as they allocate their tellers. So clearly, though, we target also within our space, in particular, we see quite a bit, obviously, from iHeart.

We see quite a bit from Spotify. And I'm happy to say we're doing quite well in both of those areas. I think the reason why I included the comment about September and my remarks is exactly what you picked up, I believe that the fourth quarter, we should continue to see that kind of momentum. It's early still.

Obviously, we've still got nine weeks less in the quarter. And October and the first couple of days of November does have political advertising in it, which will drop off rapidly after. But when you sense -- you take those things out and you look at what's going on right now in the ad market, at least for us, it's quite robust right now. And I'll be disappointed if we're not able to keep it flat or up slightly versus last year in the fourth quarter.

Operator

We can now take our next question from Ben Swinburne of Morgan Stanley. Please go ahead.

Ben Swinburne -- Morgan Stanley -- Analyst

Thank you. Jim, congrats on retirement, and I'm sure, we'll miss you more than you'll miss us. But since both of you have been at the company for a long time and have seen a lot of investment cycles, I was wondering if you could help us think about the next kind of three to five years on that front. Because one of the things that I think is so attractive about the business is just -- you got these locked in music costs.

And you're able to maintain like 60% gross margins in the satellite business. I think it's been true for like eight years. But I think the market is concerned, particularly around Spotify, Apple, others pouring money into this space beyond music, that the cost of doing business is going up. Obviously, we've been talking about Howard and Drake on this call.

So I'm just wondering from where you guys sit, do you see things changing in that -- with that lens in terms of the amount of capital and sort of the cost of content beyond music? And I would love to hear that from Jennifer and Scott as well just on their perspective as they look forward in dealing with the artist community and the talk community and whether or not you think the business is going to go through a period of heavier investment than we've seen in the past?

Jim Meyer -- Chief Executive Officer

So I'll start. I don't think the competition is any more intense today than it's been for the last 10 years. And so I see a whole lot more of what we've seen in the past. I don't really sense -- and I'll let Scott can comment on this in a moment, but I don't see that it's ratcheted up as much as I read in many of the reports that I see.

There's always been high demand for extraordinary content. And we're committed on our platform to offer extraordinary content. And we'll continue to do that. But I'll bet on on our track record every day because we've got a proven track record of how we've been able to manage delivering extraordinary content within what I would call acceptable cost parameters.

And believe me, both Scott and I and Jennifer was with us then too, back in the mid mid-2000s, just to know exactly what it means to overpay for content. So we've bought and paid for that lesson. But I think there's so much content out there that, frankly, I think the problem is still always the same, which is there's so much extraordinary content, how do you filter through that content, how do you decide which of that content you're really going to bet on, and then the biggest problem is how do you get that content front and center for the users to experience it, to find out whether they really like it or not. And I think we're spending a lot of time on that particular iteration, making sure we get better and better at that.

So I'm not as worried perhaps as the comments indicate. I would like to comment on one other thing. And since this is my last call, I can freewheel a little more. I'm sure Hooper is shaking here.

But the whole streaming thing, frankly, is a little overdone. And I don't mean by that that I don't think streaming is a heck -- we are betting huge on streaming, as well as a technology, OK? But if you go back and look at what's happened over the last four or five years and look at how much the download business has dropped to being offset by the streaming business, the net of those two has grown. But probably, at least if you believe some of the research that I see, particularly I'm staring at some last night for medicine that just came out, not as big as you think. And yet, free radio still continues to be the largest share of the audio market.

And I think what that means to me is there's still a whole lot more room for us to be able to take share and frankly for Spotify and others as well because I think the way we're going to take share from those guys is by offering a better product. And to me, when you look at the audio landscape, the riskier equation for me is certainly terrestrial radio. So Scott, let me turn it to you for a comment on content.

Scott Greenstein -- President and Chief Content Officer

Sure. So first, when you think of the two pillars of our content that make what we do work, it's curation and then individual talent and brands and things like that. So as Jim alluded to, the curation factor in a content war is on the sideline to a point. Meaning people are going to always respond to individual talent and brands that matter to them.

But at some point, the vastness of which we're at that point now, both in music and talk in trying to find things, curation is going to be overwhelmingly the most important thing from that basket of items. And when you look at the tools we have and the ability to curate, obviously, music, but not only now with Stitcher and Pandora to curate podcast and other things and serve a unique feed of what you like in those areas plus your music fee, I think that's really important. As to the cost and the -- where that's going, there's always been bidding wars in terrestrial against themselves, Sirius against XM in the early days. There's more competition now.

Money is always a factor, as we know with talent, but production skills, freedom of expression and other things are a lot of things that go into the factors. And as Jim alluded to also, we don't generally lose too many situations where we find a medium on price and other things. But generally, those other factors really do matter. I know they can be discounted, but they look at our track record, they look at the brands, they look at the artists that work with us.

And that comes into pay. There will always be something we want to bet on. We consistently as a company bet on certain talent along the way, whether its Howard or Drake or others. But for all of those, that also puts an aura on the brand and our content production that allows us to get a lot of people that want to be part of that environment.

And that combination and blend has done us well so far. And I think being smart about what we bet big and what we don't, frankly, which is as important what you bet on is what you don't bet on. We feel pretty good that at least right now nothing has changed that would cause us to be concerned that there's a new level of bidding or something else.

Ben Swinburne -- Morgan Stanley -- Analyst

Could I just ask one follow-up? That's very helpful. You guys have made some interesting bets on the podcasting side. I'm wondering, when you look at Simplecast plus Stitcher, do you now have more to offer the content creator community on the podcasting to this conversation on content wars, does that add something to your offering? Or am I thinking about it maybe too much?

Scott Greenstein -- President and Chief Content Officer

Yes. No, I didn't actually wanted to go one level deeper, but I'm glad you brought that up. So for instance, I was on a conversation with the, I would say, a major star the other day and what attracted the most was the flexibility, I'll come to the monetization in a second, but the flexibility of if something is topical, they could do a radio show. If their schedules got very busy, they could go to Stitcher and do podcasting.

If they want to collect, let's say, the history and that also in music, they could do play with the Pandora. So they're looking at our spectrum as something now that can fit lifestyles of artists and musicians, creators, whatever you want to call, in any bucket. And in many cases, we're OK mixing all the buckets. But much more importantly, back to the content war comment is the dual monetization, and it sometimes is three levels.

I mean, we could have something monetized on Sirius, have Stitcher take it wide as a podcast or stop with an interim window at Pandora and have it sold there. So while costs in some cases may go up or will want it back, we now have much, much better monetization tools that Jim, Jennifer and I did not have five years ago. So I'm actually excited about the Stitcher together that you alluded to in the question.

Operator

We can now take our next question from Kannan Venkateshwar of Barclays. Please go ahead.

Kannan Venkateshwar -- Barclays -- Analyst

For Jennifer, Sirius has been a structurally different [Inaudible]. It's a lot more saturated, it's more connected to devices in the car. Do you think you need to do anything differently from here? And secondly, what do you see as the biggest growth opportunities from here? And what's the biggest threat from here? Thank you.

Jim Meyer -- Chief Executive Officer

Go ahead, Jennifer.

Jennifer Witz -- President, Sales, Marketing, and Operations

Yeah, I didn't catch your name, I'm sorry. But I -- so just in terms of the changing landscape, I mean, we are doing something differently. So as you know, we have an incredible position in the car with distribution. And 360L just opens up just a lot of new opportunity for us.

And just the volume of content we can deliver, but also how personalized we can make it for the customer. And so in terms of recommendations, going back to what Scott and Jim were talking about, curation is key and being able to surface the right content for the right customer is critical. And in the car, that's challenging without something like 360L, where we can take the data we're getting as to what customers are listening to and use that to serve better recommendations. And ultimately, that provides us with more opportunities to convert our trialers and retain our customers.

So I think we already are doing something different, and that will continue to grow, obviously, in terms of the vehicles on the road over time. And what was the second part of your question?

Kannan Venkateshwar -- Barclays -- Analyst

Just what's the biggest growth opportunity from your biggest threat that you need to address?

Jennifer Witz -- President, Sales, Marketing, and Operations

Yeah. So look, we still have growth in our core product set on Sirius XM in the car and outside of car. And we continue to invest in our streaming offering, like we talked about earlier in the call, I think we have opportunities there. It's still small.

But we have not built that out of the car streaming stand-alone business yet to where I think it can grow. And so you'll continue to see us make improvements to our apps and add content there on the Sirius XM side. And then, we've talked a lot about our ad sales platform. And I think there's still more to come there.

I know we haven't quantified that for you yet, but I also feel like that's kind of the second thought of our future growth.

Jim Meyer -- Chief Executive Officer

I just want to add two more comments. Number one, I'm not -- as you think about the business longer term, I'm not concerned at all about our acquisition engines. I'm not concerned, period, as I said earlier, I believe we have steady growth ahead of us. But if you ask what would keep you awake at night or what would you worry about, it's not going to be on the acquisition side.

It's going to be on the retention side, which is why we spend so much time and so much effort on those things. But that's where I believe if you're going to see a competitive bread, that's where it's going to be. The other comment I'd like to comment on is I believe that we now understand the streaming business way better than we understood it before we acquired Pandora. And we understand very, very well how the free business works.

We understand how the premium business works. We understand where the consumers are going and how they behave. And we understand what kind of investment and technology it takes to be -- to deliver the right products to be competitive there. Now that we've absorbed all of that, I think it's fair to say that as you look out over the coming years, you should expect us to up our game in the distribution area, in the streaming area.

We have the right content. We have the right brands. Nobody knows how to -- I don't think work with distribution partners better than we do. We've been reluctant to up that game until we better understood how those economics work and where they'll go.

We understand that now. And so if you talk about things that we might do different, I think you might see more effort from us in that area going forward. I take it back, you will see more effort from us in that area going forward.

Operator

We will take our next and final question from Steve Cahall of Wells Fargo. Please go ahead.

Steve Cahall -- Wells Fargo Securities -- Analyst

Maybe first just on penetration and conversion, I think BMW and Toyota are the biggest drivers of the increase in penetration. And if that's right, my guess is Toyota is probably a bit of a drag on conversion, but BMW might be a tailwind. So could you just think -- help us think through conversion as we get this increase in penetration over the next couple of years? And then, Jennifer, I wanted to ask you a kind of big strategic question. So to me it makes sense how all the digital platforms work for the content creators and for the advertising community.

But I'm curious how you think about the consumer proposition because now you've got Stitcher, you've got SoundCloud, you've got Pandora, it's a lot of different things. And I'm just wondering if a few years from now, if we're driving in the car, are we going to be able to use all that in one integrated service? Or do you expect to kind of keep these as separate pieces on the board for the consumer?

Jim Meyer -- Chief Executive Officer

Hey, Jennifer, I think both of those questions belong to you.

Jennifer Witz -- President, Sales, Marketing, and Operations

Sure. So thanks for the question, Steve. So on the penetration and conversion, we had -- we did announce, obviously, that Toyota will be ramping to 100%, and that is going on now. And so you're right that you'll see that driving up the penetration toward the 80% and beyond.

And I'm not sure exactly where BMW is right now, but there will be, obviously, some offsets between the different brands. Overall, we absolutely expect our conversion rates to stay in the high 30s on the new car side, like we've seen. We have balances, higher penetration rate does often put pressure on a conversion rate like we've seen before. Overall, we're bringing clearly more subscribers into the platform, so it's the right thing for the business.

But we also have other tailwinds in conversion rates to help offset that. We'll see how those dynamics work out as we go into next year and hopefully continue to see increases in penetration rate. But I feel comfortable with our conversion rates in the high 30s. And then, to your strategic question, I'll be honest, we are still working through how to bring Pandora into the car.

We have instances where Pandora stations is in our 360L implementation, and we plan to continue to do that to provide more value to our in-car subscribers and the Pandora brand needs a lot there. I think our customer base and users understand the capabilities that it brings. And there are opportunities for us to explore kind of the free offering in the car. We are not looking to do that within the near term.

We'll test some things. But our main focus for Pandora is still in mobile. And there's usage growing in the car through Carplay and Android auto, as you would see with other streaming services. But there are opportunities that we have.

We're not ready to talk about them now. Investments in our products and our apps to consider ways to bring Sirius XM and Pandora closer together, and we'll be able to talk about that more going into next year.

Jim Meyer -- Chief Executive Officer

Thank you, Steve. Thank you everybody, for participating, and we'll speak to you early next year. Bye-bye.

Jennifer Witz -- President, Sales, Marketing, and Operations

Thank you.

Duration: 62 minutes

Call participants:

Hooper Stevens -- Senior Vice President, Investor Relations, and Finance

Jim Meyer -- Chief Executive Officer

Jennifer Witz -- President, Sales, Marketing, and Operations

Sebastiano Petti -- J.P. Morgan -- Analyst

Jessica Reif Ehrlich -- Bank of America Merrill Lynch -- Analyst

Scott Greenstein -- President and Chief Content Officer

Ben Swinburne -- Morgan Stanley -- Analyst

Kannan Venkateshwar -- Barclays -- Analyst

Steve Cahall -- Wells Fargo Securities -- Analyst

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