Sirius XM Radio (SIRI) Q4 2020 Earnings Call Transcript

Sirius XM Radio (SIRI -4.43%)
Q4 2020 Earnings Call
Feb 02, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Sirius XM's fourth-quarter 2020 financial and operating 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 -- Head-Investor Relations

Thank you and good morning, everyone. Welcome to Sirius XM's fourth-quarter in 2020 earnings conference call. Today, we will have prepared remarks from Jennifer Witz, our chief executive officer; and Sean Sullivan, our chief financial officer. Scott Greenstein, our president and chief content officer will join Jennifer and Sean to take your questions.

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 upon forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind 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, 2019, and exclude the effects of stock-based compensation and certain purchase price accounting adjustments. With that, I'll turn the call over to Jennifer.

Jennifer C. Witz -- President-Sales, Marketing & Operations

Good morning, and thank you for joining today. I'm very pleased to welcome Sean Sullivan, our new chief financial officer to his very first earnings call at Sirius XM. We turned in a truly phenomenal 2020 that highlighted the resiliency of our business and the teams that make it work. We were able to grow Sirius XM self-pay subscribers by 909,000, which actually exceeded our original pre-COVID guidance.

We added a 400 -- we added 407,000 net new self-pay subscribers in the fourth quarter alone. Our self-pay base stands at an all-time high of $30.9 million and churn improved for the fourth consecutive year. Revenue, adjusted EBITDA, and free cash flow all climbed in 2020. After working our way through the worst of the pandemic's impact on auto sales and advertising in the second quarter, the trajectory of our results improved throughout the year.

By the fourth quarter, we attained record-high quarterly revenue of $2.2 billion including record advertising revenue of $474 million. Adjusted EBITDA climbed 12% in the fourth quarter to $660 million, and free cash flow climbed to $448 million. Along with these outstanding results, we made significant progress in 2020 toward our long-term goals of improving our Sirius XM service with greater 360L distribution bolstering our leading content position and growing our reach in digital advertising. We also closed down our acquisition of Stitcher, greatly expanding our footprint in podcasting and magnifying the reach of our platforms to some 150 million consumers.

We have assembled massive audio entertainment audiences that can be monetized by our world-class digital ad sales team and technology suite. Sean will provide more details about our guidance. But in 2021, we expect to see strong subscriber growth, growing subscription and advertising revenue, and significant cash generation. The outperformance in 2020 driven primarily by a significant reduction in SAC combined with exciting investments we are making across the business and expanded OEM distribution, programming and content, and digital product development will certainly make year-over-year adjusted EBITDA comparisons more difficult.

Nevertheless, I'm very pleased with our outlook and we are committed to offering the best content lineup in audio entertainment, investing in our customer experiences, and of course, continuing to build our leading digital ad business. We reached our goal of 80% new car penetration in the fourth quarter and this figure is set to rise modestly in 2021. Put simply, automakers are more committed than ever to include Sirius XM in new cars. The enabled fleet has reached nearly 135 million cars and should climb to more than 220 million over time.

Sirius XM's technology within almost 50% of all used cars sold in the U.S. in 2020, up about four points over 2019. This will continue heading north as the fleet turns over, continuing to grow our opportunity in used cars. As we have said before, the adoption of 360L is quickly growing.

Roughly 25% of SiriusXM-equipped new vehicles sold this year will be on our 360L platform in 2021. And this should rise to about 80% in 2025. Customers love the new feature set, ease of use, and interface of our 360L product. While still very early, we see encouraging conversion trends in 360L vehicles and our continuously improving the personalized marketing efforts enabled by and tailored to 360L and its unique features.

In-vehicle connectivity will also enable future revenue opportunities, such as a per -- persistently free version of Sirius XM with targeted digital ad and an improved presentation of Pandora in vehicle. We plan to test various approaches to an ad-supported version of Sirius XM starting this year in order to determine the best way to run a scaled offering like this in the future. Although the 360L-enabled fleet will take time to build out, this is yet another exciting way we are making significant long-term investments to drive more share of your wallet in ad budgets across our platform. In addition to the in-vehicle benefits of connectivity, we are successfully growing digital engagement of Sirius XM out of car on smartphones and connected devices.

In December, households that streamed Sirius XM climbed more than 40% year over year to a new all-time high with especially sharp increases in listening on Google and Roku devices. When customers use Sirius XM outside of the car, we see tangible benefits in better conversion, better churn, and we believe an opportunity to drive pricing in the future. We're also growing digital-only subscribers. And in the fourth quarter, we saw our biggest ever contribution to self-pay net adds from this channel.

The base is still small but our investments in extra music channels, digital sports right, the launch of podcasts, and focused packaging and marketing are beginning to pay off with growth in digital-only sub. Sirius XM's value proposition rests on having a bundle of expertly curated music plus a variety of news, talk, comedy, sports, and as I mentioned, now select podcasts as well. We now have the opportunity to invest more in content than ever before because we have more ways for our subscribers to enjoy it. And we have more ways for this content to be monetized across our platforms that reach 150 million users and indeed even in the broader podcasting distribution universe.

We're thrilled that Howard Stern extended his agreement to continue live shows at Sirius XM for another five years. And licenses archives to ask for another seven years beyond that. Howard is at the top of his game with remarkable interviews, comedy, and commentary. Stay tuned, but in the meantime, we are excited for a big expansion of Kevin Hart's content in podcasting, which he announced on Howard's show Wednesday morning.

Our new and expanded deal with Kevin's Laugh Out Loud comedy brand highlights our growing ability to package and distribute our unmatched content in new ways, given the scale and reach of our advertising and subscription business. Our strength and podcasting accelerated in the fourth quarter with our acquisition of Stitcher, the launch of podcasts within the Sirius XM streaming service, and further expansion of the podcast library on Pandora. Stitcher is a premier full-service podcasting platform that dovetails nicely with Simplecast, a hosting and analytics company we purchased earlier last year. Through its network of shows, Stitcher has the largest share of the U.S.

podcast listening audience available to advertisers, and the fourth quarter was its biggest ever in terms of ad dollars. This year, we plan to leverage the capabilities of Stitcher and Simplecast with our ongoing leadership and audio advertising to roll out a new podcast advertising solution that integrates enhanced targeting, transparent delivery and measurement, bespoke creative, and exclusive programming access. This growing position in podcasting nicely complements our leadership in free digital music streaming as advertisers increasingly look to strategically buy across multiple formats. Through Stitcher, we now have some of the most popular podcasts available today, either owned and operated or through sales and distribution.

Including Freakonomics, Hidden Brain, and My Favorite Murder. And don't forget Office Ladies which was recently named Podcast Of The Year, and many popular Sirius XM hosts and stars have enthusiastically debuted new podcasts with us. Including Jeff Lewis, Mad Dog Russo, the original MTV veejays, Storme Warren, and health experts from NYU Langone Health, and Sirius XM's Doctor Radio channel. You will see us use a multi-platform windowed approach to content in more ways.

It gives us new potential to further invest in content, always in a smart, disciplined way, and to attract new talent that frankly, might not have considered a deal with Sirius XM alone. Kevin Hart's new agreement is a good example of the potential here. Clearly, the same can be said for our arrangement with Marvel Entertainment. While we love the additional engagement podcasting can drive on our platform, we continue to be business model oriented.

By driving monetization and advertising, we can grow our podcasting business and help deliver more value to content creators. Music is also vital to our offering and we recently announced the launch of a Foo Fighters' channel which includes an exclusive performance from our garage space at our L.A. studio hub airing this Friday. We also just launched four new limited-run channels to celebrate Black History Month.

The channel salute powerful, pioneering artists including Aretha Franklin, Jimi Hendrix, Miles Davis, and a channel recognizing artists from the legendary label Motown records. Our relationships with key media brands and our growing advertising business benefit us in multiple ways. In December, we renewed and extended our rights for the Today show full-time channel on Sirius XM with NBC Universal News Group as well as the simulcast of MSNBC and CNBC. But under the new agreement, Sirius XM also became the exclusive advertising representative, an end-to-end ad tech platform for a broad slate of podcasts from NBC News, MSNBC, and CNBC.

We know Live Sports and Sports Talk are beloved by our subscribers. We just became the exclusive audio broadcaster of The Masters and we're looking forward to producing and airing one of the biggest events in sports this April. We also continue to expand our streaming rights with major pro sports leagues, recently with the NFL and NBA to deliver play by play to more of our digital subscribers and to make it easier to hear their favorite teams on our app. We continue to see success from our most feature on Pandora which puts the control in the listener's hands to further personalize their experience.

The popularity of Mode among Pandora users has continued to accelerate with listeners using the feature nearly doubling in the second half of 2020. Pandora also launched Wake Up, a series of hosted playlists featuring black artists and the thought leaders sharing the music that reflects their day to day experiences and the songs that move them to action. And our Pandora -- our popular Pandora live virtual concert series has recently featured Carrie Underwood, Dolly Parton, and Brandy with Summer Walker. As I close my comments, I want to remind all of our stakeholders that we are continuously reinforcing our efforts at diversity, equity, and inclusion.

We are taking even more focused actions to broaden our talent pipeline through collaboration with diverse professional organizations for both recruitment and development opportunities. I firmly believe that a diverse and inclusive workforce is both the right thing to do and simply good for business. As we look ahead, our priorities remain building on our leadership position in North American audio with premium content and unmatched distribution, driving penetration of Sirius XM and 360L to improve our in-vehicle service, accelerating digital subscriptions and engagement, and bolstering our leading position in digital audio advertising. By executing on these priorities, we intend to continue our long term history of delivering significant EBITDA and free cash flow for our stockholders.

With that, I'll turn the call over to Sean.

Sean Sullivan -- CFO

Thanks, Jennifer. It's great to be here to reconnect with many of you on the call today and to meet more of you soon. I joined Sirius XM this past fall because of the company's tremendous brands, reach, business model, growth potential, and most importantly, the chance to partner with the talented people here at Sirius XM. Looking back on 2020, our dual subscription and advertising revenue streams perform better than expected during a tumultuous year.

Subscription revenue at Sirius XM delivered steady, modest growth, given our very loyal subscriber base. Advertising revenue finished strong climbing 17% in the fourth quarter at the very difficult market earlier in the year. For the full-year, pro forma revenue increased 2% to $8.05 billion and adjusted EBITDA increased 6% to $2.58 billion. Free cash flow is relatively unchanged at one $1.66 billion.

As previously announced for 2021, we expect revenue of approximately $8.35 billion. Both ad revenue and subscription revenue will contribute to the growth albeit -- albeit with a modest impact to subscription revenue due to a lower-paid trial sub base as we cycle in new, more efficient deals with certain OEMs. Unique year-over-year comparisons guide us to flat adjusted EBITDA of approximately $2.575 billion for 2021. As certain, COVID-related expense benefits reverse this year as we make substantial reinvestments across our business that will benefit us for years to come.

Particularly of note, the significant reduction in expense we saw from the lower trial starts in 2020 will now turn the other way in 2021 as trial starts are expected to ramp materially this year, driving both SAC and marketing. As Jennifer highlighted, we also anticipate new content investments and increased product development to support our customer experiences. All of this being a smart investment in future growth. We are also taking a pragmatic view of streaming royalty costs ahead -- ahead of the Web V decision by the Copyright Royalty Board which is expected no later than April 15th.

If necessary, we will calibrate our full-year adjusted EBITDA expectations following that decision. With modest growth and cash taxes and interest expense, we expect a free cash flow of approximately $1.6 billion in 2021. A couple of quick comments on Sirius XM subscriber growth. The 909,000 net self-pay subs in 2020 were all the more remarkable given a significant drop in new car sales.

We ended the fourth quarter with a trial funnel of $8.4 million, down 5% from the third quarter as we began to see the reduced trial lengths at two automakers. The active trial funnel should continue to fall for a few quarters as these new agreements phase in. But more importantly, with current third-party SAAR estimates, our trial started should climb in 2021 at their fastest rate since 2015. Rising auto sales, new and used car penetration, and digital subscriptions provide subscriber tailwinds, whereas a bigger subscriber base in 2020, one in modest headwinds in vehicle-related and unpaid churn drive growth and the deactivations.

Accordingly, we feel very good about our guidance for approximately 800,000 Sirius XM self-pay net additions in 2021. Now moving on to Pandora. We recorded a $976 million noncash impairment charge as a result of overall expected operating performance at the Pandora reporting unit. Engagement has been challenged by a competitive environment, and as discussed we have taken a pragmatic view of royalty costs in our assumptions.

Let me remind you that the advertising monetization of Pandora remains incredibly strong. We benefit from the added scale and digital product development, and Pandora's sizable ad business is an important contributor in our strategy to grow at opt platform advertising and to innovate in podcasting. A couple of other matters to highlight. One relating to our SXM-7 satellite and the other related to a tax-sharing agreement.

In December, our SXM-7 satellite was successfully launched from Cape Canaveral on the SpaceX Falcon 9 rocket. Unfortunately, we noted in an AK last week that the satellite suffered damage during in-orbit testing that resulted in the failure of certain payload units. An evaluation of SXM-7 is under way and the full extent of the damage to the satellite is not yet known. We do not expect our service to be impacted by these adverse events.

Our XM-3 and XM-4 for satellite continue to operate and are expected to support our service for several years. In addition, our XM-5 satellite remains available as in-orbit spare. Construction of our SXM-8 satellite is well under way and we expect it will be launched later this year. We have purchased an insurance policy with aggregate coverage of $225 million for SXM-7 through launch in the first year of in-orbit operation.

We have notified the underwriters of a potential claim with respect to SXM-7. With the respect to the tax year agreement, Sirius XM recently answered an agreement with Liberty Media that was negotiated and approved by a special committee of our independent directors. This agreement comes into play when liberty owns 80% of Sirius XM at which point the two companies would become members of the same consolidated tax group. The tax sharing agreement contains customary provisions and a copy will be filed as an exhibit to our 10-K.

The agreement and our inclusion in Liberty's consolidated tax group will not have any adverse effect on us. We again delivered significant capital returns to stockholders in 2020 totaling $1.8 billion with share purchases of $1.6 billion in dividend payments of $237 million. We opportunistically accelerated share repurchases to $680 million in the fourth quarter and close on our $265 million purchase of Stitcher ending the year with a 3.3 times debt to adjusted EBITDA ratio and $1.1 billion of available capacity under our revolving credit facility. In closing, it's been an incredibly busy, challenging, and fun few months getting to know this business.

It's truly one of a kind. And I know we're all looking forward to the day when more of this collaboration inside the company and will all -- and with all of you can actually be done in person. So with that, operator let's dive into Q&A.

Questions & Answers:

Operator

All right. Absolutely. The first question is going to be from Kutgun Maral with RBC Capital Markets.

Kutgun Maral -- RBC Capital Markets

Great. Thanks for taking the questions. One on free cash flow and on buybacks, if I could. I was hoping to get more color on the gross free cash flow outlook.

The guidance suggests that 2020 -- 2021 will be facts may be down a bit of a flattish expectation for EBITDA. This suggests your free cash flow conversion might tick down a bit. I assume that reflects a healthy amount of conservatism but separate to that, is there anything structural going on that should inform our longer term of free cash flow as you keep your business more digital-focused assets or are there new ones working capital items that you expect to a pressure 2021 as you comp against some puts and takes from COVID, perhaps with a headwind from the ramp and trial starts that you just called out? And relatedly, how do you think about capital allocation in 2021? You were quite active in augmenting your portfolio last year with Stitcher, Simplecast, and Sam cla -- SoundCloud. What does the M&A might look like and how do you think about the buyback pace going forward? Thanks. 

Jennifer C. Witz -- President-Sales, Marketing & Operations

OK. I'll start off and then, you know, Sean maybe you can add in where appropriate. But you know, just on the year-over-year comps from a free cash flow, much of it has to do with, you know, what we're expecting on EBITDA. You know, the -- the results we turned in for 2020 are -- are incredible and I'm, you know, really proud of the team for delivering these results especially in the face of so much adversity.

You know, the team combined with our really strong business model that you've come to expect from us that, you know, led us to the outperformance we saw in 2020. I mean, on the -- on the top line I -- I feel pretty good. You know, Sean talked about some of the tailwinds on the revenue side, we're looking to grow self-pay net adds as we've said in our guidance by 100,000 and we're expecting to grow both subscription and advertising revenue. So, it really comes down to, you know, the year-over-year comparisons on cost.

And those kinds of fall in three primary areas: the -- the first is stack, Sean referred to this in his comments, but you know there's a pretty material shift year over year in our SAC expense. So, last year with auto sales down significantly particularly in the second quarter, you know, we saw, you know, a drawdown in that SAC expense as it relates to sales and inventory build. And you know, in addition, the marketing expense that comes around the conversions to trial, you know, there's an opposite thing is happening as we go into '21 where, you know, auto sales have been relatively strong. You know, certainly, in December at 16 million, you know, started things off well and, you know, we expect the third parties are saying auto sales should be around, you know, $15.7 million this year, which is up about 9% from the $14.4 million last year.

You know, this comes with the commensurate inventory build, typically. And you know, our SAC expense and marketing expense is around, you know, the rebuild of that trial funnel will increase. So you know, it's just the opposite of what happened last year and again this is all good for business it's just timing and it's a natural part of our business model where, you know, we -- we see the expenses come before we see the sell pay revenue. So, in addition to SAC, you know, as we've said, we're being pragmatic about Web V.

You know, we'll have more to say about that on our next call. But you know, we do expect this to be a headwind, particularly, with Pandora where there's, you know, more streaming usage relative to Sirius XM. And then the last piece is, you know, our investments in content and -- and product development which support value for our subscription packages and, you know, more features that will help our user experiences both in and out of the car. You know, an interesting component on the content side is that we did have some content launches delay from '20 to '21.

And you know, so the programming expenses related to that and the marketing associated with it is also delayed into '21. We also have a full season of Major League Baseball and due to the NCAA tournament coming back this year. And you know, clearly, we're hoping to host more live events later this year too. I think Sean I mentioned we have, you know, on that purely cash flow side, we also have, you know, modestly higher interest expense and some -- some cash taxes to going toward the end of this year.

But you know, other than that, really no change. I think, Sean can speak a little bit to capex and I, you know, I'll let you pick up on that capital returns as well.

Sean Sullivan -- CFO

Yeah. Thanks, Jennifer. Yeah. So, just to add in terms of conversion from EBITDA to free cash flow, beyond cash interest cash taxes which are modest headwinds? You know, change in working capital is relatively consistent in our estimation from '20 to '21, so nothing going on there.

You know, as it relates to capital allocation, I don't think the philosophy of the company has changed. You know, as you saw we accelerated the buyback in Q4. You'll see in the 10-K today that that pace continued through the month of January. So, we have tremendous confidence in the long-term business opportunity and returning capital to shareholders.

So you know, the capital allocation philosophy really hasn't changed. I think we're investing properly in the company. You know, capex will, I think, remain consistent as we continue to build out the digital products and other aspects of the business to drive growth. You know, you asked about M&A, you know, clearly, the company has and will continue to evaluate ways to accelerate the strategic opportunity like we did in 2020 with simple tasks stature and our investment in Sound Cloud.

So, I think all of that is to say that we'll -- we'll continue down that path, we'll be guided by the EBITDA and free cash flow generation of the company. The leverage outlook, you know, we exited at 3.3 times. So, I think those tenants really hold true as we look forward to 2021.

Jennifer C. Witz -- President-Sales, Marketing & Operations

And I'll just add on to this -- Sean's comments. I'll just add on to Sean's -- Sean's comment about M&A. I mean, I think we have the assets we need and are very focused on integrating them and continuing to execute -- execute on our plans for podcasting and, you know, growing digital audio advertising. But you know, of course, with the capital we have available, we'll be opportunistic of all the things that emerge.

Kutgun Maral -- RBC Capital Markets

Thank you.

Hooper Stevens -- Head-Investor Relations

Thank you. Operator, next question.

Operator

Absolutely. The next question is going to be from Vijay Jayant with Evercore ISI. 

Vijay Jayant -- Evercore ISI

Hi, this is James, office of Vijay Jayant. Two if I could. First of all, the SAC on a per unit basis is down quite a bit in the quarter with that mix. So, and -- how do we think about that going forward in terms of the mix of contracts and the like? And secondly, on the Pandora front motivation is really strong in the quarter but listenership and MAUs, and the like were down.

How much room do you still have to move in terms of pricing power monetization and what are the opportunities to sort of try to drive higher volumes well on that front? Thanks. 

Jennifer C. Witz -- President-Sales, Marketing & Operations

So, on the SAC question, our -- our SAC per install -- I'm -- I see what you're referring to there and, you know, we rollout of our new set of chipsets, we do have continued positive economics there. We're just starting, you know, to roll out our Gen8 chipset. On, you know, the SAC expense side, we have as we mentioned negotiated new agreements with a couple of OEMs. The way we've always looked at these agreements is that we're focused on driving penetration and in a way that makes sense for but -- both us and the OEM.

And that, ultimately, drives growth for the business. And you know, so there are a series of things we look at every time, you know, we approach one of these new deals, we're constantly looking to optimize them in a way that works for both sides. So, you may see, you know, changes in subsidies but also see changes, you know, in -- in trial lengths or prepaid and revenue share as well. So, it's really hard to look at one piece of the puzzle.

That said, we would -- we do expect that our, you know, SAC expense per unit will decline over time. On the -- on your question about Pandora, yeah, look, we're -- we're clearly focused on the decline in listenership and we're continuing to find ways to work at that. We have been very focused on, you know, delivering new content features like Modes. Improving engagement across, you know, connected devices and in the car.

And we'll continue to work at it. It has been harder than we expected, but to your point, the monetization has been very strong at Pandora. And you know, John Trimble and his team have just done a -- a tremendous job continuing to innovate with new ad products, you know, pushing sell-through and driving up CPMs. And you know, I would expect us to continue to be able to do this.

You know, in addition to just driving the monetization at Pandora, it is a combination of assets we've now brought together, enables us to really focus on providing advertisers with much broader solutions so that they can buy across multiple audio formats. So you know, with Stitcher and the ad tech side through AdsWizz and Simplecast, we can provide a whole host of solutions to podcast creators to be able to distribute their podcasts and advertisers to be able to reach listeners there. And you know, there's -- there's a lot of focus on podcasting. We -- we expect that there will be continued growth here.

You know, it's -- it's approaching a $1 billion in -- in advertising revenue which is still relatively small. When you look at something like terrestrial it's over, you know, $15 billion but it is growing at double digits that, you know, we expect to play a very active role in this market. And the assets we have with Pandora across ad sales and ad tech will help us really drive this. 

Vijay Jayant -- Evercore ISI

[Inaudible] Thank you.

Operator

All right. Our next question is from Jessica Reif Ehrlich with Bank of America Securities.

Jessica Reif Ehrlich -- Bank of America / Merrill Lynch

Thanks. Sorry, I was on mute. I -- I have a -- have a couple of questions on podcasting. Can you talk about the level of investment in '21 versus '20 and when you think steady-state will be? You -- I don't think you've ever said anything about the size of revenue, but if -- but if you could maybe address that and talk about, you know, where you are in terms of the advertiser, I guess the level of interest that means more and more people are talking -- advertisers are talking about it what, you know, are there certain brands that are coming in, can you just talk about current demand and I guess, you know, is -- is demand being satiated by increased competition from iHeart, Spotify, etc? Thanks.

I'll -- I'll just start with that.

Jennifer C. Witz -- President-Sales, Marketing & Operations

Yeah, I think, Jessica, on the -- on the level of investment side, you know, I don't expect us to materially increase, you know,  our organic investment. We are, as you know,  we've bought Stitcher that will -- we fully integrated that. You know, with the ad sales team going to John Trimble, who manages all of their ad sales. And then, of course, the content team going to Scott and Scott can talk more about that in a minute.

But you know, the key is to focus on increasing our owned and operated catalog of podcasts as well as those that we represent in -- for ad sales and tech. And so we believe there is a lot of opportunities for us to grow that. It is much smaller than the advertising revenue we drive out of Pandora. But again, I think it's very complementary the -- you know, as John's team, they're clamoring to be able to sell across music and nonmusic formats.

So, to be able to have, you know, the set of assets together really provides us the opportunity to -- to drive that advertising revenue. And also just having the set of ad tech solutions allows us to be, you know,  kind of a full end-to-end solution for the creator side as well. And Scott, do you want to comment on content [Inaudible]?

Scott Andrew Greenstein -- President & Chief Content Officer

Sure. So, just two quick things. One is our own brands, as Jennifer mentioned, they are very vital in this and we are just getting to the point where we are seeing where that will go. So the Kevin Hart is an example, it's a very important one because the key I find with podcasting putting aside the fact that most big names and most big brands are actually not in the podcast and yet -- and I think that's where the opportunity is.

But when you look at Kevin, we used his radio show, the Pandora platform, Stitcher, and the outside, all outside platforms, with Kevin both to monetize that and create it. And it's done really well right out of the box, including really strong advertising numbers, whether it's Andy Cohen and Jeff Lewis and others that are starting to show. We have a built-in platform of content that's ultimately going to convert in different ways into podcasting on that. The other thing is there are sophisticated producers out there like Ben Silverman and others that have deals with us now that are looking for entities that are full service, 360 from curation and marketing and promotion and everything else and they don't want to go into podcasting unless they feel not only it's worth their time and economic potential, but it allows them the ability not to damage their brand or do anything along the way.

So, we feel pretty good where we stand right now as far as being able to get it out there.

Jessica Reif Ehrlich -- Bank of America / Merrill Lynch

Do -- do you expect to breakout podcasting as a separate line? And then, just a different question for Scott, but it feels like the pace of channels of the content is accelerated. Maybe it's the stuff -- it's the stuff that I love and I am paying more attention, but it does feel like it's accelerating. Can you just talk a little bit about the '21 outlook and -- and what else could come down the road?

Jennifer C. Witz -- President-Sales, Marketing & Operations

So, in terms of those, Scott, you start on the -- on the reporting?

Scott Andrew Greenstein -- President & Chief Content Officer

Yeah.

Jennifer C. Witz -- President-Sales, Marketing & Operations

I mean, from a segment standpoint, we'll include it with Pandora and, you know, that's just a natural fit given kind of the focus on advertising overall. And Scott, do you want to add on to that?

Scott Andrew Greenstein -- President & Chief Content Officer

Yeah. I mean, Jessica, as you know for years, we generally look at very interesting personalities and brands. And we are and there will be some announcements to come in that area in podcasting, but what I really am interested in is people that -- and brands that can work organically not forced in all three platforms. Because as Jennifer mentioned, once you get into cross monetization, cross-promotion, efficiency of production costs, it's an entirely different model that's out there.

So, that's -- that's really where I think we are going to end up going.

Jessica Reif Ehrlich -- Bank of America / Merrill Lynch

And can I ask one last question which is completely different, but you recently and you alluded to this earlier, we work some of the OEM deals. Can you talk about those deals how we should think about the subscriber and financial impact in both the short and longer term?

Jennifer C. Witz -- President-Sales, Marketing & Operations

I think the key, Jessica, is again driving penetration. So every time we approach one of these deals and our objective is always to extend them and make sure that in those extensions, we find ways to continue to increase penetration so that it makes sense for both sides of the equation, right? Both us and the OEMs. So over the long-term, all the deals are positive, you know, contributions to EBITDA and free cash flow, and there maybe some differences, as I mentioned earlier, in terms of the impact of different metrics in the short-term, but those essentially wash out a net positive over time. So you know, we're very eager to, you know, continue to roll through and see improved penetration rate even, you know, up a little bit this year, because obviously more radio still in cars the longer tail we have on the used car side as well.

And you know, as part of these agreements, we continue to focus on 360L. And we're -- we're really excited to, you know, see the ramp in our 360L numbers and we should be at 25% of our trial starts with 360L. This year, we continue to see encouraging trends there. It's -- it's actually been great because some of the initial implementations have come in vehicles that have massive screens.

So you know, consumers have reacted really positively to all the new features and content that's included there.

Jessica Reif Ehrlich -- Bank of America / Merrill Lynch

Thank you.

Operator

All right. The next question is from David Joyce with Barclays.

David Joyce -- Miller Tabak

Thank you. The question along the 360L lines, there is the announcement earlier this week with Ford and Google Android platforms. While it does seem to be somewhat open, how does that impact your usage you think in the car? Is that coming along with these new OEM deals? Are there any protections that you have for 360L? Are there any exclusions that are going to be somewhat of a challenge? Thanks.

Jennifer C. Witz -- President-Sales, Marketing & Operations

Sure. I mean, we've -- we've always had a clear competitive advantage in the car as you know, especially given that we are in 80% of new cars sold now and, you know, we continue strengthening our OEM relationship. We've always faced competition in the car in various forms, including with CarPlay and Android Auto now for years and we still maintained a strong position and -- and strong conversion rates despite that. So you know,, we are deeply integrated with the OEMs.

We're well aware of the Android Auto operating system and Google Automotive Services and those products. You know, as the OEMs roll out these new operating systems, we'll continue to work with them to ensure that we have a premium placement in the car. You know, our interests are aligned with the OEM, they -- they share in our revenue and, you know, we both want to make sure that we are offering the best experience for Sirius XM trialers and subscribers. You know, we're working closely with both Google and the OEMs to ensure we can leverage this new operating system in the most efficient way possible to deliver our content into the car.

It -- you know, iOS can actually make it even easier for us to add functionality and update our experiences over time. Again, connectivity in the VFO is good for us, right? We can roll out new features more quickly. We can add more personalization to our products. And you know, we -- we know this space really well.

We know what works, we've -- and  you know, very -- been very focused especially in designing 360L that we understand exactly how to minimize driver distraction and to design, you know, really the most compelling consumer audio experiences in the car. So, I think net -- net, it will be a positive for us.

David Joyce -- Miller Tabak

OK. Thank you very much.

Hooper Stevens -- Head-Investor Relations

Operator, next question?

Operator

Sorry about that. The next question is from Ben Swinburne with Morgan Stanley.

Benjamin Swinburne -- Morgan Stanley

Good morning. I have, I guess, two questions. One around digital-only subscriptions and also one on sort of margins and they are related. Maybe for Jennifer and Scott, you guys seem to be having some success -- accelerating success on streaming only? I don't know if you would be willing to tell us what percentage of the fourth quarter net ad came through digital-only.

You mentioned it was the largest ever, but I take a shot. What are you guys doing to -- to accelerate that in '21 and beyond? You know, how do you size that opportunity? You know, do you think you could have, you know, 20% of your subscriptions long-term being digital-only? And can you do all that while avoiding sort of the content wars that I think a lot of investors are concerned about when they see some of these big -- big headlines either an M&A or talent deals? And then on the margin side, kind of related maybe for Sean. Sean, you know, we've really spoiled following this company with consistent margin expansion year after year after year '21, I think for reasons we all get is an anomaly. But when we look beyond '21, should we expect to see kind of the operating leverage in the business over time that we've come to get used to, or do you think things have structurally changed? And if I could sneak one more in for Sean, since you have got fresh eyes on the business, anything you would call out about the company that you think the [Inaudible47:22] is missing or under-appreciating would be interesting too? Thanks.

Jennifer C. Witz -- President-Sales, Marketing & Operations

OK. So, I think I got four questions. We will try to pick them up and I'll start on digital subscribers. So, our -- our streaming stand-alone or digital subscribers are -- are still small.

And yes, it was a nice contribution in the fourth quarter and we're continuing to look to drive that, but it is, you know, it's growing, but it's still a small component of the $31 million self-pay subscriber base. So, we are not ready to report on the numbers yet. You know, I'd also say that we -- we have continued to drive streaming among our satellite subscribers. It's very key to engagement, retention for those subscribers.

So these efforts go hand in hand. There -- we definitely seeing younger generation streaming which is, you know, not surprising both on the digital-only side and our satellite subscribers. And you know, the use of our products outside the car clearly helps with content discovery which is more challenging in the car. I'll let Scott talk a little bit about the content but you know, we're -- we're looking across packaging, marketing, I think we've done a really good job on the digital subscription side, on performance marketing.

We'll continue to expand that. We're looking at some creative distribution deals to continue to grow the subs. But -- but you know, we are looking at this, growing this into a new funnel, it's just still early days yet. And -- and look, our -- I know you'll come back -- will come back around and talk about margin a little bit more, but the economics on our streaming business, our digital-only subs is really strong compared to what you see certainly in the interactive space.

So, we feel really good about that as well. Scott, do you want to talk a little bit about content for digital-only and finish?

Scott Andrew Greenstein -- President & Chief Content Officer

Sure. So, we're really excited about the potential of this because as hard as it is to believe, but you know, in some ways we are bandwidth constrained with the music community in particular. So, this gives us the ability to take a look in two different ways. One our homegrown channels would take coffee house of the decades, where we can combine, you know, 80s and 90s and all of that into one channel digitally and things that people have been asking for -- for a long time.

In addition, our artists now are looking at how they can expand and we've wanted this for a long time, we just haven't had the ability to have the bandwidth. So for instance, we are looking, you know, we recently launched the Bob Marley channel will be derivatives of that, LL COOL J and his Rock the Bells channel is going to do a lot with that, the Grateful Dead, likely we will do more channels under this digital umbrella. That's you know, sort of where we are going. Just for one second on where we have been on the digital side, when the first corona came and people are really locked down, we get a series of artists channels, you know, from Led Zeppelin to Prince to many things, The Rolling Stones that were a functionable satellite and digital and it gave us a lot of flexibility to put it up for a week and then save the remaining 30 days or whatever will be digital.

So we are going to continue not to view digital as an afterthought, but really as an extension of everything we are doing on the satellite with the content, the brands, the artists, and all that. So, that I hope will continue to have it grow.

Jennifer C. Witz -- President-Sales, Marketing & Operations

Great. Sean, you want to pick up the margin?

Sean Sullivan -- CFO

And Ben, just on your two questions, you know, related to margins, I think, there is absolutely operating leverage in the business. Obviously, as we talked about today on the call, there is some unique impacts in 2021 that are occurring, but as I look long-term as we get to a more normalized state in terms of car sales, in terms of penetration rates, hopefully, the royalty situation is settled in I think there is absolutely opportunity for operating leverage and margin expansion. But again, it's -- I don't think anything structurally has changed. We just have some unique impacts as we start to rebuild things here in 2021.

So you know, as it relates to the fresh eyes 90 plus days in, I guess I continue to have tremendous confidence. I think you know we've talked a lot about content today. It's obviously something I am very familiar with my background. So, I think there is a great opportunity with the content investments we may have made as a company.

I am thrilled with the multitude of platforms and monetization opportunities that exists. As Jennifer said, we have got a tremendous position in the car. I think, the ability to drive adoption out of the car digitally in terms of streaming-only customers is fabulous. You know, leader in digital audio sales, you know, all that to say, Ben, is I think there are tremendous opportunities for growth at Sirius XM.

So you know, I think there is again always opportunities for operating leverage and efficiencies. I think the company has done a wonderful job integrating the assets that they have acquired, but there is always, you know, an opportunity for more to drive leverage on the top line. So you know, again, that's -- those are some of my early perspectives.

Benjamin Swinburne -- Morgan Stanley

Thanks a lot, everybody.

Operator

All right. And we will take our next and final question from Brian Russo with Credit Suisse.

Brian Russo -- Credit Suisse

Hi. Thanks for squeezing me. A question for Jennifer and question for Sean. So first, for Jennifer.

You know, I have recently read that you are trying to acquire adjacent spectrum from AT&T in the WCS band, would you be able to confirm that? And -- and if that's the case, maybe you can discuss kind of why you would be interested in that spectrum benefit suggests that some of the strategic options for -- for the spectrum that you see kind of discuss it in the past or maybe off the table now? And then for Sean just real quick on the tax sharing agreement with Liberty Media. You know, I've generally been thinking that, you know, with the NOL turning out that, you know, your cash taxes will be sort of increasing and you will know not too far in the distant future be a full cash taxpayer. Maybe you could help us understand what the implications of the Liberty Media tax sharing agreement would be on your cash taxes? That would be helpful. Thank you.

Jennifer C. Witz -- President-Sales, Marketing & Operations

Yes. So, I'll start with the AT&T discussion. I mean, the -- the FCC has granted our application to acquire the licenses as a spectrum, which is adjacent to our SRS spectrum. This is you know, the WCS C and D block we have worked closely with AT&T over several years to support them on their efforts here to use it, but because it is adjacent to our spectrum we had -- and we had coordination agreement with them, but it was very difficult to manage the interference.

So yeah, look, we have recognized together with AT&T the potential to use, you know, some spare satellite capacity we have and to adapt our receiver technology in the spectrum to really use this for public service applications. And you know, we have done things in the past like supporting FEMA during times of natural disasters and this is really not, you know, profit maximization effort, but more of a public service effort. And due to the spectrum is small and the deal we did is -- is relatively small, but it does protect us given that it's adjacent.

Sean Sullivan -- CFO

And Brian, on your tax sharing question. I don't see any real implications from the tax sharing agreement. Again, we are looking out into the future, but you know, we've already talked today about some modest increase in cash taxes for '21. You will see in the K, where -- we're in all position and tax credit situations are.

So, we feel good about it.I don't think the tax -- the tax, frankly, doesn't have any real impact on our go-forward outlook in terms of our tax attributes.

Brian Russo -- Credit Suisse

Very helpful. Appreciate it. Thank you both.

Hooper Stevens -- Head-Investor Relations

Thank you, Brian. Thank you everybody for participating today and we will speak to you soon. Goodbye.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Hooper Stevens -- Head-Investor Relations

Jennifer C. Witz -- President-Sales, Marketing & Operations

Sean Sullivan -- CFO

Kutgun Maral -- RBC Capital Markets

Jennifer Witz -- President-Sales, Marketing & Operations

Vijay Jayant -- Evercore ISI

James -- Evercore ISI

Jessica Reif Ehrlich -- Bank of America / Merrill Lynch

Scott Andrew Greenstein -- President & Chief Content Officer

Scott Greenstein -- President & Chief Content Officer

David Joyce -- Miller Tabak

Benjamin Swinburne -- Morgan Stanley

Ben Swinburne -- Morgan Stanley

Brian Russo -- Credit Suisse

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