Sirius XM Holdings (NASDAQ:SIRI) executives have been adamant that the company has not taken any hit from streaming competition to date.
"Zero impact" is how CEO Jim Meyer described it to analysts, punctuating his assessment with a seemingly irritated "OK?" as he tried again to put the issue to rest.
But there remain calls for the company to purchase a streaming service like Pandora Media (NYSE:P) in order to capitalize on a built-in streaming audience and established ad revenue. (Pandora offers 79 million listeners and about $1.4 billion in revenue.) And reports last month that Greg Maffei, CEO of Sirius XM's largest shareholder in Liberty Media (NASDAQ:FWONA), made an offer to buy Pandora certainly helped to fuel the fire.
Sirius is chugging along, but for how long?
It's hard to argue with Sirius XM's recent results. Subscribers have exceeded 30.6 million and continue to grow at 8% a year. Revenue was up 11%, and the company continues to generate more revenue per every user it has. The company is spinning off more than $1.4 billion in free cash flow, and most of its big, long-term expenses are in the rear view.
Still, when it comes to streaming, the concern is really more about the company's long-term strategy. Satellite is very much a "now" technology. Streaming looks like a better bet for the future -- and that can leave investors uneasy.
However, does Sirius really need to acquire Pandora or another streaming service to play in that arena?
If the satcaster executives' most recent comments are any indicator, the company is looking to go it alone, and it thinks it can succeed.
Not crazy about streaming's economics
Sirius executives remain staunch in defending their position that they do not need a streaming service to succeed now to ensure future success.
They say they've looked closely at the streaming businesses out there, and they remain convinced that acquiring one would not be in their best interests. One of the reasons, as noted earlier, is that they just haven't seen any adverse impact in their subscriptions growth due to the rise of streaming competition.
In fact, Meyer said most subscribers who defect from the satellite service do so because they want to return to free AM/FM listening, not a free or paid streaming service.
There's also another reason the company doesn't believe acquiring a streaming company is the right move: Sirius just hasn't liked the economics of music streaming. Both Frear and Meyer have said they see it as a difficult business to make money in -- especially since royalties eat up so much of the companies' revenue -- not a particularly good match for Sirius XM's subscriber-based business model, which generates so much free cash flow.
Sirius has been positioning itself for this
Meyer also seemed determined to counter any perceptions that the satellite service is stagnating from an innovation standpoint, telling analysts that Sirius XM is "a very different company today than we were three years or four years ago."
"And by that, I mean we have significant resources and skill base now dedicated to streaming particularly from a technology standpoint," he said.
For one thing, Jim Cady, the former CEO of Slacker who signed on with Sirius a few years ago to work on its connected-vehicle services, has also taken the reins on its streaming efforts, Meyer said. The company has continued to refine its apps for easier online listening.
Meyer sees the company as well-positioned to handle a shift in customer listening preferences brought about by disruption in technology.
"I want to be clear to you [...] I don't believe we need to make any kind of major acquisition of a streaming company to do that," Meyer said.
The company is confident that if it can keep providing great content to subscribers' devices, it won't make a difference what technological advances pan out.
"What matters to me is that they listen and that they pay, OK?" Meyer said.
Still, we can't rule it out
Despite the company's forceful declarations that it can go it alone, it remains a possibility that Liberty could step in, make an offer Pandora cannot refuse, and force these two radio companies to the altar.
CFO Frear has said that if there's one streamer Sirius thinks is best positioned to succeed, it's Pandora. And Meyer backed him up on that last month, perhaps as a gesture to their possible future betrothal.
The company appears ready to go it alone in streaming and is confident it can succeed. That it's yet to gain analyst's confidence is not cause for concern; it's early, and analysts aren't privy to all of the company's efforts. But if Maffei continues to pursue a merger, we can bet he's doing so because he doesn't share the same optimism.