A dramatic shift in our daily routines is headed our way. It won't happen tomorrow, but as self-driving cars hit the roads, the people in them won't need to keep their eyes on the road, and this will give them time to do other things. It's going to be a big change that should start becoming visible over the next couple of decades. Let's look at the potential winners and losers as what happens inside the car changes.
When we think about what to do while driving, most of us think about listening to the radio. Bruce Springsteen captured the idea when he wrote the opening verse to his song "Fire": I'm driving in my car. I turn on the radio.
Commuters are estimated to spend an average of 87 minutes per day listening to audio in their cars and 90% of commuters say they listen to AM/FM radio, according to Edison Research. All that listening translates to advertising dollars for broadcasting companies, but it's not all smooth cruising as terrestrial radio is facing major headwinds from today's connected car, which allows people to access their favorite streaming platform, including those from Pandora (P) and Apple.
What happens when drivers no longer need to actually drive and can divert their attention to watching videos? Some percentage of that terrestrial-radio audience is going to turn their attention elsewhere and that could be an additional major headwind for companies that derive revenue from terrestrial radio.
The table below shows just how poorly radio companies are already doing. Each company's balance sheet has tremendous debt in relationship to its overall size. Autonomous driving looks to only make it worse.
|Company||Enterprise Value||Market Capitalization||Long-Term Debt|
|Cumulus Media Inc.||$2.27 billion||$9.65 million||$2.4 billion|
|iHeart Media Inc.||$19.63 billion||$109 million||$20 billion|
|Salem Media Group Inc.||$440 million||$177 million||$262 million|
A headwind for automobile audio entertainment
Wunderlich analyst Matthew Harrigan recently downgraded Sirius XM Holdings stock on the news that Intel plans to buy Mobileye, noting that autonomous cars bring "eventual implications for a proliferation of in-car entertainment." Increasing in-car entertainment options, including video and social media, will be "a clear major priority," Harrigan wrote.
This helps paint the picture that some portion of people who listen in cars today will not be listening tomorrow.
In addition to being a headwind for terrestrial radio, the expansion of in-car entertainment options could spell bad news for Pandora. Today, Pandora's service is available in 190 car models and accounts for 10% of radio listening, according to the company. Unlike subscription music services that make money regardless of whether a subscriber listens to anything, the portion of Pandora's service that is ad-supported makes money from the difference between the ads and the cost to license the music. By 2020, Pandora is targeting ad-supported revenue of $1.8 billion, or 46% of total revenue. If listeners tune out, that will negatively impact the company's ad revenue.
A tailwind for video entertainment
There are numerous streaming video players that could add to user numbers in an autonomous driving world. My mind immediately jumps to the biggest and possibly most creative in the space: Netflix (NFLX -0.50%), which is closing in on 100 million worldwide subscribers.
There are about 70 million new non-commercial vehicles built each year on a worldwide basis. Autonomous vehicles will give drivers the freedom to enjoy their favorite streaming service while on the road. Auto-bingeing may become the norm.
Netflix Chief Product Officer Neil Hunt recently laid out the potential for Netflix to explore optimizing certain cuts of its videos for smaller screens like smartphones and tablets. The initial impetus for this effort is to enhance the viewing experience in developing countries where mobile viewing is the main way for subscribers to consume Netflix. It's not that much of a leap to see how this effort could be adapted to support viewing in autonomous vehicles.
If you are watching video, you will need a screen
If people are going to be watching video as their car drives them around, they will need a screen to view it on, and that could play right into the hands of Corning (GLW -2.07%). At this year's Consumer Electronics Show, Corning presented a car featuring its patented Gorilla Glass technology. Gorilla Glass is tough and damage-resistant. It also can include anti-glare and anti-reflective treatments to improve viewing in strong, ambient lighting. The product has some unique characteristics in terms of light weight and ability to be formed into 3D shapes, enabling designers to make custom designs and shapes for auto interiors. In a world with 70 million new non-commercial vehicles coming on the road each year, one can imagine a big role for this Corning product.
These are just some ideas to keep in mind as the world changes around us. Keep a long-term perspective and watch for new companies that may come into view that can profit from the disruption that lies ahead.