SiriusXM (NASDAQ:SIRI) has built an impressive business built on subscription revenue. The satellite-radio company has 32.2 million subscribers, an amount that has steadily climbed, and revenue rose 8% to $1.4 billion in the most-recent quarter.
The company has even raised its net income from $143 in Q3 a year ago to $276 million during the same period this year. In addition, the satellite radio provider has another 8.9 million customers in its free trial program, a strong source of ongoing additions to its paid user base.
SiriusXM has no direct competitor, and I have been a customer since 2006. It's a strong brand that has a growing business that has moved in the right direction for years.
It's also a house of cards that could be knocked down at any time. SiriusXM has already started an irreversible march to irrelevance that it's unlikely to be able to reverse.
Why is SiriusXM doomed?
When SiriusXM launched, radio was a local business, and all-you-can-listen subscription music services were not yet a major thing. The satellite radio service filled a major niche. It offered music channels that served niches that terrestrial radio did not, and it had a selection of talk unlike anything found on traditional stations.
SiriusXM subscribers could get access to music channels tailored closer to their tastes. They also got Howard Stern -- a key driver for the satellite company -- as well as talk and sports talk programming they could not get elsewhere. On top of that, they got all of these services in their car, a space previously only served by terrestrial radio.
In 2017, the market has changed. All four major wireless carriers offer unlimited data plans. That, plus changing in-car technology, makes it easy for most people to stream in their cars.
Now, consumers can use streaming music services to create their own, personal music mix or listen to playlists that cater directly to their tastes. That makes the idea of having a broad selection of curated radio stations seem quaintly out of date.
On the talk side, while Stern remains a unique talent, the podcast world has exploded. That means that although SiriusXM still has some top-tier talent, it's hard to argue that there are not comparable, even better, choices available for free.
SiriusXM does still offer some sports play-by-play that allows fans who don't live in the same markets as the teams they follow to listen to games. That's a draw for a few people, but it's an edge that won't be enough to keep SiriusXM afloat.
A slow end
SiriusXM isn't going anywhere anytime soon. Because most of the company's user base (27 million of 32.2 million) are on auto-pay, many likely don't even think about the monthly charge. In addition, while it's easy to stream from your phone in many cars, that's not something many -- perhaps the majority of -- consumers are comfortable with.
That, however, will change. SiriusXM charges for content that, aside from Howard Stern, is no longer unique. It may take four or five years, but it's hard to think consumers are going to pay for music and talk they can get for free (or already pay for on other platforms).
SiriusXM was a pioneering service, but now it's just a clever delivery method. That's not something that is worth paying for, and over the long-term, consumers will realize that they are spending money on something that no longer offers enough unique content to be worth it.