Ford CEO Alan Mulally was part of The Wall Street Journal's D8 executive conference last week, discussing the automaker's advances in digital entertainment. The integration of web-connected smartphones with dashboard consoles promises to more of a challenge than an opportunity for Sirius XM.
Satellite radio hasn't had a problem winning over drivers who've tired of ad-laden terrestrial stations. But its premium price gets harder to justify when free and ad-supported alternatives begin to multiply.
Ford was one of the earliest Sirius cheerleaders, and both companies have enjoyed a win-win situation ever since. Satellite radio service practically sells itself. Most carmakers provide factory-installed receivers along with several months of service. Within 90 days of the end of the trial offers, 45% of the car owners become self-paying customers.
Sirius XM's fate has been tied closely to the auto industry. It's no surprise that the only two quarters that found the satrad star losing more subscribers than it gained -- the first half of 2009 -- were also bleak times for carmakers.
The "cash for clunkers" campaign jumpstarted automaker sales, and both the car companies and Sirius XM haven't looked back since.
Everything but the kitchen Sync
In an effort to remain on the cutting edge, Ford approached Microsoft
The ability to call up voice-activated tunes sitting on your iPod -- and have them play through your car's sound system -- was pretty cool at the time, but clearly that hasn't gotten in the way of Sirius XM's growth. Satellite radio has tacked on millions of subscribers since Sync's debut.
However, the growing popularity of smartphones -- most notably Apple's
Ford introduced MyFord Touch earlier this year at the Consumer Electronics Show. The system raises the bar with a customizable touchscreen, steering-wheel controls, and voice activation for everything from climate control to ambient lighting. There's also turn-by-turn navigation, which translates into more pain for GPS guru Garmin
On-demand weather and traffic reports begin to stray into Sirius XM's territory, but clearly, the real threat to the 19-million strong broadcaster comes in MyFord Touch's seamless connectivity to audio entertainment.
Bluetooth technology allows smartphones to work without any wiring fuss. MP3 collections are old hat, since Sync has been spitting that out through its speakers for years. The real challenge here is the instant access to countless web stations and music-discovery applications as a result of 3G -- and now Sprint's
This morning's Journal contains edited excerpts of Mulally's remarks. Sirius XM and terrestrial radio aren't mentioned at all, but music discovery site Pandora got a whole paragraph.
"We got together with Pandora," Mulally says. "Now you can do everything you want with Pandora, and yet you're not doing it with your fingers."
That's right. There's no need for poking screens or twisting knobs to scour through the unlimited amount of ear candy available. This also makes driving a bit safer, since drivers can even have their incoming texts read out to them as they drive.
Sirius XM will still survive Sync
Thankfully, satellite radio has several things working in its favor.
For starters, Ford has an incentive to keep satellite radio alive. Carmakers with activated satellite radios receive a piece of the action, explaining why even used-car showrooms are starting to hop on the promotional bandwagon. Thus, Ford has to manage technological introductions that will wow drivers without sacrificing its Sirius cash cow.
Another saving grace for Sirius XM is that it can afford content that online radio stations -- and even commercial broadcasters -- cannot. Complete sporting-league coverage and original Howard Stern and Oprah Winfrey programming don't come cheap. Even Stern's former terrestrial boss, CBS
Sirius XM may find more subscribers opting for lower-priced non-music plans, but satellite radio won't go away now that it's finally profitable.
Satellite radio didn't destroy terrestrial radio; it simply made the environment a little more challenging. Digital convergence will do the same thing.
Will in-car connectivity help or hurt Sirius XM? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.