When Sirius and XM first launched as separate companies, satellite radio offered people a vastly superior selection of content to the smattering of terrestrial stations offered in each market.
That continued as the companies merged into SiriusXM (NASDAQ:SIRI). Now, the vastly expanding number of digital music services and podcasts coupled with the increasing availability on in-vehicle Wi-Fi may make the service unnecessary and irrelevant.
A brief history of satellite radio
When Sirius and XM began signing up customers in 2002, the Internet was a very different place, as was the music business. People were still buying music primarily in physical formats and Apple's (NASDAQ:AAPL) iTunes store did not even open its virtual doors until 2003.
In the early days of satellite radio, the iPod -- and its ability to store thousands of songs -- was a competitor, but few cars had elegant ways to allow for using the Apple device or any other MP3 player easily. With Pandora (NYSE:P) not launching as a mobile product until 2008 and Spotify not entering the U.S. market until 2011, satellite radio was really only taking on terrestrial radio for most of its early years.
That gave Sirius and XM, and later SiriusXM after their 2008 merger, many years of being able to lure in customers by offering more diverse music channels with no commercials along with a variety of talk and news programming the could not be found even in huge markets like New York City or Los Angeles. Satellite was also able to offer major talk radio draws, including Howard Stern and Opie & Anthony, an uncensored broadcast home with fewer commercial interruptions and no fear of the Federal Communications Commission fining them.
At a time when consumer choice was largely dictated by where they lived, satellite radio was an excellent value proposition. Now, however, the market has changed and the Internet has essentially put every song ever recorded in the hands of anyone with a Wi-Fi connection. It can also be argued that there is more good talk radio being produced in podcast form than there is on local, national, or satellite radio.
SiriusXM has an advantage since it's now built into most new vehicles, making it very use to use for customers. But that's an edge that looks to be evaporating as more cars offer easy integration with smartphones and complete vehicle connectivity looks to be coming.
The coming of in-car connectivity
By 2020 nearly all cars will be connected to the Internet, according to a report from Gartner, ComputerWorld reported. At that time, roughly five years from now "about 150 million vehicles will be connected via Wi-Fi, and 60% to 75% of them will be capable of consuming, creating and sharing Web-based data," the report states.
"To facilitate that kind of shift, connected-vehicle leaders in automotive organizations need to partner with existing ecosystems like Android Auto or Apple CarPlay that can simplify access to and integration of general mobile applications into the vehicle," Gartner analyst Thilo Koslowski said in the report.
That appears to be happening and another firm, ABI Research, predicted that Apple's iOS in the Car would power about half of them with the bulk of the rest of them going to MirrorLink, which already works with Samsung's (NASDAQOTH:SSNLF) popular smartphones and tablets. So, basically, connected cars are not only coming, but half of them will integrate with the wildly popular iOS and another 40% or so will use software familiar to another swatch of people.
It's hard to see a place for satellite radio
Connected cars take away many of the reasons why people subscribed to satellite radio in the first place. Music services like Pandora and Apple's iTunes Radio offer an essentially infinite amount of personally customized radio stations, while Spotify and other similar services puts huge libraries of music in front of people on an on-demand basis.
Satellite still has a few signature talk personalities including Stern along with Opie (but not Anthony who now hosts a subscription-based video/audio show available online), but there are literally hundreds of comedians and other personalities offering high-quality podcasts for free. I followed Stern to satellite, enjoy Opie's new show with comedian Jim Norton, and listen to much of the talk lineup on SiriusXM's "Mad Dog Sports Radio," including flagship host Chris "Mad Dog" Russo. But my podcast inbox is clogged with new episodes of "Nerdist," Bill Simmons' "B.S. Report," and the Motley Fool's own podcasts among others -- more than I have time to listen to and more than enough to replace the time I spend listening to SiriusXM while driving.
Some will argue that sports content is a difference-maker for satellite, but it's becoming increasingly easier to find local broadcasts of out-of-market games over the Internet. I still need satellite radio for one of the teams I follow -- the New York Rangers -- as my Connecticut home falls in the Boston Bruins market. But it's easy enough to listen to the games over the Internet with the only remaining hurdle being car connectivity (not a problem in my case as I have unlimited streaming data over Sprint and even my 2010 Hyundai has multiple ports for connecting my phone).
SiriusXM still has some exclusive content, and subscriptions start at $5.99 for limited service but generally cost at least $14.99 a month, so they may still makes sense for those on a limited data plan with their phones. But only until in-vehicle Internet connections become the norm.
It's hard to not see satellite radio as the solution to a problem that soon will no longer exist.
Daniel Kline owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple, Pandora Media, and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.