The connected car, long seen as the death knell for Sirius XM (NASDAQ:SIRI), could prove to be a boon to the satellite-radio provider in the coming years.
There are two main reasons for that. One has to do with offering greater control to the user. The other, however, may be more important to Sirius XM's product in the coming years, helping to determine what talent it signs and keeps around, what programming it expands, and what it decides to ditch.
Let's take a deeper look at these two areas and see what company executives have had to say about each over the recent months.
A new view
Headlines predicting satellite radio's demise at the hands of the smartphone and connected car started creeping into news feeds several years ago, including a 2009 Computerworld article in which the writer offered this epitaph: "Satellite radio will die soon anyway, but [new iPhone and iPod models] will accidentally perform a mercy killing of Sirius XM Radio this summer."
Indeed, that seems to have been the conventional view for the next several years, as smartphones became ubiquitous, technology made them more powerful and able to process vastly greater amounts of data, and mobile computing became the here-and-now.
Funny thing is, Sirius XM didn't only survive, but it also thrived over those years. The company finished 2009 with 18.8 million subscribers. Today, it has more than 28.4 million subscribers, a 51% increase.
What's more, it's been attracting more subscribers despite three subscription price increases -- one in 2011, one in 2013, and another that took effect early this year.
Indeed, company executives have been more brashly downplaying the threat of streaming media in each passing year.
150 million vehicles
While those dire predictions have failed to come to pass, the connected car is becoming a more important component in Sirius XM's long-term game plan. And how could it not?
The number of connected vehicles worldwide is expected to rise from 23 million to 152 million between 2014 and 2020, IHS Automotive estimates. Sirius XM technology is now installed in about 75% of new automobiles produced, and the company also expects to reach 150 million vehicles with its technology -- about double the number of satellite-equipped cars and trucks now on the road -- over the next several years.
The company sees the connected car as a strength, rather than a weakness, moving forward.
How? The first way is that it allows subscribers to connect with the Internet and choose their content, rather than just pick a channel and listen, something that's a value-added feature for the satellite service. In other words, it's something executives see as a reason a subscriber might choose to stick around or put up with a subscription increase.
Here's what CFO David Frear had to say on the topic in June:
And the funny thing about a subscription-based product is it's more about how the consumer perceives they might use the product opposed to how they actually do. So for some people, knowing they can look up a Howard Stern interview whenever they want to or they can get to the Doctor Radio segment on new cancer research whenever they want to ... that becomes a persuasive reason to subscribe, even if they only do that occasionally.
But here's where it will really matter
The way that the connected car may have an even bigger impact on Sirius lies in its ability to collect data from radio listeners. Sirius purchased connected-car technology company Agero in 2013. That move allows Sirius XM to offer telematics services such as safety, security, and convenience features.
But what may be an even more important benefit is having two-way communication with subscriber radios: For the first time, it allows Sirius to see how people are using the service.
Frear noted in June that for the past 12 years, the company has been "completely blind to whether or not people are actually listening to the radios."
Gaining insight has several benefits. It can allow Sirius to target the trial-subscription users who are more likely to keep the service, or it can reach out to those who haven't been using their free subscription. But beyond that, it could allow Sirius to get a clearer picture of what programming is resonating with listeners and what programming isn't. That can help the company as it looks to sign or retain top talent like Howard Stern, or negotiate contracts with sports leagues or content providers.
Over time, it might also help the company tailor packages to better meet subscribers' preferences.
"It will help us make our content offering better, but it will enable us in many ways that we haven't been able to do today to improve our business, particularly in the area of gathering data on exactly what are our listeners doing, and more importantly, what would they like, and how can they get deeper engaged in our content," Meyer told analysts in April.
More to come
Sirius executives say they will be talking in greater detail in January about their connected-car efforts and the related project they are calling SXM17. That should give listeners and investors a better picture of some of the company's long-term plans for connected vehicles. Until then, investors should set their worries aside that the connected car will be the end of satellite radio and entertain the idea that it just might help the business thrive.
John-Erik Koslosky has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.