In the era of the smartphone and connected car, uncertainty is sure to hang over the long-term prospects for satellite radio provider Sirius XM (NASDAQ:SIRI). But investors should take solace that the company is quietly sitting on a very valuable resource that could help to shape its future in any of a number of ways.
In today's evolving landscape of media consumption, spectrum has become a coveted asset, and thanks in large part to the fact that it was once two competing services, Sirius XM has quite a bit of it.
Spectrum refers to the range of available frequencies over which communications signals can travel. We're probably most familiar with the concept from AM/FM radio, where we work our dial to find available programming over specific frequencies in whatever area we're in.
But spectrum extends well beyond radio. It includes all manner of wireless communication: broadcast TV signals, satellite TV signals, GPS signals, broadband wireless signals for our smartphones and tablets, and yes, satellite radio signals such as what Sirius XM uses.
That's a lot of traffic, and with the rise of broadband and now connected cars and other devices, demand for spectrum has been on the steady upswing. The problem is, there's only so much of it available.
Scarcity fuels a hot market
That demand is part of what drove wireless giant AT&T to pursue a merger with DirecTV. AT&T wanted the flexibility of having the additional spectrum that company offers so it can ensure it's a major player in video delivery moving forward.
It's why scores of public TV and radio stations are considering selling off their broadcasting rights through an FCC auction in exchange for a serious windfall next month. Even smaller-market TV stations are eyeing sales pitches in the hundreds of millions.
At this stage, the biggest benefit that Sirius XM's abundance of spectrum offers the company is flexibility.
It can expand more earnestly into video delivery. The new five-year Howard Stern contract will reportedly include video programming, although both company executives and the talk show host have remained mum about details, other than to say how excited they are about it and how revolutionary they expect it to be.
Sirius could also double its audio channels with the spectrum it now has. The range of programming on Sirius XM continues to expand. With around 150 channels, the service offers listeners a broad range of music, news, talk, and comedy, as well as live broadcasts of just about every major sports team in the U.S.
It's been able to do that with plenty of spectrum to spare. If it decides that continuing to expand that programming will help attract and retain subscribers -- or that it could offer subscription options such as more customized channel bundles -- it has ample room to continue adding to its lineup.
A third option: It could sell off some of its spectrum for cash.
How much is Sirius XM's spectrum worth? That's not easy to answer. The company listed about $4.8 billion in intangible assets and goodwill on its balance sheet at the end of 2015, and included in that would be some of the estimated value of its FCC licenses that provide it with its allotted broadcasting spectrum. But that hardly gives us a view of what it might be worth to a major wireless provider hungry for additional bandwidth.
"Best for our shareholders"
According to company executives, however, that's an irrelevant point.
In a recent conference call, CEO Jim Meyer was adamant that Sirius XM is "not a seller of spectrum," even though it has more than it currently needs. "That's not what we are in the business to do," Meyer said. "We are in the business to use that spectrum."
He noted that it is moving subscribers to a new chip-set technology that will give the company more flexibility in what it can deliver, and that those plans are already looking ahead several years.
What it plans to do with that increased flexibility remains to be seen. Meyer mentioned the possibility of expanding into video, as well as making a bigger splash in the connected car game: "Our goal is to put ourselves in a position to use it for whatever we think is best for our shareholders and our customers."
With its subscribers still growing at a healthy clip of about 8% and annual revenue climbing at better than 9%, Sirius can afford to be patient in putting that spectrum to use, and making sure it's using it wisely.