In a recent Seeking Alpha article, Spencer Osborne observed that Pandora (P) comes out a loser in light of Internet radio competitor Slacker's deal with the American Association of Retired People (AARP). In relation to Sirius XM (SIRI), Osborne notes:
The satellite radio provider can get a little slack here (pun intended) because its business model is commercial free radio and AARP is advertising supported. The model of AARP Radio is that it is a free benefit to members. Sirius XM would have had to charge in order to deliver these channels, or shift into a "service" type customized model that is ad supported. While this deal is not directly up Sirius XM's alley, it may be an interesting branch for the company to consider in the future. Satellite radio investors should also see this type of deal as a method that allows the competition to generate revenues, and monitor it accordingly.
As presently structured, this deal certainly does not fit the Sirius XM model. It does, however, speak to two concerns I have expressed lately about Sirius XM's future: Its ability to attract a younger audience and generate advertising dollars, as to diversify its revenue stream.
On the first concern, Slacker is doing what Sirius XM should attempt to do, but in reverse. The mention of Internet radio - and, in particular, the name "Slacker" - connotes younger audience. For Slacker to make a play for the AARP audience - 50 years of age and older - shows that it does not hold itself to popular conceptions of what it is and should be. Clearly, in Slacker's eyes everybody should use Internet radio to discover new music. And this is exactly AARP's intent - to get baby boomers back in that game. As Osborne points out, Pandora loses this round. It remains to be seen if it has similar somewhat unorthodox plans up its sleeve.
While Sirius XM does not qualify as a "loser" at this stage, it might without an attitude adjustment going forward. There's no reason why Sirius XM should not more aggressively target a younger audience. It's pretty clear that its present base skews older.
Taking a cue from Slacker, Sirius XM should finally realize it does not have to be typecast. It can enhance the features that tend toward a younger audience now. That means improving its abysmal Internet stream and relying on something more than word-of-mouth and Howard Stern to market its smart phone app. It can also reach out for partnerships like the one Slacker just signed, but with an inverse demographic payoff. To do this, Sirius XM will have to be open to tweaking its commercial-free music model. The reported features of SatRad 2.0 might allow it to air advertising in such as way that the ads will not completely infuriate its loyal base.
I still believe that SIRI rides hard into earnings. After the call, however, I will reevaluate my long position. I not only want to hear details about SatRad 2.0, but I want to know how the company plans on using the extra sales and marketing dollars it says it plans on spending. Will any of this money go toward attracting a younger audience?
To remain bullish on SIRI over the long-term, I will need to see that CEO Mel Karmazin (a) intends to diversify the company's focus away from almost solely going after vehicle-based subscribers and (b) sees the value of bringing a younger demographic, particularly 18- to 34-year olds, into the fold.
Just as Slacker is saying that Internet radio is not only for young people by hooking up with AARP, Sirius XM needs to break the assumption that satellite radio only exists for the older crowd. I recall being on AM radio when that half of the terrestrial band died a slow, but sure death because it not only neglected but rejected innovative ways to draw in younger listeners. Ultimately, AM gave way to FM. And now FM gives way to Internet radio and Apple (AAPL). Sirius XM does not have follow suit. It can be part of the conversation across the spectrum of life.