Clear Channel (NYSE:CCO) has made a bold move. Before delving deeper into exactly what Clear Channel announced, we should look at the events that led up to where we are now. Back in March of this year, Clear Channel made a small announcement that it had acquired an Internet radio company called Thumbplay. At the time, Clear Channel indicated that it made the purchase for the purpose of integrating more features for its Internet steaming site called iHeartRadio. In simple terms, it wanted to make its Internet streaming presence have features that emulate Pandora's (NYSE:P).
Now, with this major announcement, it is crystal clear that Clear Channel is going to be a force not only over terrestrial airwaves, but on the Internet side of the radio business as well. Clear Channel has made a few announcements that Sirius XM (NASDAQ:SIRI) and Pandora need to consider carefully:
1. Clear Channel has announced its own music festival, the iHeartRadio Music Festival Las Vegas, which will include Lady Gaga, Coldplay, Steven Tyler, Black Eyed Peas, Alicia Keys, Jennifer Lopez, Kenny Chesney, Carrie Underwood, Jane's Addiction, Nicki Minaj, John Mayer, David Guetta, Rascall Flatts, Bruno Mars, Kelly Clarkson, Sublime, Usher, and Sting. These are not slouches by any stretch of the imagination, and creating a music festival in Las Vegas is brilliant.
Effectively, iHeartRadio will become a major force in the industry with loyalty from some of the top artists in the music industry. This type of bold move can be marketed on hundreds of Clear Channel's terrestrial radio stations all summer long. As yet, Sirius XM and Pandora have not branded such an event.
2. iHeartRadio is now commercial-free until 2012. This announcement came out of left field, and is a direct threat to Sirius XM. Commercial-free music is one of the attractive aspects of Sirius XM Radio. The satellite radio provider boasts over 60 channels of commercial-free music. It is a main selling point of the company. How does that compare to hundreds of commercial-free music channels offered up by Clear Channel's iHeartRadio? It will be interesting to see what happens.
Also impacted by this announcement are companies like Pandora, Slacker, MOG, and Spotify. All of these services are either subscription-based with a fee or have commercial-free tiers that are available for a fee. IHeartRadio is not only going to be commercial-free, it is also free.
What iHeart Radio is trying to do is build a loyal audience. Some may say that iHeartRadio is giving away the store, but reality is much different. What is happening is that iHeartRadio is acting as a loss leader for the bigger business, Clear Channel.
One thing often discussed when it comes to radio is whether or not these internet radio companies are viable and whether or not they can make money. What investors in Sirius XM and Pandora need to consider is not whether iHeartradio will make money with this, but rather the simple fact that it exists. What iHeartRadio has is the backing and support of Clear Channel's other businesses. Clear Channel has seen the threat of Pandora as well as Sirius XM, and is taking the battle to these companies. Right now Clear Channel is defining the battlefield.
For Sirius XM, the stakes may be bigger than people think. Sirius XM has been touting the pending arrival of Satellite Radio 2.0 for over a year. It's promised additional content including a suite of Spanish language channels, as well as some Pandora-like features including on-demand capability.
With iHeartradio's new presence and reinvention of itself, the bar has been raised. Will Satellite Radio 2.0 meet expectations? Likely, no matter what it takes, the satellite radio provider will step up to the plate.
What we have here is not doom and gloom for Sirius XM and Pandora. What we have are events that simply test those companies' mettle. There is plenty of room in audio entertainment for satellite, terrestrial and Internet. It is simply a game of which medium can be the dominant player and how each of these companies maintains its market share.
Disclosure: I am long SIRI.