SORRY, BUT SIRIUS XM HAS PAYING CUSTOMERS
There has been some excitement surrounding the U.S. launch of Europe-based Spotify. Like Pandora Media (NYSE:P), Spotify offers free internet music streaming. We have discussed this in the past, but we think Pandora, Spotify and other internet music streaming companies are weak competitors against Sirius XM Radio (NASDAQ:SIRI), which has a subscription based business model. Not only do companies like Pandora and Spotify rely solely on internet advertising for their revenues, their content acquisition costs also increase in line with revenues, eliminating much of the company's potential for economies of scale.
But as a SIRI bull, my interest was peaked when I stumbled upon a reference to Spotify on a Facebook page for the new Chevrolet Sonic. According to the site, "Chevrolet is teaming up with Spotify, a digital music service, to bring you new music in a whole new way." Later, they reference Sonic's 6-speaker system, dual Bluetooth and USB port making it clear that Sonic is a mobile device friendly car.
The Sonic is Chevrolet's latest entrant into the low price, compact car market. While the Sonic will not satisfy many Americans, it has a strong potential market among the young and entry level automobile buyers. This makes the Chevrolet and Spotify promotion particularly powerful since they have similar target groups.
NOT A THREAT ... YET
The Spotify/Chevrolet partnership caught my attention because one of SIRI's biggest competitive advantages is its strong footprint in the US automobile industry. General Motors (NYSE:GM) with various brands including Chevrolet, is one of SIRI's most important OEM customers. Anything that challenges SIRI's dominance in the auto market should be troubling for investors. But the partnership between Chevrolet and Spotify is unlikely to be transform the market or offer a disruptive technology. Sonic may make it easier to listen to internet radio in the car, but it is not the first to do so. In addition, the real challenges to the SIRI model will likely come from companies like Research in Motion (RIMM), Microsoft Inc (NASDAQ:MSFT), Google Inc (NASDAQ:GOOG) and Apple Inc (NASDAQ:AAPL). These companies each provide robust operating systems that could one day have the ability to easily integrate into automobiles. RIMM has previously expressed a determination to integrate their QNX platform with in automobiles. For all of the company's faults, its QNX operating system is mature and highly regarded.
Disclosure: I own AAPL shares and may initiate a long position in SIRI, GM, RIMM, MSFT, GOOG over the next 72 hours.