Yesterday, I noted that at least some of Wall Street's "big money" is actively researching what amounts to where can Sirius XM (NASDAQ:SIRI) go from here? In that article, I discussed the types of things major long-term investors want to know before they open meaningful interests in SIRI:
- How has Sirius XM positioned itself in the broad media space?
- Can the company leverage multi-platform opportunities outside of direct, in-dash penetration?
The fact that the big money asks these questions only validates my continued focus on not what has Sirius XM done lately, but what will the company do tomorrow?
Alongside that theme, I argue that CEO Mel Karmazin runs Sirius XM like an old guard, old media company that more closely resembles the terrestrial radio way, not the tech-like, new and social media attitude investors get excited about. While I've had few bad words to say about how Karmazin runs the core business - one that must remain the central focus, for the time being - the steps he takes to prepare for the future appear inferior at best.
Sirius XM must embrace the future of new and social media. The system you use to deliver your content means very little, if anything at all. In fact, satellites represent little more than overhead, just like broadcast radio towers. We live in an increasingly fluid world where entertainment consumers expect to be able to flow from device to device and place to place, whenever they want to, with access to your content.
There's a reason why Clear Channel (CCMO.PK) CEO Robert Pittman is so aggressively using iHeart Radio to position his firm as a digital media company. He takes the emphasis off of the relatively old-school and expensive brick-and-mortar setup of thousands of physical radio stations housed in hundreds of buildings, supported by hundreds of towers that always need service. If it were not for Clear Channel's mountain of debt, major media conglomerates would be salivating at the prospects of a takeover.
While Sirius XM runs the core that brought it to the dance admirably well (and probably can for some time), it absolutely needs to show Wall Street that it not only understands, but is positioning itself for the future. And the future, as Netflix (NASDAQ:NFLX) CEO Reed Hastings likes to say, is smart and social. That means multi-platform, accessible and seamless. Three-hundred dollar radios sold with "car kits" at retail no longer cut it.
We live in a world where people watch Netflix, Hulu and YouTube on their "television" sets. Where urban hipsters stream Pandora (NYSE:P) from their refrigerators and where radios and TVs serve as background noise while people truly interact with their gadgets and mobile devices. Here's a relevant blurb from Pittman at an All Things D conference Tuesday:
What we build in radio are these incredible franchises. However our listeners want to get to those franchises is fine - whether it's radio, or Internet or TV ... Everyone's trying to protect business models, but in the end it's the consumer that rules and we have to deliver the content to them however they choose to consume it.
When you read the things Sirius XM executives say in this regard, it just sounds like satellite radio 2.0 is something the company has to do, but it's not part of the passion or vision that drives their future. Instead, they'll stick to protecting a business model.
In lieu of sending David Frear - a dry bean-counting CFO with a typical background - and Karmazin - a staunch member of the old guard media establishment - to conferences, Sirius XM needs to take things to the next level. It needs to get fresh young, smart and social tech-like blood out in front of investors and the public.
First, however, the company must bring some of these folks into the organization. Young people who may have never listened to terrestrial radio, would look at a rotary phone in awe and have no earthly idea what an eight-track tape is (or older, slick fellows like Pittman). If they exist in the halls of Sirius XM, Karmazin, for whatever reason, has them buried in stuffy cubicles and staid boardrooms working on something that should hardly be top secret.
As I noted at the outset of my interview with Pandora CFO Steve Cakebread (who, by the way, is from the Cakebread Wine Cellars family and sports a last name of Irish-Welsh decent), he's clearly not merely a bean counter, he talks the talk and walks the walk as part of a fresh, new media company's visioning process. Like company co-founder Tim Westergren, he could step into the room with the ping-pong table at Google (NASDAQ:GOOG), Zynga (NASDAQ:ZNGA) or Facebook wearing sweatpants and eating seitan and not look out of place. You can hardly say the same about Karmazin, Frear and a lion's share of Sirius XM's decision makers.
It might not look like it today, as ardent SIRI longs high-five one another over credit upgrades and increasing free cash flow, but this company desperately needs to poach one of today's top new and/or social media innovators of either young, hot shot talent or a veteran who, here's that phrase, just "gets it."
Consider what J. C. Penney (NYSE:JCP) did when it hired Ron Johnson away from Apple (NASDAQ:AAPL) to be its CEO. Since the hire, the stock is up more than 18%. Here's the chart, courtesy of Yahoo Finance:
Not only is Johnson inciting real change at J.C. Penney, he's triggering headlines like this one:
Alongside the snappy eye-catchers, though, Johnson provides some forward-looking meat:
On Jan. 25, Johnson made the rounds and leaked his plan ahead of the big event on Jan. 26. J.C. Penney will in the future be known as jcpenney. There is a new logo to evoke the image of the American flag. The stores will have a number of small boutiques as opposed to rows of racks. Most importantly, J.C. Penney will introduce a simplified promotion and pricing structure.
J.C. Penney also plans to cut a large number of jobs and save $900 million over the next two years.
What makes what Johnson is doing, and about to do, at J.C. Penney so impressive is that he's doing it in retail. Opportunities to be aggressive, dynamic and innovative exist to a far greater extent in the world of new and social media than they do in the department store sector.
Before it can capitalize, however, Sirius XM needs to bark like a new and social media company. It has to fully embrace the space and eschew old, tired ways of doing business, even if gradually. And then it absolutely must bring in a big dog from the industry - like Johnson is to retail - and put his office right next door to Karmazin's. Make him (or her!) the brains and the brawn behind the future of Sirius XM. Anything but raises the risk that the company will fade to relative obscurity. Without an exciting and progressive grip on the future, the big money will choose to, by and large, stay away from Sirius XM.
Disclosure: I am long P.
Additional disclosure: I am long NFLX June $40 put options.