Seeking Alpha
Long only, research analyst, portfolio strategy, media
Profile| Send Message|
( followers)  

I've been a bit rough on some individuals when they have used the argument against Sirius XM (SIRI) that the company is not well-positioned to take advantage of what the future may bring to the digital listening environment. There are some who believe the future is with IP delivered radio, such as Pandora (P), or Spotify. There are some who believe the future is with Sirius XM, and delivery through satellites because of today's bandwidth crunch, cost, and availability of these IP delivered radio services. And then there's the one guy that thinks terrestrial radio is just fine, and the rest of you 'darn kids' better slow down when driving down his street.

It's actually a favorite bear argument against Sirius XM right now. 'The future' and 5, or 10 years out, and what it may or may not bring. I almost always brush these predictions off, though, because the crystal ball with regard to technology is oh so very hazy. You can possibly look 2 years out and estimate where technology will be, but you can't look 5 years out, or 10 years, and make predictions with any degree of certainty. This is why I scoff at these arguments that say Sirius XM won't exist in 5 years and why it is a sell 'today' because of it. It's just not reasonable to think that and those arguments always assume Sirius XM stands still while others evolve. Such assumptions are unreasonable.

Let me show you a problem with predicting the future of radio and music delivery. We will use the past as an example. Let's go back 5 years and attempt to predict "today" based on that date.

April 4th, 2007. 5 Years ago today. Apple (AAPL) had not released the iPhone, and data plans were wildly expensive, connection spotty, and speeds certainly not fast enough to "stream" anything. Sirius and XM were two separate companies fighting each other for subscribers. IPods existed and had been in existence for almost 5 years, but had really only attained considerable use as of 3 years prior. Your choices in the car were Terrestrial radio, CD / Tape, iPod with aux cable, radio transmitter, tape adapter, etc, or Sirius or XM, typically through an add on kit.

Put yourself back in those times. Now look at today. Could you have predicted now, based on then? Be honest with yourself. Would have been very difficult to see Apple at the top today, wouldn't it? Would you have seen Sirius and XM as one company? Would you see Sirius XM with 20 million listeners? Would you have seen Pandora in a portable form through a cell phone? Don't focus on whether or not these things are "good" or "bad" for Sirius XM. Focus on the question "would you have seen them?"

Now let's go back once more. 10 years. April 4th, 2002. The iPod had just been introduced but it was hard drive based and sold relatively few units. Terrestrial radio dominated almost exclusively, and Howard Stern was in their camp. Sirius and XM were in their fledgling stages, with XM being the dominant player out of the two by leaps and bounds. Smart phones, data plans, even "MP3" were terms that most people had not yet heard of. If you were listening to music in the car, your choices available in 98% of vehicles were terrestrial radio, or CD / Tape.

Would you have seen Howard Stern's move to Sirius? Would you have seen Sirius overtaking XM? Would you have seen Satellite radio with 20 million listeners and profitable? Would you have seen the iPod and MP3 format becoming so popular? Would you have thought of Pandora as more than mythological box of horrors, and Spotify as anything other than something you accomplished by spilling a drink on your shirt?

The point here is that while hindsight is 20/20, foresight is cloudy at best, and the further you look into the future the more difficult it is to "see." It's like looking into a thick fog. Can you see your hand? Sure. Can you see 100 feet ahead? Maybe. Can you see a half mile? No. You can guess. I prefer not to guess with my investments. Stick a visionary in the fog, and they can see just as far as you can if you both squint hard enough.

Sirius XM is performing well today, and for the foreseeable future into the next year or two at least. That's all we need to know to invest 'right now.' My 12 month moving window into the future is all I need to know to be secure in my long position in Sirius XM today.

Disclosure: I am long SIRI.

Additional disclosure: I am long SIRI April, May, and June $2 calls.

Source: Sirius XM: Predicting The Future