Sirius XM: Positioning For The Future

Apr. 8.12 | About: Sirius XM (SIRI)

Had you read my previous article just last week about predicting the future for Sirius XM (SIRI) in the fast paced world of technology, you may be scratching your head right now wondering why I am attempting to do just that.

To be honest, the previous article stemmed from my attempts at writing this article here. The difficulties faced with looking so far ahead as 5 to 10 years when considering technology become almost insurmountable. Consider the possibilities of a single point dust moving through the air. A watcher can guess where this point may be in the next few seconds, but making a guess as to a few minutes later becomes exceedingly difficult. You do not know which way the wind will blow at any given moment.

Regardless, my inbox was met with several requests to try my hand at prediction. Look forward 5 years, and 10 years, and outlay what I feel Sirius XM has to do to succeed in those timeframes.

The following is my honest attempt.

Consider today. Sirius XM is in a prime position right now. The main competitor? Terrestrial radio. Sirius XM is available as standard equipment in a large number of new vehicles and as an add on for all of them with a retail add on receiver. Sirius XM offers content not available on terrestrial radio, all in a commercial free envelope reminiscent of the early days of the cable television industry. IP radio services such as Pandora (P) and Spotify are not viable competition within the automobile, yet. I don't see this changing for the next 12 to 24 months. Because this fits my long term horizon for investing with tech stocks, I am quite bullish on Sirius XM today.

2017

My 5 year picture becomes a bit different. Mobile data will get faster, cheaper, greater coverage, and higher supply. Proliferation of smart phones or their equivalents (yes, they may evolve beyond the touch screen brick style) will have most people with one in their pockets. IP radio at this point will be viable for a large number of users who reside in the populated areas of the country. Data plans should increase from the 2GB typical current limit to 10GB, which will be more than enough for mobile listening of audio content without infringing upon limits. It is at or around this 5 year mark I'd expect transition away from one way streams of audio towards two way interactive audio. Customizable channels, or Pandora like services, will be much more attractive than pre programmed channels such as Sirius XM hits 1.

Because of this gradual shift, Sirius XM will absolutely need to compete in the mobile app driven and IP delivered market. Satellite Radio 2.0 may go a long way towards offering customizable stations and content, but I do not see the satellite stream as offering true customizable ability. My new Lynx radio offers a glimpse of some features that will be taken for granted, such as fast forward, rewind, pause, and buffered stations, as well as recorded content. I do feel, though, that subscribers will begin to use IP delivery and the greater customizability this offers even when the satellite feed is available. As a society we are already in the midst of a transition to "instant gratification." If I want a song, I want it now. I don't want to hear it sometime in the next half hour if whoever programmed a station decided I should hear it. Voice control, such as Apple's (AAPL) SIRI should accelerate this desire for instant gratification. Satellite delivery is going to seem old and antiquated when the IP delivery option is available with a seamless, hands free interface.

To compete? Sirius XM must do a few things by 2017. Sirius XM must be allowed to negotiate directly with content providers or negotiate some form of universal access to audio content. Their current lawsuit with SoundExchange is a move in the right direction. Sirius XM must improve upon its smart phone app. It absolutely has to be simple to use, elegant, sexy. They must allow for IP radio integration with the Satellite Radio 2.0 platform as it is installed in new vehicles. A hybrid of satellite delivery and / or IP delivery would be the best choice, offering both options. Choice is key. When IP is not available, Satellite feed would be, or if you prefer, the other way around. Sirius XM needs customized channels or play lists similar to Pandora's music genome provided channels. The true future, though, lies in the cloud. This is perhaps a tall order for a 5 year time frame, as usage within a mobile environment requires a vocal interface, but is certainly reasonable within a 10 year window.

2022

Again, I am focusing on the mobile environment, more specifically within the vehicle. Vehicles 10 years from now should retain typical form and function of vehicles today, but the technology within them should be quite different. Nearly all vehicles will be equipped with a data connection right off the lot, either of their own or through some sort of tether with the driver's "smart phone" or derivative of such device. Dashboards will be computerized and voice controlled. Press a thumb button on the steering wheel, say your command, and go. GPS directions, climate control, and for our purposes, radio and entertainment control should all be done in this fashion.

Sirius XM will need to have considerable devotion to IP at this point. Satellite should be the fall back, or for those in outlying areas who do not have IP access. With consolidation of spectrum, half of Sirius XM's valuable spectrum should be in use for other services, sold, leased, etc. Some options will require negotiations with the FCC. The world of 2022 will want everything "now" and Sirius XM will need to focus on this desire and quite frankly, expectation, in order to survive and thrive. As a driver in 2022 I want options. I want to tell my car "tune audio to Sirius hits 1" and have it do just that. I want to tell my car "tune audio to Steve's 80's mix" and have it do just that. I want to tell my car "tune audio to Florence And The Machine, Shake It Out" and have that song begin playing. I want to tell my car "tune audio to songs like Florence And The Machine, Shake It Out" or "suggest artists like Florence And The Machine" and have it do it.

If I may suggest, Sirius XM should consider partnering with Spotify or purchasing them outright, rather than attempting to design their own service and pursue their own licensing for IP delivery on a demand basis, as Spotify already offers this currently. The future is the cloud, in almost all respects. As data delivery gets faster and cheaper there is little advantage to buying songs on an individual basis, and the idea of listening to a pre programmed stream of songs as someone else dictates for you will be seen as antiquated and inconvenient. If Sirius XM wishes to survive and compete in 2022, it will have to accept and embrace IP delivery, customizability, instant gratification to any and all content through cloud based offerings, as well as proprietary licensing and content.

While Sirius XM is executing quite well for 2012, and looks to be prepared for 2013, the next 8 years beyond are quite hazy. As an investor, as time moves forward I will watch for Sirius XM to embrace IP radio and seek to compete in this space. I'll also watch for Sirius XM to position itself differently, drop Satellite, drop Radio from the name, and transition to Sirius XM Mobile Entertainment or simply Sirius XM Entertainment. If there is one thing I can agree with the bears on, it is that Sirius XM must get away from the "radio" designation, and eventually away from the "satellite" word being used in its name.

Sirius XM Entertainment : Everything you want, when you want it, no exceptions.

It will be interesting to see how things evolve.

Disclosure: I am long SIRI April, May and June $2 calls. I am long AAPL June $580 calls. I may purchase put contracts against P in the next 72 hours.