Another Reason To Sell Sirius XM, Buy Pandora, Intel

Apr.11.12 | About: Pandora Media (P)

Pandora (P) announced something this morning that will likely fly under the radar. It generates a few ad dollars from Intel (INTC), but really, that's the back story to a harbinger of more groundbreaking to come. Here's the meat of Wednesday morning's press release:

  • Pandora ... announced the "Inside the Music" program, presented by Intel. The Inside the Music program goes behind-the-scenes of the Pandora Music Genome Project ...
  • Pandora Founder and Chief Strategy Officer Tim Westergren said, "For more than a decade, we have been capturing in great detail every aspect that gives a song its unique character, whether it's the melody, harmony, rhythm, instrumentation, vocal performance, lyrics or more. We're pleased to partner with Intel to give people a unique opportunity to discover even more about the music and artists they love."
  • Also for the first time ever, the program will enable listeners to launch new Pandora stations based on a specific track feature such as guitar effects, chromatic harmonic structure and vocal harmony.
  • The Inside the Music program, presented by Intel, will target select adults ages 18-34 that are utilizing one of Pandora's most popular features, the "thumbs-up" option.

A quote from an Intel executive involved in the deal deserves showcasing:

Entertainment, and specifically music, will be a big push for us in our advertising focus in 2012. We're targeting a younger audience than we have in the past as we feel they tend to influence not only like-minded individuals, but also those outside their direct peer group. To be effective with that audience we need to help create experiences for them that are compelling and worthy of sharing across their social graph ...

-David Veneski, U.S. Media Director, Intel Corp.

So, let's get this straight. Intel is buying ad time on Pandora. Generally, something of that magnitude would be the headline. Instead, this debunks various myths about what Pandora will attempt to do going forward vis-a-vis advertising.

Pandora will do more to reinvent radio than "simply" make it a personalized experience. It will completely revamp advertising in the space and beyond. It's one thing to make ads "relevant" to the end user; Pandora already does that. It's entirely another to present advertising that has some value beyond just pitching somebody a brand or product you think they might like.

The Pandora-Intel hookup is significant from several standpoints. First, it provides the user an attractive and wholly interactive experience that not only works for Intel, as it builds and evolves its brand, but it should serve to make the Pandora user more loyal and responsive. Second, it underscores the importance of the 18-34 demographic that Pandora does so well with. Veneski's comments should help put to rest any doubts about the power of owning 18-34 year olds.

This news also drives home several points I have been making about the broad audio entertainment segment, specifically my bullish stance on Pandora and bearish take on Sirius XM (SIRI).

Deals like this appear insignificant today. For whatever reason, investors run up stocks on fleeting events such as hollow analyst upgrades or guidance for the next quarter. While those near-term catalysts can provide excellent trading opportunities, they should barely enter a long-term investor's vision. It's news like the Pandora-Intel partnership that should prompt investors to be bullish Pandora and bearish Sirius XM. These seemingly run-of-the-mill events foreshadow the future.

While, in hindsight, Groupon (GRPN) might have been the wrong company to use to illustrate his point, fellow Seeking Alpha contributor Spencer Osborne argued last year that Sirius XM drops the ball by not partnering with companies that do well in the 18-34 demo:

Sirius XM tends to attract a mostly male audience over the age of 35. The weak points for satellite radio are female subscribers and people under 35. Ironically, these are two demographics that are quite strong with both Groupon and Living Social. As it happens, the users of these "deal of the day" sites also have the income levels that are attractive for satellite radio.

It would seem like a match made in heaven. Sirius XM can give Groupon and Living Social exposure to demographics they are weak on, and the Internet coupon sites can provide an audience that satellite radio needs help with. This is a classic case of companies scratching each others' backs.

It's also a classic example of the ever-evolving new media landscape. Plus, it drives home how interconnected things have become. Intel is in tech. Pandora is a new media company. But, both really qualify for inclusion in the Internet space. And, as Intel continues to evolve, it could become a media player in your home as well as in your automobile.

By getting into bed with one another, Pandora and Intel clearly show they get it. They see the future. Together, they play it out before the rest of the world realizes that the future is actually now. It makes all the sense in the world for Intel to expose itself to Pandora's audience and for Pandora to wax innovative in conjunction with Intel.

This type of thinking simply does not pervade the culture at a company like Sirius XM in the slightest. While that might not be a problem today, it's the type of attitudinal shortcoming that kills companies whose lack of aggressive innovation, coupled with zero foresight, set the groundwork for eventual obscurity or even demise. Case in point: Research in Motion (RIMM). Talk about not only misreading, but doing very little to prepare for the future.

Of course, it looks like the sky is falling for Pandora today, while Sirius XM prepares to throw its money away to execute a stock buyback. It might even make sense to trade on these realities. However, if you're a long-term investor scaling into a speculative play like Pandora and an ever-evolving stalwart like Intel likely makes more sense than investing in yesterday's news.

Disclosure: I am long INTC, P.