Can Satellite TV Disputes Spill Over To Sirius XM?

| About: Sirius XM (SIRI)

If you have DirecTV (DTV) or Dish (NASDAQ:DISH) satellite television you are likely aware of the disputes both services have been having with content providers over the past few months. Both satellite television operators have been going toe to toe with the likes of Viacom and AMC regarding fees and lawsuits. The issue has consumers in a frenzy because they may not be able to receive the channels they want on their service anymore. Do these battles demonstrate that an on-line streaming experience may be a competitive wave of the future, or is it still too early for that?

The dynamic is an interesting one and thus far the subtle skirmishes have not resulted in a large shift in the marketplace, but are we in the beginnings of a shift?. Sirius XM (NASDAQ:SIRI), a satellite radio service, is not immune. The satellite radio provider had a contract negotiation with BBC Radio last year. In that dispute the very popular BBC Radio 1 was pulled from Sirius XM. Later, amongst consumer angst, a partial agreement was reached which put BBC Radio 1 on Sirius XM's Internet stream and allowed for some partial programming over the satellite feed. Prior to that Sirius XM had contract issues with shock jock host Bubba The Love Sponge, who ultimately took his show to Cox radio stations, on terrestrial radio, as well as to Internet radio upstart

The latest development in content wars involves cable network AMC. The popular channel is in the midst of a heavy dispute with Dish Network and was recently pulled from the provider, leaving DISH subscribers without AMC. Prior to being pulled AMC advertised heavily on all broadcasts warning DISH subscribers that they would no longer have all of the great movies shown on the channel, and that they would also miss out on AMC exclusive series like the popular Breaking Bad and Walking Dead.

Ultimately, AMC was indeed pulled from the DISH line-up amidst the fury of many Breaking Bad fans, as that series was about to have its season debut. In the past, a network like AMC would have little leverage in such negotiations. That was then however, and this is now. AMC's response was to make the Breaking Bad season premier available to Dish subscribers on its own website. The result was a substantial spike in the AMC website traffic. AMC saw its Internet reach and traffic rank move up substantially to coincide with the availability of Breaking Bad on line.

Both DISH and DirecTV have expressed that on-line streaming is an issue in negotiating with the likes of Viacom. Streaming on the web means that the channel packages offered by the likes of DirectTV and DISH carry less consumer value. One solution has been that current episodes are not typically available on individual channel websites (such as until weeks after initial broadcast. This gives the distribution outlets like DirecTV and Dish somewhat of an exclusive. Until now it has not been a massive issue and as yet still may not be, but the disputes seem to be bringing the issue to a head. The main reason the issue is gaining steam is technology. With televisions becoming more Internet capable and with cell phones and tablets able to connect to televisions with more ease as well, the concept of getting your video and audio fix over the web is getting more and more popular. This exposes a possible disadvantage to satellite delivery.

Despite the technology innovations, satellite delivery still has some pretty substantial advantages. It only takes a couple of satellites to cover the whole continental United States. Compare that to miles and miles of wire or fiber optics and you can see that satellite is simple and more maintenance free. There is a huge efficiency in satellite delivery that traditional cable simply can not offer. If you get into a real rural area, satellite services may be the only viable option. In contrast, the cable networks are massive and carry not only television, but in many cases Internet as well. For satellite distribution platforms, the emergence of faster, more capable, and more widespread high speed Internet via land based solutions means the possibility that other services can evolve to offer up similar content, or perhaps even distribute that content direct to the consumer, circumventing satellites altogether.

So how do we measure this potential threat? The answer is that there is no real way to calculate it, nor a method to see how fast consumers might shift. We can see trends though. One trend is that Internet streaming is growing at a fast clip. Services like Pandora (NYSE:P), Netflix (NASDAQ:NFLX), Hulu, and others are growing at impressive rates, but then again, so are the subscriber numbers of DierctTV, DISH, and Sirius XM.

In my opinion content is still king, and as long as satellite platforms can carry a wealth of unique, or semi-unique content they will continue to be the de facto consumer solution until such a time that another solution can garner that same content and deliver it reliably at a good price. I also see that many people jump to specific content so that they can get what they want when they want it. While I still maintain my cable subscription, I do find myself using the streaming side of that business more often. I utilize, for example, Hulu to catch up on shows that I like on my own schedule, and where I want.

A DISH solution has been Hopper and a more robust Internet interface. DirecTV has done the same. Sirius XM has promising developments with Satellite Radio 2.0, but as yet the true On-Demand service has been slow to launch (deals with record labels hamper the concept of On-Demand music). As Sirius XM jousts with Liberty Media (NASDAQ:LMCA) over control, Liberty's CEO John Malone has stated that he wants to embrace technology with Sirius XM and perhaps even accelerate the roll-out of such services.

Clearly, Internet streaming is not yet a replacement for satellite delivered services, but the reality is that there is much more available on the Internet now than was available even a year ago. Consumers, so far, are unwilling to go "all the way" with the Internet, but they are using it more and more.

I am a huge fan of Sirius XM Satellite Radio. For the most part, I use it more than any other service. In writing about it I also cover other companies in the audio entertainment sector. That has me monitoring the likes of Pandora, MOG, Slacker, Spotify and others. I also find myself using services like Slacker and Spotify for one reason or another quite often. While I am by no means the litmus test, I must consider my own experiences as I look at why some of my listening hours have shifted away from Sirius XM.

One shift I have had is listening to Internet radio service Slacker. I am a big fan of Slacker for several reasons. First and foremost, I like the programming offered there. The program directors are people who's musical tastes seem to align with mine quite well. In addition, I am currently working on projects in New York City. This means that my car is parked for long stretches of time and that I, like millions of those that work in New York, log plenty of commuter miles on the subway where Sirius XM is simply not an option. Because Sirius XM is not available in subway tunnels, I need another solution. That solution is cached content, a service offered by Slacker. With Slacker I get instantly refreshed channels simply by entering a WiFi zone. The service refreshes and adds new content to my phone. This provides new listening experience each time I head for the subway. Sirius XM is getting to the point of cached content but not quite there as yet.

Taking it a step further, I am also a fan of Spotify. I like the concept of getting any song I want when I want to hear it. Spotify can do this because it has direct deals with the record labels, something Sirius XM lacks (Sirius XM is currently in a lawsuit with Sound Exchange over this very issue). In a couple of weeks I will be hosting a small get together. In the past I would stream Sirius XM as background music at the event. Not this year. Spotify provides me with a better solution. With Sirius XM I would be beholden to a channel dedicated to one genre, and then change channels throughout the party to switch things up. With Spoitfy I can build a "summer song play-list" that encompasses several genres as well as several decades with songs I may not even have in my iTunes library. I simply build a play-list with about 200 songs, hit shuffle, and forget about it. Now I can focus on my guests rather than the music.

In yet another example, I am a huge fan of the New England Patriots and the NFL in general. Sirius XM offers NFL coverage, but I rarely use Sirius XM to listen to games. My first choice is to watch on television, but when that is not available I use the NFL app through my Verizon phone. It is easier to navigate, easier to listen and catch other scores, and even provides video clips as the game progress. In my opinion the experience provided by Verizon and the NFL is simply better than what Sirius XM offers. That is a stark change from 5 years ago when Sirius XM was the only real solution for catching all of the game outside of the television.

I fully understand that my situation does not mirror that of all consumers. However, in studying this industry for years, I can see many consumers habits shifting, even slightly. This does not mean that I have shifted wholly over to the Internet as my primary source of content, but I would say that at least 15% of my television viewing and currently half of my audio listening has shifted to a streaming platform. From a Sirius XM perspective that does not spell doom and gloom. I still pay my monthly subscription. Technically speaking it does not matter whether I listen for 5 minutes or 5 hours. The fee is the same. The interesting dynamic comes when the Sirius XM consumer shifts enough of their listening to simply forego the service. I used to have 3 subscriptions. I could not justify that anymore, and now have just one.

Yes, we have to pay for Internet, and yes, data plans on cell phones have costs, but it is crystal clear that consumers are embracing streamed content at least to some degree. It is also clear that for consumers, Internet and data costs are secondary to getting what you want when you want it.

For its part Sirius XM is getting there. The company promises more "personalized radio" in 2012, and has locked up some exclusive distribution deals with the likes of Major League Baseball. The battlefield over distribution channels is in its infancy but merits close attention by investors.

Disclosure: I am long SIRI, LMCA.

Additional disclosure: I have no position in Pandora, DirecTV, or DISH.