Sirius XM And Pandora Investors Need To Watch Out For Slacker

Includes: P, SIRI
by: Spencer Osborne

It was less than three months ago when privately held Slacker announced to the entire audio entertainment sector that it was the world's most complete music service and that it was poised to make some serious moves in 2013. The bigger players in the sector, Sirius XM (NASDAQ:SIRI), Pandora (NYSE:P), and Spotify may not have agreed, but in less than three months Slacker has put up some massive numbers.

Since mid-February, new users are coming to Slacker, they're listening longer, and they're also becoming paid subscribers:

  • More than six million new listeners joined, with 3.5 million on mobile
  • People have increased average listening time by 25 percent
  • Slacker is now installed on more than three times as many iOS devices
  • Rocking the charts, Slacker is consistently ranked among the top three grossing apps on the App Store Top Grossing Chart
  • More than 100,000 new paid subscribers have joined

These are impressive numbers. The pace outlined here is more than 2 million per month. Slacker is behind the curve when it comes to paid subscriptions, but they are experiencing traction. Certainly the inclusion of Slacker on the Aha platform will deliver rewards in the coming years as Aha has been making a lot of headway in the connected car.

Slacker happens to be one of the staples of my listening experience as a consumer. My listening is dominated by Sirius XM and Slacker. I had recently expressed that the new progress made by Sirius XM in the Internet side of its business had a good chance of keeping me tuned in to the satellite radio provider more often. Sirius XM has the distribution advantage and the content advantage, but Slacker has a wealth of content, some pretty awesome customization, and the ability to listen to any song on-demand for paying subscribers.

In my opinion the traction Slacker is experiencing makes the road for Pandora much more difficult. The free version of Slacker is more robust than Pandora in non-music programming, and the paid version of Slacker gives consumers much more than the paid version of Pandora. Do Sirius XM and Pandora need to worry? No, not quite yet. However, the moves being made by Slacker are making it a dominant force to be reckoned with rather than a novelty service that seems cool.

For those that think that Internet radio can not be profitable, think again. According to CEO Jim Cady Slacker is profitable no matter how a user engages the service:

"We're thrilled with the results of our re-launch; since mid-February millions of new people are tuning into Slacker, they're spending more time listening, and our paid subscriber base is growing fast," said Jim Cady, CEO of Slacker. "And with our proven business model, Slacker is the only digital music service that is gross margin positive on every listener - whether they're ad-supported or a paid subscriber."

One key to Slacker's success has been its ability to carry direct deals with record labels. This is something that both Sirius XM and Pandora have not been able to accomplish to the extent each desires. Slacker also boasts news, talk, and sports content that takes it a step above Pandora, while not yet as robust as Sirius XM. Along with the record label deals Slacker has billing and distribution partnerships with Verizon, AT&T, Sprint, T-Mobile, and U.S. Cellular. Ford, GM, Chrysler, Honda, Acura, Scion, Subaru, and Tesla already offer Slacker on many popular models. Through Aha, the auto distribution is even more expansive.

The bottom line is that the big words uttered by Slacker a mere three months ago are actually being delivered upon. If you are invested in Sirius XM or Slacker and dismissed the re-launch of Slacker in February you need to start paying attention. The good news is that there is plenty of room in the audio entertainment landscape for several services. The bad news for Sirius XM and Pandora is that Slacker is taking a bigger piece of the pie than perhaps many anticipated. Essentially, the moral of this story is not to be scared but to be aware. There is a lot happening in the sector and the connected car will change things quite quickly. Stay Tuned.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Pandora.

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