Car-based iPods Threaten Sirius Satellite Radio, XM

Includes: AAPL, SIRI
by: Miriam Metzinger
Apple Computer (OTC:APPL) has closed a deal with Ford (NYSE:F), GM (NYSE:GM), and Mazda to put iPods docks in their new vehicles, which means that up to 70% of 2007 US autos will have 'seamless iPod integration.'

This is a significant move for Apple, as GM and Ford are the #1 and #2 top-selling automakers in the U.S. GM and Mazda have reported that all of their new models will have an iPod dock, and Ford has said that most of the Ford and Lincoln Mercury cars will have the device, which will allow the driver to to use the car's controls to control the iPod while it charges automatically in the glove compartment.

Sales of iPod are expected to double by 2009, and GM sees potential in using the iPod as a marketing tool to attract younger consumers.

Jim Cramer reported on Thursday August 3rd's Stop Trading! show that Apple's iPods are also going to be installed in luxury Lexus cars: "I don't think people know how big iPod for Lexus could be," said Cramer, observing that a formal relationship between Apple and the Toyota (NYSE:TM) -owned carmaker "could be a real rival to Sirius (NASDAQ:SIRI)."

Sirius depends on the automobile industry for much of its growth business, and would face a real challenge if new car buyers consider their personal iPod, which can hold the equivalent of thousands of CDs, sufficient for their in-car entertainment. Sirius President Jim Meyer emphasized the importance of car subscriptions during the company's recent earnings conference call:

The OEM sector ... where we continued to see strong progress during the first quarter as our factory programs gained momentum. In the first quarter we added 225,343 net subscribers from our automotive OEM channel, which is a 109% increase over the net OEM subscriber additions for the first quarter of last year.
Again, we expect significant growth to continue in this sector during the year. Plus as we have previously announced, all of our exclusive OEM agreements were renewed in 2005 with long-term deals which both improve our penetration rates at each of these car companies as well as consistently improve our economics.

Sirius has made deals with Ford and Toyota in the past, and the proliferation of iPods within these cars is certain to create lively competition between Sirius and Apple.

Cramer has been advocating a merger between XM Satellite Radio (XMSR) and Sirius for several weeks; increased competition from Apple's iPod would seem to give an additional reason for such an alliance.

(Hat tip: Phil Davis)