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Sirius XM Versus The Competition

|Includes: Sirius XM Holdings Inc. (SIRI)

On Friday, Orbitcast released an internal company memo from Sirius XM Radio’s (NASDAQ:SIRI) CEO Mel Karmazin, which makes clear that Sirius XM has separated itself completely from it’s terrestrial radio competition. Based on first quarter 2009 revenue, Sirius XM has become the largest radio company in the world, with only Clear Channel posing a genuine competitive threat going forward. That is of course assuming that Clear Channel can somehow manage to avoid bankruptcy, as its lenders last week rejected a proposed debt swap leaving the company to look for other options as the clock winds down.

With CBS Radio reporting a distant third place, its time to take a new look at how those Internet streaming companies such as Pandora and Slacker are lining up against the Satellite Radio provider. Internet Radio does have its place, functioning more like a large CD collection or Jukebox than radio. As a true competitive threat to Satellite Radio’s exclusive content however, the numbers just don’t add up.

Although Pandora boasts 27 million users, the company sees revenues for the full year 2009 coming in at only 40 million dollars and predicts profitability may come in 2010, although performance royalty obligations make that highly unlikely in my opinion. Slacker’s revenue is similarly unmentionable, when compared to the 2.4 BILLION dollars (and growing) in annual revenue reported by Sirius XM.

Looking ahead, the only way that these Internet Radio providers can be compared on the same level as Sirius XM will be through a change in the way they operate. Companies like Pandora and Slacker will need to take on vast amounts of new debt to grow into a truly formidable opponent.  Sirius is fully funded to profitability. From this standpoint alone it would take at least 10 years of financial engineering to grow Internet Radio into a real threat to Satellite Radio’s future.


Position: Long SIRI

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