Co-Authored by Brian “Newman” Rayl and Dennis “Cos” Costa
A short time ago my partner Demian Russian wrote an article comparing Sirius XM Radio (SIRI) to a newly announced Slacker integration of ABC News. This sparked a conversation on our message boards and during our weekly Playground Radio show, which compared the pros and cons of each company’s offered services. Of course a discussion of these markets and operating platforms requires consideration of Sirius XM’s competition as a whole. Aside from the plethora of local Internet radio stations that we could talk about, whose programming is generally local and serves a different market, we instead turned our attention to the two audio players that are most frequently compared to Sirius XM as their competition — Slacker and Pandora.
It was decided that we would do a “Bull vs. Bear” type debate, written about the Internet platform and the competition represented by these well known companies. A funny thing happened to us on the way to the debate table – both of us could not come up with a valid disagreement between the two of us. Instead, we determined that the main disagreement between us was the impetus for Sirius XM to commit to such a move in the first place. Should Sirius XM Radio develop a more complete package for the Internet platform themselves, or should they consider an outright purchase of either of these two companies? Integrating either’s feature-packed software into the satellite radio company’s superior content might be the more preferred option, building on already well known and received services which both companies now enjoy.
Brian contended that Sirius XM should do more to compete directly with Slacker and Pandora on the Internet radio platform. Dennis was adamant that Slacker and Pandora should not be considered real competition to Sirius XM. Dennis’ reasoning was that the primary subscriber source and targeted consumer markets for each company being considered are vastly different. Satellite radio’s primary source of subscribers is from new vehicle sales from contracts with virtually all of the automakers, while Slacker and Pandora garner their users through the Internet. Sirius XM’s consumer base is the drive-time consumer, while Slacker and Pandora are more of a home-based listener service. It is quite clear that the comparison is not an apples-to-apples comparison when it comes to these services.
We both agreed that Sirius XM is the superior content service and provides the best and widest variety of access to that content — hands down. We also both agreed that Slacker and Pandora are feature rich with a very nice “jukebox” feel to it, allowing you to customize your very own personal radio stations, while providing users with some music discovery advantages at the same time. You can base your station on a certain group or a certain theme, as well as creating a ”hate songs” list so that they never play again. The personalization of these services is quite nice. Obviously you cannot do the this with Sirius XM, leaving the user only able to pick a genre of music, but not the artist. The ability to de-select unwanted artists and songs, while improving the music experience with lyrics and album artwork, would be even more beneficial to Satellite Radio subscribers – features that Sirius XM has yet to produce on any of its platforms. Understandably, this “hate list” feature would not be available on any live content, but could be worked into some type of “delay and record” or cache-type feature. What Sirius XM does have is superior content which you cannot get from either of these competitors’ services; such as Howard Stern, every game of the NFL, NHL, NBA, MLB, Martha Stewart, Rosie O’Donnell, ESPN, live news with CNBC, CNN — and the list goes on and on when it comes to uniquely branded live content. Slacker and Pandora offer some news programming, but only as replays after the fact — never live.
Pandora, Slacker, and the plethora of other Internet radio services out there lack a proven business model. Internet radio is what I consider a loss-leader. According to definition, a loss leader is something that is used to entice people to a store or service in order to convert them into products that have higher profit margins. An example of a loss leader would be cell phones. The phone itself is either given away for free or sold at a reduced cost, making little profit. The money is in the subscription plan for the company and in the sale of accessories. This is what Internet radio is. For instance, Last.fm is an Internet radio service owned by CBS Corporation (NYSE:CBS), which they use to draw people to their sites for advertising and to draw people into their other services. Slacker and Pandora have only their Internet radio players which are dependent mostly on advertising, though both services do offer a “premium” service with some added features. In the current economic environment, advertising revenue is down and music royalties are up. Pandora announced their first profit in Q4 2009 according to its Chief Technology Officer Tom Conrad, though they are not a public company and do not file earnings reports so the exact numbers are not known. Sirius XM has reported several profitable quarters in a row and is on the cusp of profitability for the full year 2010.
However, there is a reason that all of these Internet radio services are out there: Because they are in DEMAND by consumers wanting feature rich choices for audio entertainment. In fact, on July 20th, Pandora announced that they now have 60 million registered users to their service alone. People want to be able to listen to the radio as much as possible, even if it is not THROUGH a radio. From a software and application point of view, we both agree that Sirius XM needs to do a much better job on the platforms that Slacker and Pandora already exist on. In the future, Sirius XM needs to develop software to exceed the “cool” factor that these companies’ software now enjoy. Competing with free is difficult, but Sirius XM’s content has already proven to be a formidable competitor to Terrestrial Radio in their primary market. Neither Pandora nor Slacker have proven to be anything more than a jazzed up MP3 player with prerecorded content, which requires users to interact with it in order to customize content to their liking.
Sirius XM currently has on-line radio platform’s for their subscribers. Unfortunately, the current platform is outdated and not very user friendly. With people flocking by the millions to these on-line radio platforms, it would seem to us that Sirius XM should have a prominent presence in this space. They could utilize that distribution medium to advertise the paid Premium On-line subscriptions, as well as for upgrading users to actual radio subscriptions for their car, or any number of other devices. Picking up Slacker or Pandora would give them a huge advantage in providing an upgrade to their current internet offering, while removing at least one of these competitors.
By buying out Slacker or Pandora now, in a bad economy and before either become grossly profitable, Sirius XM could get them relatively cheap rather than spending the time, money, and resources necessary to develop an identical and competing service. They could then do away with their own outdated on-line radio players and integrate them into the Slacker or Pandora player. Non-subscribers would only have access to the regular music that they have now, with limits placed on the amount of streaming that they could have. A low subscription fee, say a $1.99, offering limited music content of Sirius XM stations could be developed that would allow a sampling of channels and genres, perhaps on a rotating basis, with some “favorites” choice available to the user. Users would also be able to upgrade to the Sirius XM Premium On-line content, giving them access to everything that Sirius XM has to offer on that platform as well as the Premium features of Slacker and Pandora. Best of all, these services would all be offered through the Pandora or Slacker applications which are already available on nearly every platform available such as the Apple (AAPL) iPhones, the Google (NASDAQ:GOOG) Android platforms, Microsoft’s (NASDAQ:MSFT) XBox, Sony Corporation’s (NYSE:SNE) Playstations, and Netflix, Inc.’s (NASDAQ:NFLX) Roku box, to name a few. According to an article on Gigaom.com, Pandora is available on over 100 different products. In December 2009 alone, 3 million people signed up for Pandora and 2.7 million of those people signed up on a device other than a computer. Those numbers are a powerful example of why Sirius XM needs to be integrated into as many devices as possible, and buying out one of these services would give them a significant advantage. As an example of the power of this type of integration, consider this post from our message board:
“I bought a Sony Blu Ray player this weekend, it had wifi and LAN Internet capability on it so I plugged it in and it came pre loaded with Pandora and Netflix. I decided I should see how the competition stacks up. The Pandora application works great for music, except there was a pause between music as it buffers and loads between songs on my BluRay player. I thought to myself OK, this is actually pretty cool but I doubt they can keep this free forever. I decided to test my iPhone and see if I could drive 30 minutes in the Seattle area, using my 3G service playing Pandora plugged into my cars USB input………. Well Pandora is a nice compliment to my Sat radio, but I use SIRI for the NFL and CNBC and so on. As long as SIRI/XM continues to deliver exclusive content, I dont see Pandora as a big threat. I would continue to use all my options in the car even if I was not invested in the company……. It would be nice to see the SIRI/XM service come pre loaded on hardware like the Sony Blu Ray player does with Pandora….. That Blu Ray player purchase led me to take all these steps, I’m sure thats exactly what they want to happen……”
– golong005, Playground Forum Poster
From a marketing and advertising perspective, Sirius XM would also gain access to the email addresses of every registered user, giving them the ability to then promote the service to every single one of them. These advantages cannot, and quite frankly should not be ignored.
Sirius XM appeals mostly to an older, more sophisticated crowd. Pandora and Slacker are aimed towards the younger, more “hip” crowd. This is one of the best ways in which Sirius XM could drastically expand their reach, and introduce the product to a totally different audience. In the recent second quarter conference call, Sirius XM announced the new Satellite Radio 2.0 development, which would be coming hopefully by the holidays of 2011. Could this be a part of Satellite Radio 2.0? From an outsiders perspective, it certainly makes sense to pursue something like this. Would it make sense from a business perspective? That is up to Sirius XM.
Contact the authors:
Dennis “Cos” Costa – firstname.lastname@example.org
Brian “Newman” Rayl – email@example.com
Dennis “Cos” Costa – Long SIRI, MSFT, AAPL
Brian “Newman” Rayl – Long SIRI, GOOG