One of the most frequent questions I get is why Sirius XM has not expanded beyond North America. One of the most frequent reasons many invest into Sirius XM is the thought that if the company can make money here, they can certainly make money on a global basis. I oft see investors betting on that potential. Investors even seem more eager to bet on that with satellite Radio 2.0 coming out and through Sirius XM's Internet radio platform.
Before going any further i should state that in theory there is nothing physically stopping Sirius XM from offering their services world wide. There are however tons of hurdles that effectively prevent this from happening in any timely manner.
EXPANSION COSTS MONEY
In this day and age where we can literally get anything at the push of a button, people tend to think that doing business on the net is easy. the fact of the matter is that it is not really as easy as people think, and there are substantial products involved.
If Sirius XM were to "expand into Mexico, they would need far more than they already have in order to deliver a compelling service. Even after the company adds a suite of Spanish language channels, the offerings are still not what may work with the people of Mexico. Thus, Sirius XM would almost need to develop another entire company to service that nation.
Think about it...Do you think that a Mexican citizen in Mexico City cares about what Ryan, Nicole, Stanley, and Rich of the Morning Mash-up did over the weekend. Do you think they care about the concert in New York, or the Casey Anthony trial? The answer is no. As currently constituted Sirius XM is designed for a U.S. audience. The company has been in Canada for years now and that venture does not yet make money.
Yes, some content will cross over, but people want a connection with radio. Does Fox News, CNN, CNBC, or Martha Stewart matter to people in Mexico? Not on a scale that would translate into a popular service. Does an advertisement for Service Master matter to the average Mexican in Mexico? No
In order to expand you need the infrastructure to support the business, a product that is compelling to that region, and a price point that works, and have not even gotten into the costs of satellites yet.
In addition you need to be licensed to do business in any country in which you want to broadcast. You also need to have the rights to play music in those countries. As a concession to allow Sirius and XM to broadcast into Canada, the company had to guarantee a certain amount of French speaking channels, and channels dedicated to Canadian content. That works fine in this case, but what happens if you want to add Mexico, Nicaragua, Panama, etc.
There is a reason that Pandora is in the U.S. only and that it took Spotify a year to go into business here in the states. Expansion costs money, and record labels do not make these deals lightly.
Now consider how Sirius XM gets exposed to consumers. Through trial subscriptions in new cars. This would mean that Sirius Xm would need to cut brand new OEM deals, and that the company would have slow growth.
Yes, going global may be in the cards some day, but investors should be very weary of the day Sirius Xm announces any such expansion. The costs will be substantial. It is not as simple as flicking a switch.
Could Sirius XM cut a deal with a company that already does business in a given country. Sure. Will that partner work for free? No. Does it make sense to give up revenue in a business that you know is going to lose money for a period of years?
If you are buying and holding on the potential of global expansion, you may want to revisit your thoughts on the subject. Expansion costs money, eats up cash, and often builds debt.
In Q1 of 2011 Sirius XM announced that they added 120,000 net self paying subscribers. This number was generated on the heels of great brand awareness, a 60% penetration rate into new cars, years of exposure. Would you as an investor like to see Sirius XM announce 25,000 subs in their first quarter in Mexico. Can you imagine what the loss would be?
The bottom line is that the barriers for expansion include infrastructure, government negotiations, music royalty negotiations, enough compelling content to make paying for the service worth while, auto deals, retailer deals, a customer service dedicated to that country, and many other things.
Worldspace tried to make a go of the International satellite radio service and failed. Sirius XM learned lessons from that. While this may dampen the enthusiasm of some, it should get readers to the point of being able to sort out real and viable potential from wishful thinking. Sure expansion will happen at some point, but it is not in the cards for quite some time yet.