Now that automotive giant General Motors has exited bankruptcy, people invested in satellite radio may want to think that the news is meaningful for satellite radio. In the near term, there will be little, if any, impact. The long term meaning is yet to be seen, and will depend on how successful the new GM can become.
First Chrysler entered and exited bankruptcy, now General Motors has done the same. Both companies are big contributors to the promotional subscriber and subscriber base, and the woes of these companies has already had it's impact on SDARS. What satellite radio needs is for consumer confidence to return, and car sales to climb from the basement in which they now reside. This process will take time, and likely car sales wont return to annualized rate of 16 million any time soon.
What SDARS will see is a regrowth of the OEM channel with the advantage of having deeper penetration rates this time around. The impact of a stronger OEM channel will be more gradual, steady, and measurable, and for satellite radio investors, and this will demonstrate a stronger foundation on which satellite radio will build. Don't look for an immediate turn-around, but rather a gradual rebirth of SDARS with better deals, better cost structures, and the advantage of having merged.
Ultimately, SDARS relies on the OEM channel for growth, but the company is even shifting towards growing other revenue generating outlets as well. The Internet carries a lot of potential, but a lot of competition as well. The advantage for Sirius XM is their satellite platform, exclusive content, existing retail presence, and brand recognition. The Internet aspect of Sirius XM's business is difficult to model at this point, and thus hard for investors or the street to appreciate. One thing that lends me to believe in the viability of the Internet radio platform is all of the companies that have entered it. Pandora, Slacker, and any terrestrial radio station worth their salt are all active in the sector, and pushing it harder than ever before. The Internet combined with 3G cell networks are beginning to show the potential that is out there.
A two pronged approach consisting of the OEM channel and the retail channel bolstered by their Internet service will represent the future of how SDARS will grow. The rebirth of satellite radio is already happening, but for whatever reason, many are unable to see it. Investors are looking for the quick buck rather than deciding whether or not to bet on the long term prospects of SDARS. This equity is still fraught with traders rather than investors despite the biggest investor (Liberty Media) having staked a claim in the future of SDARS. The next four quarters will tell the story, and a savvy investor will be able to see if the company is on the correct path.
Position - Long Sirius XM, No Position General Motors