The Future of Satellite Radio — Smartphones
Smartphones are all the rage. Whether Android, iPhone or BlackBerry, consumers are gravitating to them more than ever. Sirius XM has a presence in this arena, but has not yet made the game changing move that could cement them as the consumers choice for audio entertainment while at the same time increasing their subscriber base and saving them money. In short, Sirius XM’s real growth story should be in the smartphone market.
Traditionally Sirius XM’s growth is in the auto market where the company has satellite radios installed in about 60% of all new cars manufactured. Typically these satellite radio equipped cars come with a promotional subscription that ranges from three months to one year. Sirius XM is usually able to convert between 45% and 50% of these promotional subscriptions into self paying subscriptions. The company has had continued success with this business model, despite some of the high costs associated with it.
Currently Sirius XM has to subsidize the radio’s, their installation, and in some cases pay the auto companies up to 35% of the revenue that they derive. In essence there is a big up front cost as well as a back end cost associated with building their satellite radio business with auto manufacturers.
With smartphones, Sirius XM can develop their Internet Radio business in a manner that emulates the auto manufacturer model but with far fewer costs. There is no hardware to subsidize, no installation to subsidize, and no revenue to share. The royalties on the internet radio cost more, but that cost is substantially less than all of the subsidies and revenue sharing that Sirius XM pays out to their auto partners. With smartphones Sirius XM simply needs to develop and update an app. It is all about the software with smartphones. With cars it is all about hardware.
Sirius XM has had apps out on smartphones for quite some time. It is only now that they are beginning to promote this aspect of their service through television appearances featuring notable shock jock Howard Stern. What Sirius XM should do is take their apps and Internet service to the next level. The question is, how?
OFFER A REAL FREE TRIAL
Sirius XM does offer a one week free trial with their apps but, the one week trial is not enough. It barely gives the consumer enough time to figure out the channel line-up. What Sirius XM should give users is a three month promotional subscription with their apps and make sure that is prominently featured in the app store. Pandora and Slacker enjoy serious promotion on the three biggest smartphone stores. Sirius XM can steal that thunder by getting consumers to really experience the superior and unique content offerings they offer.
MARKET THE UPGRADES
The secret to success is to get people hooked on your service and then garner as much revenue as you can from them. If a consumer starts out with the app and loves it, they are more likely to go ahead and get the satellite service. The Internet service or the satellite service is $12.95 as stand alone. The combined service garners another $3.00 from the consumer. Sirius XM can then take things to the level and market the “BEST OF” packages for another $4.00. Think about it… if Sirius XM can covert even 25% of trial users into self paying subscribers, they would be way ahead of the game.
MARKET THEIR UNIQUE CONTENT
In the world of audio entertainment, most apps contain nothing more than music. Sirius XM needs to feature their unique content. They need make consumers understand that they have all of the music PLUS great talk, comedy, news, and sports. In their recent contract renewal with the NFL the company was able to negotiate Internet streaming rights into the deal. Direct TV markets the heck out of their NFL packages, Sirius XM can do the same. Other high value content includes Howard Stern, Martha Stewart, Oprah, Playboy, Cosmo, Opie and Anthony, Major League Baseball, The NBA, the NHL, and a college sports line-up that can’t be matched anywhere. The company needs to feature this content like never before to keep their Internet radio competitors at bay.
So, why do I feel that the smartphone market should be capitalized upon? In the last year, smartphone use grew an astounding 60% to over 63 million users and it’s safe to assume that number will only continue to grow. While Internet radio services like Pandora and Slacker got in at the beginning, it is the next phase of smartphone growth that will deliver the biggest prize.
In September of 2010 15.2% of smartphone users listened to music on line. By December that number grew to 15.7%. With auto makers now making cell streaming through the dashboard possible through Bluetooth A2DP technology, music apps over a cell phones now have more options for consumers to utilize and find value in. Interestingly it is now possible for Sirius XM to get into the car dashboard without having to pay a revenue share to an auto company.
Sirius XM’s Mel Karmazin has promised Satellite Radio 2.0 in 2011. While we will certainly see an impact on the satellite service, the most potential is in their Internet Radio platform. This is where Satellite Radio 2.0 can present a wow factor to consumers and investors alike. It takes time to integrate new services into new cars. It takes no time at all to upgrade an app and get into the dashboard anyway through the smartphone. Sirius XM recently decided to work with Telecato bring the Andriod platform to Sirius XM. These types of announcements can help give hints as to what the company will be doing in 2011.
For investors, 13 million new car sales is exciting… the thought of another 15 to 20 million people jumping into smartphones is truly titillating.
Position – Long Sirius XM Satellite Radio
A 6 month trial could bring in millions of listeners even if only 15% stick the cost is low and it opens up higher ad rates for the bigger audiance. No-brainer.
Here’s the problem as I see it. Sirius has a pretty good SkyDock app. It’s not perfect, but it works almost all the time. Every single one of the XM Online apps that I have used (Android, iOS and BB) are riddled with issues that the other major online radio options aren’t. They all have crashing issues, login issues, skipping issues, skipping issues, skipping issues and pad data that is ALWAYS off by half a song or more.
The Android app has only been out for 8 or 10 months but the iOS app has been out for a couple of years and it continues to suffer from the exact same nagging issues that it always has. I have absolutely zero faith in Sirius’ ability to deliver a compelling and immersive online music experience that will rise to the same level as the other options that are available right now. None.
And on the unique content advantage that Sirius has, I don’t recall ANY of the premium news content being available. Further you list sports as an advantage, however Sirius doesn’t have the right to deliver MLB, NCAA, NBA or NHL sports live over the Internet. The NFL is great but not compelling in any way. Yes, I do realize that Sirius can and will negotiate rights in their next round of contracts as they did with the NFL. All of the rights cost money, which drives up costs, which drives up the price of a subscription.
I wish them well. If they actually do deliver Sirius 2.0 and it actually a compelling choice for music that isn’t repeating songs 2 and 3 times a day across all genres and the software actually works and the price is right I’ll add it to my account. That’s a long list.
Biased Poster? Did you jump up and down, point at the screen and yell “biased poster” when you read my comment? That would be actually too funny to ignore.
I have given Sirius thousands of dollars in subscription fees over the years. I am sick of the same old same old. Biased? If calling me names helps you to feel better about sitting back and waiting for vaporware from Sirius then you do it. Call me names.
your a NAB plant – get lost
oh that for you Randy A
One step at a time SIRIUS Radio is making all the right moves, they have a lot of work ahead of them and their future looks so bright and the opportunities are endless. Fans and investors need to have more patience it will all be tweaked and improved it is just a matter of time.
As a long time subscriber I don’t see anything that Sirius is doing that makes the future look bright. Sirius 2.0? Please. Nobody even knows what that is, how much it costs or even if it will focus on smartphones at all.
Sirius has been playing in the smartphone space for well over a year and they can’t make a simple streaming app that works. Pandora can. Slacker can. Mog can. Rdio can and on and on and on. What is it exactly that looks so bright and promising to you about Sirius’ future in Internet radio? The fact that they have asked you to wait for another 8 or 10 months until they might definitely possibly maybe for sure release, or at the very least talk about this thing that could have something to do with this thing here that might be interesting to you?
Now you’re just a troll.
Mel said Sirius 2.0 is a game changer and in him I trust as I said you have to wait and see! Besides today SIRI closed at 52 weeks high this a strong indication that they are doing something good.
I agree smartphones are a huge market that needs whole hearted attention,not half-hearted which is the way it feels and reads based on a % of the comments. I think one thing we all feel comfortable about with Mel is cutting cost. If it cost less to do internet then Mel’s going in that direction. We have to keep in mind this company almost died. I think we can name many areas where sirius/xm needs to improve/spend money. They are probably trying to spread the money around in a lot of areas, while trying to improve the balance sheet. I have to believe Mel and the Liberty guys want everything clicking, it’s just a matter of balancing all the issues.
@Randy A. I have had the Sirius iOS app since it came out and use it every single day. Have no choice as I have no satellite coverage where I live. I have not had crash one. I have had 2 login issues and a few skips. So.. there ya go. Listen to Bloomberg and CNBC to and from work and I’m happy. Icing is some of the special programming I listen too that can’t be found anywhere else. 12.95 a month… really?
Compelling: Evoking interest, attention, or admiration in a powerfully irresistible way. That’s kind of like one of those words you should use once in an article. Not in two (no…sorry THREE) consecutive paragraphs… I have to agree that NFL isn’t compelling… but really? compelling? LOL
I’m with siriusperspective. Whatever makes fiscal sense and draws in subscribers. The internet feed has made me a loyal subscriber, that I can say and when I get back to the lower 48, I’ll be getting a receiver put in the car.
quick note. I just put in a new head unit in my car and part of my research was visiting various forums to get opinions. Every forum visited had comments from people young and not so young hooking up Sirius or XM units to their new head unit.
Compelling. To compel. As in to get people who aren’t giving you money today to give you money tomorrow. A reason to want to buy. If you cannot compel people to pay you, but other companies can that is a negative for you. See? Attracting new subscribers is key to the future of Sirius. If that is an LOL idea for you that’s OK by me.
I’m happy that the iOS app works for you. It didn’t for me and if you read the app reviews in the app stores I’m hardly alone.
Beware! Sour Grapes!
Randy A says:
February 7, 2011 at 3:50 pm
“Any hope that Sirius can do away with the Internet competition with some compelling and innovative new online option that would wipe out Mog, Pandora, Slacker, Rdio and the others is an absolute pipe dream. It would require a level of thought and creativity that Mel has never demonstrated throughout his career. The people at XM that could have made it happen were all let go.”
Randy,
What are you talking about? First, sorry about your drama with the app, but I for one have had the exact opposite experience. My app works 99% of the time. Basically, it works perfectly…on my iPhone.
Secondly, what do you mean we don’t know what Siris 2.0 will be? We actually do know quite a bit about it already…have for months. It will be like an audio dvr for you vehicle that also learns what you like and creates a playlist. Set record to certain concerts, talk shows, sporting events and on and on. Also hit the “LIKE” button and SIRI 2.0 will learn what it is you like and pull music and artists from all the different channels to one channel that is specifically designed to play just your favorites. This is only the tip of the iceberg…i can’t wait to peak underneath this iceberg’s skirt. Good things are to come…
Long SIRI…
I totally agree with Sirius taking advantage of the mobile smartphone market.
however they aren’t even paying attendion to it. The BB torch has been released for 3/4 of a year and Sirius still hasn’t developed an app that works on it.
By the time they create one the Torch2 will be out. The lesson is if they want to be a heavyweight in the mobile app market, they better be prepared to have functional apps that work with the newest devices, when they are released, not 4 months before they are obsolete. This hardware turns over much quicker than Sat. radios.
Music Dock has an apple app that plays Sirius perfectly with better sound and album art. If you don’t like the Sirius app try this one. I don’t know if there is an Android version or not
i just would like to see the company give some details on their future plans–the silence is what causes much doubt and the cc, i fear, will have nice results but not very revealing or stunning about plans for the future–I want to hear some pr/marketing about something new
If you have a contract with Sirius and are not paying month to month, Sirius should offer online services and smart phone app for free. I know a lot of people that have Sirius radios, but refuse to pay 3 bucks a month for online and smart phone. Honestly, it seems greedy of Sirius to charge costs to listen online when years ago it was free.
+1
It doesn’t matter if it costs them more, its about public perception. Joe Public has no idea that streaming rates are high, he just wants added value.
Netflix is able to give away streaming video as part of their $9.99 per month service and offer an internet only option for even less!
Get with it SiriusXM!
There is no way SiriusXM should cost me more per month than Netflix. My mental model will always be that visual entertainment costs more than audio entertainment.