For as long as I can remember investors of SiriusXM (NASDAQ:SIRI) have longed for and embraced the idea of expansion. When XM signed a deal with GM expansion into the automobile was what everyone wanted to see come to fruition. Investors had visions of a day that satellite radio would be standard equipment, and automakers would actually pay Sirius and XM for chip sets. Then it was expansion into more content. Howard Stern, Opie &Anthony, Oprah, Ellen, the NFL, the NHL, The NBA, and finally Major League Baseball. We all celebrated each move and embraced them. Certainly they were expensive deals, but we all carried a vision.
After that satellite radio expanded into Canada. Visions of added revenues entered the minds of investors. People got the feeling that satellite radio was invincible and destined to be the greatest form of audio entertainment across the globe.
Global expansion has been something contemplated by investors for a long time. The concept caught fire again when Liberty Media’s John Malone brought it up a few months ago.
Having a vision is a great thing, but as an investor you need to be grounded as well. The auto sector has never seen full penetration and likely will not. Automakers do not pay for satellite radio chip sets, and probably won’t anytime soon. SiriusXM in Canada exists, but the revenues are not very substantial. In short, see the vision and potential, but ground it in reality if you are going to plunk down your hard earned money investing.
Yes, going global sounds great! But there is a lot to consider. It costs money to expand. You need to be able to support the market. You need content for each market. You need customer service reps, sales reps, and offices in these markets. You need management, employees, and talent in each market. You need OEM deals, cell phone deals, repeater networks, licensing, and that is just the beginning. Spotify spent almost a year setting up its U.S. launch, and even then is still not profitable here after launching a year ago.
SiriusXM is just getting to the point of impressive profits and cash flow. Expansion can happen at some point, but investors need to be well aware of the costs associated with trying to expand. Expansion needs a defined plan, a defined schedule, and defined goals. Expansion needs to enhance the business not cripple it.
There are certain products that cross nations and cultures. Clothing can expand across markets quickly. Nike is known the world over. A fragrance can do the same. Satellite radio has huge potential, but it also requires massive amounts of capital and coordination.
Here is an example. If you go to Brazil, you will hear radio in Portuguese. You will hear music that feature Brazilian artists speaking Portuguese. You will hear Portuguese speaking DJ’s, and Brazilian news. As an American, you would feel out of your element. SiriusXM’s current line-up does not serve the interests of Brazilians. As likeable as Nicole, Stanley, Ryan, and Rich are for Americans that listen to Hits 1, there is likely little appeal from the fab four in Brazil. Compound that and consider Argentina, Chile, Venezuala, Columbia, Bolivia, Ecuador, Guyana, Paraguay, Peru, Suriname, and Uruguay. There are 12 nations in South America alone to cater to. Central America, including Mexico, adds another 8 to the mix! And there are dozens of islands in the Caribbean on top of that! Simply stated, just to cover this hemisphere, we are talking about a massive undertaking.
Global expansion is a great vision, but it takes a lot to make it a reality. It took a couple of years and many concessions to even get into Canada! And so far the reward has been quite modest, even after years have passed. Having a grand vision is great and powerful. Without it we will not progress. However, it is a long process that does not come easy. If you are an investor that has been waiting years for an impressive return on SiriusXM, the thought of global expansion may add a lot more years to getting to that reality.
In my opinion any expansion by SiriusXM needs to be measured, strategic, and consider the impacts to the bottom line. SiriusXM has taken years to define and refine the best business model as it relates to the auto sector. That is smart business. The company needs to apply the same business principles to international expansion. Investors need to consider the very real hurdles such expansion has.
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