Sirius XM delivers a vast array of audio entertainment that can carry an appeal to just about any taste. Whether you are a music fan, a talk radio junkie, or a sports radio fanatic Sirius XM has you covered. It is this reason that no matter what the platform Sirius XM is at the top of the radio mountain. Getting to the top was tough. The companies spent a ton of money and barely avoided bankruptcy to get there. For long term investors the wait has been long and arduous. It is for this reason that investors, as well as Sirius XM, need to keep on their toes and be vigilant about what transpires in the media sector.

I am oft accused of being a fan of other services. Guilty as charged. I enjoy satellite radio, Slacker, Last FM, iTunes, and even sometimes terrestrial radio. Just because I use these services does not make me a cheerleader for them. I use them because they are good. I use them because they are sometimes better at filling my audio entertainment desires than Sirius XM. As a fan of Sirius XM I can honestly say that most of the time I find what I want on satellite radio. However, there are times when, as good as it is, satellite radio and Sirius XM Internet Radio simply do not fit the bill.

From a Sirius XM perspective I had a very big concern that the company would let some unique content go, and that it was possible that such content could become a launching mechanism for another service such as Pandora. I was relieved to see Sirius XM sign Opie & Anthony. They have a loyal fan base that would move to another service with the duo had that been the path that was chosen. By signing O & A Sirius XM avoided that situation.

Sirius XM recently conducted a survey that 70% of their subscribers listened to satellite radio exclusively. That is an impressive number. It is a testament to the quality and variety of programming offered. That type of loyalty is something to be proud of. Now we need to look at the other side of the coin. 53% of the people exposed to satellite radio for a three month or longer trial period elect to not become a self paying subscriber. Yes, getting that 47% is very impressive. I would never take that away. However the fact of the matter is that satellite is not the answer for everyone. As an investor, my goal, and what I would hope is the goal of the company, is to improve on these metrics each quarter. Now is not the time to kick things into cruise control.

Just last week an Edison Research national survey showed that 20% of 12-24 year olds listened to Pandora in the past month. This compared to 11% that listened to an AM/FM online stream, and 8% that listened to any other Internet Radio (that 8% group would include Slacker, Sirius XM Internet Radio, Last FM, Radioio, etc.). Clearly Pandora is doing something right. Clearly Pandora is carving out a niche, and clearly they are at the top of the Internet Radio world. The question I ask is how Sirius XM allowed this to happen?

First things first. Music is music no matter what platform. For the staunch Sirius XM defenders out there I have some news. In most ways the music on Sirius XM is just as "canned" as it is on Pandora or Slacker. If I listed a playlist for any genre, I would challenge anyone to identify which service played it. The truth is that in terms of music some of these other companies have figured out a way to attract listeners from a category where Sirius XM has always been lacking. That 12 to 24 year old demographic is stronger with these other services. Is it that they "learn" the users tastes and cater a customized station to those tastes? Is it the album art-work? Is it the lyrics, or artist profiles? Is it the fact that you can skip songs you don't like? Understanding that the music is identical no matter what the service, I think it is a good bet that it is these "little" bells and whistles that allow a service like Pandora to gain such a grip on the younger generation. Part of the issue also rests in marketing. Pandora and Slacker market heavily in the world of Apps. Sirius XM does nothing. Why allow an Internet Radio provider to gain such ground? Internet Radio is not going to die despite what some may have told you. It will grow. Most "passionate" Sirius XM fans don't even bother to sample what else is out there...instead they say that everything else "sucks".

Wake Up! What Sirius XM needs to do is grab the features that consumers like about these services and integrate them into their own service. This is perhaps a component of Satellite Radio 2.0. At least I hope it is. Sirius XM is doing the hardest part correctly. They are signing their exclusive content to deals. This keeps that content from migrating to, and thereby legitimizing, a competing service. I applaud Sirius XM for these moves. If they lock up Stern, and keep a grip on other top notch content (including sports, talk, and news) they will be able to maintain an advantage.

Satellite delivery, combined with the inclusion in 60% to 70% of cars gives Sirius XM a huge leg up. The challenge is maintaining that when Internet Radio is growing every day. I know, "the data plans are expensive". I have heard it all before. Yet somehow smart phones are still selling at a record pace. I use an Android smart phone, and have unlimited data. Even if I lowered my plan, the data is still unlimited. The real facts are that the new data charges will impact about 1% to 2% of the people. I realize the "passionate" satellite radio fans do not want to hear that, but these are the facts.

If people are so passionate about this company why do they want to settle for being second or even third fiddle in the Internet Radio landscape? It makes no sense! Why, as consumers are these people satisfied with simply good content and a poor user interface? I would venture to say that 90% of these passionate fans are over the age of 35 and simply can not comprehend the thought process of anyone under 35.

Why do I write about these competing forces? Because I know Sirius XM can be better, and want them to remain on top. The hard part of locking up the content is complete. Why not do the simple things. Create a better Internet experience. Create a better user interface that allows for some customization. If a 12 to 24 year old is listening to something, why not want them listening to Sirius XM. Increase marketing to this segment. Create a service that appeals to them not only from a content standpoint, but a user standpoint as well. Get them to know the brand!

My mantra is that Sirius XM find a way to attract the younger generation before other services get their hooks into them. There is plenty of room for many services, but being number one on all fronts should be the goal. Sirius XM fans do not have to be afraid to talk about these other services, they need to understand them. Being great is about being able to adapt and overcome. Ask someone on the street what the greatest Internet Radio service is and you will be hard pressed to have that person answer Sirius XM.

At this point there are likely some "passionate" fans saying, " but these other companies can not make money like Sirius XM". I could not care less how much money they make. Sirius XM needs consumers not investors. The average radio listener has NOTHING to do with SIRI as an investment or any other media company for that matter. A radio service needs to appeal to radio listeners, not investors.

Because of their satellite platform, content deals, and auto deals Sirius XM is the king of the hill. There moves in the next year can keep them there. It is a question of whether they decide to be an all encompassing audio entertainment king.

Position - Long Sirius XM Radio