Why Sirius XM Can’t Go Global… YET
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.
Great article Spencer! Sirius Radio needs to have to be debt free and financially stable before they can venture into other countries. I think we are years away from that the good news is unlike other tech companies SIRIUS has many years of growth ahead of it in North America and than the rest of the world.
it’s pretty clear that siriusxm is just going to be a fad that won’t last to the end of this decade. With the services like pandora, spotify, and all the new streaming podcasts and internet radio on our phones, playing that satellite radio bill each month is becoming less and less appealing. Once howard drains the rest of the company’s money with his lawsuit, and other original programing like o&a get fed up with the company and leave, it will just keep falling down just like the obsolete satellite will.
“We understand that Liberty has expressed an interest in WorldSpace,” Karmazin said at the Reuters Global Media Summit in New York.
But if a partnership with Liberty does come about, Sirius would not invest any money, he added.
“We would put our expertise and experience in the pot and Liberty would put their money in the pot,” Karmazin said.
I understand that satellite radio in cars overseas is a stretch. ..but perhaps Sirius XM could partner with someone (Spotify?) and follow an ad-based model for web-based services overseas to provide the content that SIRI has. I am American but often read the BBC news online because I like it better than CNN. Maybe not the best example, but I’m sure a certain number of citizens in other countries have an interest in U.S. content. Why not make it available to them via the internet through an established partner? ..let’s eat Pandoras cake by offering a web/ad based service online with Content that they don’t have..with an established partner.
I agree with all of points Spencer has made and will add one more difficulty.
You will have a lot of foreign governments to deal with. In Central and South America that will mean dealing with some really shady folks. No, thanks.
beelzebub says sat. radio is a fad and won’t last till the end of the decade.
Satellite distribution of anything is superior and more reliable than internet delivery.
SiriusXM is a full spectrum broadcasting service. Pandora is an internet music service.
While their product has wide appeal, will they still be standing financially in a few years? Their intense competition is going to come from other internet services. Even if they are the internet King of the Hill, will they really make any money? I don’t think so.
Thanks Spencer. It’s all about the balance sheet. If we learned anything in this last financial crisis is that you owe nothing to nobody. Build cash reserves and make the company sweet tasting for the uber deal!!!!
Spencer, why is that, anecdotally, your Sirius’ articles are fear based? On another note, Mel is a media guru! He knows what he is doing. Some day traders are disappointed, because they were looking for pre earnings results. We all know what happens with pre earnings results, then the actual results. Sirius will see a sizable growth in the intermediate future.
Texan…..
How do you get fear based out of this. It is a concise reasoning as to why Sirius XM can not and should not expand yet. The only people that would see fear in this are those that are living the pipe dream of global expansion without considering the massive negatives that come with it.
Mel does know what he is doing. It is one reason he was CRYSTAL CLEAR about NOT going global now. He has said it himself.
Spencer… I cannot believe that SIRI closed at $2.16 today after being at $2.35 a week ago. Can you explain what is happening here? And with the all liklihood that there will be no debt ceiling deal, aren’t you worried? I mean, you are a SIRI long too.
Ladies and gentlemen,
I understand the financial reason not to expand. But the thing is the questions about if a Mexican would care about the news going on here in the states. I don’t care about the news going on in the states. The type of “commercial free radio” commercials actually drives me nuts. I pay for satellite radio because when I travel I want the same type of music without having to change stations. Sirius is going to lose a subscriber in June of next year. I know 1 isn’t going to hurt but think about the military folks that have to go oversees wether it be to be stationed or deployed.
Never mind on the military we are only 1% off the population and nobody cares what is nice for us to have while gone from the states.
Just thought if I were paying for a satellite service it would be global since it is in space. Even if the 500,000 Americans in Panamá wanted to listen to American sports, music, news they all have to go online and read about the news or read about three sports team instead of watching or listening to the game. And to listen to music we’ll have to do it via internet and have your favorite station. But I guess that doesn’t come from satellites.