By Brandon Matthews
I recently penned an article explaining the reasons why internet music companies such as Pandora should not be considered competition to the Satellite Radio provider, Sirius XM Radio (NASDAQ:SIRI). Apparently, the semi-humorous nature of the article took away from the message that I was trying to convey.
Sirius XM Radio CEO Mel Karmazin has pointed out on several occasions that Satellite Radio has been in competition with iPods and MP3 players since its inception. In 1999 Napster launched a free file sharing platform that resulted in music piracy on an unimaginable scale. In a very short time period consumers all over the country had online music collections that were enormous, which were subsequently downloaded to millions of MP3 players.
Apple’s (NASDAQ:AAPL) iTunes was launched in 2003 and yet both Sirius and XM Satellite Radio were able to launch their then individual services, and grow their subscriber bases at very high rates. Even today, the revenue growth projections of Sirius XM Radio, which currently rakes in nearly $2.5 Billion annually, are enormous when compared to other media — including subscription based, ad based and online media.
Despite all this, article after article is being published that not only implies, but states with authority that streaming online jukebox services such as Pandora are a threat to Satellite Radio’s future. Pandora boasts 40 million downloads, yet the actual number of users is much, much lower. There is no way of tracking the number of people which have shunned the service after it’s been downloaded and tested, but online polls suggest that as little as 5% to 19% use it on a daily basis.
So what’s all the Pandora attention really about? The answer is venture capital. As a private company, the venture capitalists backing the company would like to see nothing more than a sucker to come along to sell the company to. Recently it was reported that Apple outbid Google (NASDAQ: GOOG) for online music provider Lala, which could put Pandora in line for a potential acquisition by Google or Microsoft (NASDAQ:MSFT). It remains unclear as to why Google and Apple would compete so intensely for Lala, yet ignore the supposedly top online music provider. Another buyout in the sector recently occurred as MySpace acquired Imeem, which also paid little, if any attention to Pandora. I can only assume that the asking price of Pandora is too high, considering the competition that can be acquired for far less.
The articles being written are nothing more than an attempt to shop Pandora around as it seeks a buyer. One recent article claiming that Pandora is the “death knell” of Satellite Radio is a prime example. Not only does the author stand clear of the content that separates Sirius XM from online 8-track players like Pandora, he makes several false claims — including a statement that Sirius XM had filed for bankruptcy, which he has now retracted. Apparently lacking any sort of research capabilities, this same writer makes another false claim that Sirius XM will fail due to a $12.95 per month fee, avoiding reporting Sirius XM’s a la carte offering which allows a user to pick 50 commercial-free channels for only $6.99 per month.
In fact, Sirius XM offers three packages below the $12.95 price that was erroneously reported, which is still far less than the data plans required for mobile online streaming. AT&T (NYSE:T) has now begun charging an extra $8.99 fee above the already pricey data access plan to stream Pandora on certain phones, a trend that will likely continue throughout the industry,
Comparisons to Sirius XM Radio are nothing more than an attempt to create a false appearance of value and increase any offer that might be made through a buy out. One example can be seen through Coca Cola’s (NYSE: KO) purchase of Vitamin Water maker Glaceau for $4.1B in 2007. The company is now being sued for making false health claims surrounding the popular drink. With only $40 Million in annual revenue and $30 Million being paid out in music royalties alone, Pandora’s business model is doomed to failure and should not be used in the same breath as Sirius XM Radio.
There are literally hundreds of online music options, and historically they have all failed as businesses. There is only one Satellite Radio provider. There was a time that 8-track tape decks were standard in Ford (NYSE:F) and most other automobiles. A spot on the dash does not guarantee success. From a business and content perspective, there is simply no equivalent to Sirius XM Radio.
Position: Long SIRI
Excellent article, Brandon – Absolutely right on – on all counts. Thanks for always bringing these bozos back to reality.
yeah internet radio in cars is interesting… but no one can compete with the service of satellite. Just like GPS doesnt work all that well on a phone I would think, at this point internet radio would also be pretty “spotty” as far a service goes even on the best network.
Another great article Brandon. Continue to shut down these fools and their false reporting.
Tell me HOW so called “journalists” such as this guy, and many others from MF, and Streetdotcom etc could write these things with a straight face and get away with it? ANYONE with a business degree from a community college can SEE that Sirius has the SUPERIOR business model, and that PANDORA is on the fast track to 8 track oblivion.
Honestly. It doesn’t take a genius to simple google Pandora and learn that it pulls in a measly 40 mil in revenue of which 30 goes to just paying royalty fees for crying out loud.
And as was pointed out in this article, ATT is now charging $8.99 additional fee for streaming Pandora. On top of which Pandora is charging $3 bucks for their full service. Thats DOUBLE of Sirius’s basic package with SUPERIOR content.
I mean COME ON! DUH. HELLO. McFLY! IS ANYBODY HOME??!!! LOL
These writers must be on CRACK. That is the only explanation. Of course I’m biased towards Sat Radio…but ANYONE who trys Sirius is. Even CNBC’s own Joe Kernan from the Squawk Box has done a COMPLETE 180 after trying the service for a week!
Pandora will HAVE to start placing more ads on their service. There is just no other way they can survive. Either that or start charging more.
You just can’t say that Sirius with 2.5 BILLION in Revenue is a worse business model than Pandora is and keep your credibility anymore. Be you a “journalist” or “analyst”….or WHATEVER.
Done.
The comparisons of SXM and Pandora are ludicrous. Neither Pandora nor Slacker generate any real revenue with their current business models. As Matthews points out, the venture capital firms that funded these companies want a profit. The only way to generate a profit with current business models is to sell them. Pump and dump them.
Just follow the money in this business, it is flowing through SXM.
If Pandora is such a good model, and really IS any competition whatsoever, what’s to stop Sirius-XM from starting an even better web based music service along the same lines..only better. They easily have more music resources to do so than Pandora anyway… even if there was a profitable future in it? Personally, I use Pandora sometimes, but find the two services are definately not mutualy exclusive.
We are not talking about “mutual exclusivity” or what is nice or not but rather about business and its intergral parts like business model, survivability and profit. It took siri a decade to get where they are even with a sound bisness model. It will take siri another year or so to prove to wall street doubting thomases that siri is going to be extremely profitable (50%+). This is all possible ONLY when you have real business. Pandora does not have one, and its business model relying on the thinning ad market is doomed. This is why all they can do is to feed all kind of so called news to cheap newsmen who willingly spread it around. Pandora is a press release business whereas sirius is a media giant. This is a ridiculous and shameful comparison worth denouncing in the best case only once, or not at all.
Great little read.
I too have used both Pandora and have SXM. I have had my truck for 2 years and have continued my subscription the entire time. I found Pandora from a friend, and liked it, but it just did not do it for me!
I like to stream in my office and listen to music all day, so with Pandora, my time is up within a week. You know what, I chose to get SXM online. For the same cost it would have been for Pandora. So if I chose SXM over Pandora, it must be the content. Yes, that exact reason. I have a large digital audio collection, but it just is not up to date. I can get all my music needs through SXM, and not have to haggle with all the ads, and such. Not that they are too annoying, because it is minimized.
Again thank you for pushing a clean article through the clouds of smoke that are posted by many others!
Brandon,
Please address Ford’s commment about internet radio capabilities in their vehicles. I believe the quote was that in five years, 80% of their vehicles will be equipped with it. Is that a problem or is that simply too far ahead to attempt to look? And, does that mean sattelite radios will not be installed upon purchase or will it just be another option the consumer could choose? I don’t understand why Ford would move in this direction when I don’t think they would get a kickback versus what SIRI pays them. Thanks for your article.
Remember when Ford put in 8 tracks and cassette decks? If no one uses Pandora, and no one really does, it doesnt matter. It has an am button too…How often do you use that?
1 more thing..this could be a sign that Sirius XM has renegotiated its Ford contract at a lower cost or revenue share agreement
Brandon, great article! Your article shows your research and journalistic skills are growing article by article. One point I would like to expand on is the lower tiered $6.99 format. This is an important step for Sirius Xm to offer such a package. They need to bring in more people (subs) into the fold and this is an excellent vehicle to accomplish that goal. By doing this you are not watering the product down to those who will pay for the higher tiers. By offering it, it that makes it more affordable to a much larger segment of consumers. Also keep in mind these are not the most robust of economic times either. The other benefit is a creation of a larger “Sirius Xm Nation”. The more sat radios out the more exposure. The more exposure the more future potential subs. This helps the company grow organically w/o out the added marketing costs. It’ a win win for Sirius Xm. Thanks for such a great article.
I forgot to mention one added benefit. The lower tiered will help bring in more of the younger age groups that can’t afford the higher tiers. Whih in turn creates not only brand loyalty but also as this group moves up the food chain, will likely be able to afford to move up to a higher tier of sat radio. This is part of an organic marketing circle that is self replenishing generation after generation.
Just to add on to this a bit. There is a delecate balance regarding the $6.99 level service and the full channel service. Sirius needs to target more cost concious consumers with the $6.99 level service, without having existing members downgrade. I think its correct to compare the $6.99 service when comparing to Pandora, because its music vs music (the same type of content). With that said, Sirius XM’s Customer Service could possible lower their churn rate by offering consumers the $6.99 rate when they call to cancel. They are probably doing that already.
I would like to see Sirius XM open up three channels to everyone with a sar receiver for free. I think it would give folks an aver present reason to become a subscriber. I would have Sirius XM deal and “How to Subscribe” details on these channels. A few excerpts from their premium content. A teaser of sorts.
All positive comments, yet the ratings of your articles keep going down? hmmmm.
Looks like your not publishing the negative side of the discussion, again.
The kid(24) up the street, (who you can hear a mile away because of his loud music) never heard of the The xmSky dock. He uses Pandora and slacker on his Iphone! I asked him “Why no sirius or xm? His reply was,”It’s free”!! I told him about the sky dock and gave him my Sat radio to use this weekend! He and his buddies really liked it and he went out and bought the sky dock. He had a couple good points to tell me. “He never knew about the sky dock, was confused about buying a xm product, why he couldn’t buy a Sirius sky dock, why the same company and different service, why did he have to buy the “Best Of” to listen to football, why he only saw one commercial with the old guys and why didn’t any of his friends have sat radio?” (His one friend was going to get a sky dock today) He was shocked at the price per month but he signed up for a couple years and got a great discount! He said he liked the surprise of different songs coming on and he even likes the dj’s but he didn’t like the fact he had to pay extra for the internet. He’s thinking of returning the skydock and buying a different radio so he can use his phone as a phone again! I asked him if he missed Pandora and he said, no way, Sirius Rocks…
I posted the other day in regards to the still very confused public as to how Sirius/XM operates. As a share holder, it took me some personal investigating to understand how the different subscriptions work with the different receivers, and how the confusion just leads to consumer apathy and disinterest. Again, I am long on SIRI, and see tremendous upside, but the marketing campaign has/is not addressing the confusions by streamlining the product line. I get that there are two different satellite systems in the sky that work independently of one another, but there has to be a better way of merging the models that is not so confusing to the public.
I was talking to a female friend of mine who superficially heard of Sirius XM but thought it was some expensive techo stuff that is complicated to use. Her assumption was that it was just a better quality FM. She didn’t even know about it being commercial free. and didn’t know about the other non-music content available. She never even thought of looking into it, even thought she drives about an hour and a half each day back and forth to work. I told her about it and she is going to look into it.
Sirius XM should be doing a better job communicating the service. They just spent some good hard cash on a 4th qtr ad compaign that simply promoted their brand. I personally thought the ad missed the boat. They could have put out a splashy exciting 60 second ad that flashed throught the spectrum of channels, shows that its easier to use than regular FM, and even showed someone using the skydock. Seems obvious to me and other, but not to Sirius XM.
I would think a 5-10 minute infomercial could take care of alot of questions, doubts, etc. Could bring in alot of subs they might not have otherwise due to the confusion. What do I know though? I’m unsophisticated.
Very intersting idea! With Sirius Xm having so much content to offer a 5 to 10 minute infomercial should be condidered. Also what about one of the shopping networks. Have some limited offer on a reduced price for radio & sub.,great exposure while selling the product at the same time..
I can’t understand how Pandora even competes with FM in the Car, let alone Sirius XM? Can someone explain this? Pandora relies on Ad revenue, so does Pandora play audio ads between songs? I can’t images visual banner ads would be effective in a car. If they play audio ads between songs, how if this different from FM (excepts that you can set song preferenceS)?
you really dont get song preferences. you plug in an artist and it plays 1 (ONE) song by that artist…of their choosing, whether you like it or not…
then they play a bunch of songs they hope you like…if you dont like it, they give you a certain number of skips…after 5 skips, you no longer have a choice
Does the Ford System plan audio ads, or visual ads?
SIRIUS Canada Inc., today announced that it has exceeded one million paying subscribers across Canada. “Exceeding one million
subscribers is our most significant milestone to-date and we’re proud to be the fastest growing audio entertainment company in Canada,” said Mark Redmond, president and CEO, SIRIUS Canada Inc.”The best is yet to
come and SIRIUS is well positioned for growth in 2010 and beyond”
Positive news from the biggest client of SXM. Looks promising.
I apologize if this has already been suggested, but I would like to see someone with an iphone or another mobile device with the Pandora application (I have neither) and drive around any large city in the U.S. for an hour or so and write a report on the performance — dropouts and quality of sound, compared with Sirius XM. Then take a trip outside the city and do the same.
I suspect an honest report on what Pandora experience is like in an extended mobile environment would put an end to the “Pandora will beat Sirius XM claims”.
In regards to the kid down the street. If they like it – price doesn’t matter. Look at what tennis shoes are selling for. Our problem is advertising information. We lack it. The light at the end of the tunnel is beggining to show.
Position Long
I love you man
It’s amazing how many people are still unaware that SIRIUS XM has one of the most sophisticated high-volume internet streaming operations on the entire freakin’ planet. Nearly all the music channels and many of the Premium Content Channels (like the two Howard Stern channels, for example) are a part of the package and can be streamed on the internet from anywhere on the planet. The company is well-positioned for streaming to 3G/4G connections “in the cars” (more so than lame old Pandora). Most of the comments seem to overlook this as well. The fact that the author doesn’t even seem to understand this certainly undermines the credibility of “satwaves.com” (and the author!). Almost as laughable as the SIRI naysayers at Motley Fool. You guys are too funny! LOL!!!
I want to connect to pandora and I get this:
“We are deeply, deeply sorry to say that due to licensing constraints, we can no longer allow access to Pandora for listeners located outside of the U.S. We will continue to work diligently to realize the vision of a truly global Pandora, but for the time being we are required to restrict its use. We are very sad to have to do this, but there is no other alternative.
If you are a paid subscriber, please contact us at pandora-support@pandora.com and we will issue a pro-rated refund to the credit card you used to sign up. If you have been using Pandora, we will keep a record of your existing stations and bookmarked artists and songs, so that when we are able to launch in your country, they will be waiting for you.
We will be notifying listeners as licensing agreements are established in individual countries. If you would like to be notified by email when Pandora is available in your country, please enter your email address below. The pace of global licensing is hard to predict, but we have the ultimate goal of being able to offer our service everywhere.
We share your disappointment and greatly appreciate your understanding.
Sincerely,”
No comment
Sirius downgraded on Zacks
http://biz.yahoo.com/zacks/100113/29261.html?.v=1