“We know an awful lot about Pandora,” CEO James E. Meyer said in response to an investor question in last week’s Sirius XM earnings call.
Investors pursued two lines of questioning about Pandora. First as a potential acquisition, thanks to a recent revelation that Liberty Media, parent company of Sirius XM, had made an offer to Pandora. Second as a potential threat to Sirius XM’s business. Meyer addressed both points.
As he has in previous earnings calls, the Sirius CEO denied that Pandora presented any kind of challenge to Sirius member retention. “You should assume we know an awful lot about Pandora just like we know an awful lot about a lot of the other streaming companies that are out there. It is fair to say today there is zero impact on our business from streaming, okay? We just don’t see it. I can tell you by and large again today when customers leave us, the vast majority of them are going back to terrestrial, in a particular FM radio.”
Questions about Liberty Media’s interest in buying Pandora were cleanly deflected. But Meyer did offer this assessment of Pandora’s business prospects: “Of all the streaming models out there and companies out there, it’s our guess that Pandora probably has the best chance of becoming profitable and probably has the most reasonable business model in that class.”
It’s wasn’t only Pandora that investors were curious about. One question dealt with streaming more generally, in context of AT&T recently offering unlimited data in the car for $40 a month. Does that make music streaming a more real threat and perhaps force Sirius to move more aggressively into that space?
James E. Meyer’s reply: “In the end, I don’t care how customers listen SiriusXM. I only care if they listen. And so they want to listen on their phone, they want to listen through their Sonos device. They want to listen on their car radio through satellite delivered. They want to listen through their car radio through plug-in their phone and/or using Bluetooth with their phone, does not matter to me. What matters to me is that they listen and that they pay.”
“Let’s not forget why our subscribers pay us. We are easy to use and have great content.” –James E. Meyer, CEO, Sirius XM
The Pre-Owned Opportunity
Sirius is diving deep into marketing and activating used cars. “Our enabled fleet continues to grow, hitting 88 million at the end of the second quarter. Over time, our enabled fleet should reach 180 million vehicles, which means more and more of those satellite-equipped radios will be turning over in the used car market. We believe about 29% of the used cars sold in the first half of this year were equipped with a factory installed satellite radio, up from 26% in the first half of last year.”
That footprint of used-car equipped vehicles translates to nearly three-million added subscribers in 2016, according to Meyer. “To address this opportunity, as you know we are building a robust infrastructure to offer more trials to used car buyers and convert those trialers into paying customers. More than 16,000 franchise dealers now offer trials on all used cars sold with satellite radio. We are also increasing our reach into independent dealers, where we now have more than 6,000 reporting relationships.”
This is how Meyer describes the company initiative around used cars: “Behind the scenes at our company there is truly a frenzy of activity, as we seek to capitalize on this huge and growing opportunity.”
A Good Problem to Have
Sirius XM has issued a series of gleaming quarterlies, raising projections of subscriber uptake. The company’s position in the business cycle is enviable, and one statement by James E. Meyer is remarkable for its catbird perch:
“So, with all these investments in our business and new technology and platforms, and new and renewed content, what’s left? Well, we ask ourselves every day, what can we do better? What do we need to invest in or what could we buy? We will keep looking. But clearly, we can also afford to continue returning capital to our shareholders […] Investors love growth and so do I. But we’re also generating massive cash flows today.”