Sirius XM: Facing Increasing Pressure From Technology

Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With an online world of media that is constantly developing its content and expanding its consumer base, it’s easy to forget about the role that radio plays in the lives of so many people. And in fact, radio is still an unexpectedly dominant force in the 21st century, and so far has fared well against online music providers and devices such as MP3 players and smartphones. Sirius XM Radio (NASDAQ: SIRI) is just one example of a radio broadcasting company that continues to provide diverse and comprehensive services to its wide base of listeners. But can Sirius XM carry on this way? Or will it begin to crumble under the pressure of the highly competitive media market?

Currently, Sirius XM’s stock is trading at over $2, which is the highest price it has seen since 2008. In fact, the stock has seen a relatively steady increase since the start of the year (2012,) when it was trading at around $1.90. However, Sirius XM’s current success story is not a unique one. Beasley Broadcast Group (NASDAQ: BBGI) has increased from $3 to over $4 in the same period. CC Media Holdings (NASDAQOTH: CCMO.PK) increased from $3.50 to over $4. So how is Sirius XM managing to increase its stock price at the same time as its competitors are on the up?

One of the major factors in Sirius XM’s recent success is its constant ability to satisfy its customers. Sirius XM’s channel, the PGA TOUR Radio Channel, has just confirmed that it will air a running commentary of this year’s Masters Tournament, which runs from April 5 to April 8. The tournament once again features huge stars from within the golf world, including Tiger Woods, Rory McIlroy and Luke Donald, so Sirius XM will have guaranteed a huge number of Masters fans by securing this coverage. The channel has also secured a number of high-profile hosts from the world of golf, such as John Maggines, which will act as another incentive for golf fans to tune in.

Not only is Sirius XM keeping its current listeners happy: it is also widely expanding its consumer base. The company recently launched a brand new Spanish channel, Inspírate!, which aims to cater to an exclusively Spanish audience. This is a highly intelligent move from Sirius XM – as Carey Davies, the Chief Operating Officer of Hispanic Services for WorldBand Media, suggests, the Spanish community in America is the “largest and fastest-growing” of all the ethnic minority communities, so accessing this community is a perfect opportunity for Sirius XM to broaden its consumer base and increase profit.

However, while all this looks very positive, there are a number of stories floating around at the minute which suggest that, in the long term, Sirius XM could be in for a bumpy ride. Firstly, it is currently engaged in a struggle for the controlling stake of the company. Liberty Media (NASDAQ: STRZA) and its owner John Malone, own 39% of Sirius XM – however, it is making moves to invest further and gain control over Sirius XM. Sirius XM is currently resisting the attempts of Malone and Liberty Media to gain more control over the company, but as of yet, Sirius XM has yet to confirm whether it is completely opposed to the take-over bid, or whether it is simply trying to negotiate more profitable terms. This uncertainty over the future of Sirius XM is guaranteed to be leaving stockholders feeling wary.

Another legal issue that Sirius XM has encountered recently has been the lawsuit it is pursuing against SoundExchange Inc and the American Association of Independent Music. Sirius XM claims that these two companies are preventing it from dealing directly with record companies in order to secure copyright deals for music. Although this lawsuit has the potential to be both beneficial and profitable for Sirius XM, it will undoubtedly be very expensive, as Sirius XM’s claims that the two companies are creating an “illegal boycott” in opposition of Sirius XM will be difficult to substantiate.

Additionally, Sirius XM has recently suffered from a significant increase in competition. The expansion of the online music market, with subscription services such as Spotify claiming over 10 million paying subscribers worldwide, means that the Sirius XM’s expansions outlined earlier in this article are the bare minimum of what needs to be done in order to remain relevant. The fact that Spotify and its competitor services are dominating the online market, as well as the smartphone and tablet market, suggests that Sirius XM cannot become complacent. Potentially, the most dangerous aspect of this competition is the fact that services such as Spotify can now be used in cars, because smartphones and other such devices can be used to stream the services. As the majority of Sirius XM’s listeners use the broadcasting service whilst in the car, Sirius XM will need to come up with a way to reclaim its specific market.

Overall, it does appear that Sirius XM is making a lot of positive steps when it comes to expansion and satisfying customer needs. However, in order for it to continue increasing its share price, Sirius XM needs to take more of these steps – significantly more, in fact, because of the threat posed by digital and online technology. While there is no doubt that Sirius XM’s subscribers are currently very happy with the service, Sirius XM will have to fight hard in order to stay relevant in a world where online providers are increasingly easily accessible. 


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