When Apple Drives, Will Sirius Ride Shotgun?
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Complete “apathy” is said to be sometimes the best approach towards entering the stock market. While it does present some hazards in its own right, however, it does serve as complete opposite of “emotional attachment” – in my opinion, the most dangerous aspect of investing.
For investors, the result is often rose-colored visions mixed with excessive optimism, while sometimes missing the big picture. This seems to be especially true for satellite radio giant Sirius XM (NASDAQ: SIRI) and the difference that continue to be ignored between the company, the stock and more importantly its future as it involves Liberty Media (NASDAQ: STRZA).
Before we continue, it must be said that Sirius XM deserves a considerable amount of credit for what it has been able to accomplish in a challenging economy – this much cannot be ignored. Despite a considerable amount of distractions, the company has demonstrated impressive operating execution and solid growth. What it was able to do in its second-quarter in terms of net subscriber additions was nothing short of remarkable.
It seems in the midst of all of the drama surrounding Liberty, many investors, financial writers and a great portion of Wall Street became distracted and had forgotten that Sirius still had a business to operate. The good thing for investors is that Sirius didn’t need a reminder. The recent quarter notwithstanding, investors need to still ask some very important questions. Not the least of which is how far the company can realistically go?
At one point this question could have ventured into several different areas of concern. As noted, Liberty’s mission to take control and its plans to follow can’t be ignored. Then there was always concerns about Sirius ability to compete with the likes of Pandora (NYSE: P), Spotify and several other IP threats that are sprouting out daily. But now, Sirius has a bigger fish to fry – competing with not only tech giant Samsung, but also Apple (NASDAQ: AAPL) which has now entered the realm of music streaming.
On the announcement, Pandora’s stock dropped by almost 17% while shares of Sirius didn’t see much movement. I have my own suspicions as to why that was, but that is not as important as to understanding what Apple intends on doing with Sirius’ most important revenue stream – the automobile. Apple has every intention of entering the car. The only question is, who’s going to call shotgun? Because, once it gets in the car, it intends to drive. That’s what Apple does.
As Apple plans to create the “smartcar market” it will be interesting to see if others will be able to coexist. Apple’s IOS will likely be central in several safety features – ranging from receiving a text message letting the driver know that one of the tires in underinflated or the car streaming engine data to the dealer’s service department for a scheduled tune-up. Not many will be able to compete with that. From the standpoint of entertainment, the argument for Sirius will be that it has better content.
While I am inclined to agree, this is not an argument that anyone outside of Sirius or its investors have consistently made. Nor does a rating scale exist to provide some sort of quantifiable evidence that consumers agree. Absent data regarding listening hours of a particular channel(s) or some sort of other metric, no one can really say with any degree of certainty beyond some assumptions. ]
For example, Sirius has the NFL. Data shows that the NFL is the country’s most popular sport. So putting 1 and 1 together, the NFL on Sirius should be considered “better content.” Can Sirius forge a partnership with Apple to license content in the manner that it has recently done with Google (NASDAQ: GOOG) to help enhance its TV efforts?
The NFL isone of many premium content providers that Sirius is able to offer, and with which Apple will be unable to compete. From that standpoint, there is a chance that Sirius can coexist if Apple drives, but it has to settle for shotgun. Consider the alternative – Apple takes over, and iTunes and iCloud becomes the dominant audio entertainment platform. Apple can then wait out for Sirius’ NFL contract and any other content license to expire and enter a bidding war. Who do you suppose is going to win?
Depending on what Apple is willing to pay Sirius, and what Liberty is able to leverage in terms of TV, riding shotgun may not be a bad gig for Sirius and its investors. Having complete optimism is not necessarily a bad thing. However, when coupled with a dismissive stance of possible negative outcomes, it is cause for disaster. Sirius is no longer a monopoly. Not with Samsung and Apple having entered the realm of streaming. It is time for Sirius and its investors to embrace the idea that just maybe the time for being the only game is town is over, and that there is nothing wrong with being a value add or in this case, riding shotgun.
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At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned