I rarely discuss individual stocks, and when I do I try to
apply common sense to my thought process.
When I look at myself as a consumer and an avid technology user, I
cannot understand how the Sirius XM Radio Inc. (SIRI) subscriber base can go
grow or be sustained at current levels going forward.
My friends and I have a simple philosophy when it comes to
looking at publicly traded companies.
That philosophy is if someone else is giving consumers access to a very
similar high quality product for free, for that which you are charging access
to, then your business will ultimately fail.
I have been buying new vehicles for the last decade, and they all came
with a free subscription to satellite radio.
I have never once bought a subscription after the free trial period. You would think I am the ideal consumer for
the likes of Sirius. I am in my late 30’s. I am tech savvy, and huge music and sports fan.
Yet I have never felt the need to spend extra money for content that I
can access, for the most part, for free.
A decade has gone by and advancements in technology have
increased. This increase in technology
has made paying for Sirius’ content even more of a question mark for me. Almost every new vehicle today comes with a
streaming feature that allows you to stream audio content from your smartphone
to your vehicle speakers. If your
vehicle does not offer this feature then you can still achieve this with the
use of an auxiliary cable that cost just a few dollars. With my iphone I am able to stream and listen
to several music services and radio stations that play the same content as the
music stations I listened to on Sirius.
On my iphone, for free, I currently use the following applications that
allow me to achieve this:
-
Shoutcast not only allows me to listen to
whatever genre of music I wish but I also have free access to ESPN Radio
-
AOL Radio
-
iHeartRadio gives me access to hundreds of
public radio stations
-
Pandora
-
Jango
In addition to these app’s I am also able to access several
radio stations directly from app’s they have created. For example, I am able to listen to one of my
favorite radio stations, which is located almost 3000 miles away from where I
live. The same access to this content
can be achieved in my home. With
numerous media servers available and applications on my iphone, such as
AirMusic, I have around the clock access to this content. More and more consumers are becoming
increasingly more comfortable with the various free options available to them,
and that is not good for the future of Sirius subscriptions.
Now, what is the one drawing card that Sirius offers that
cannot be accessed for free? Howard
Stern. I believe Howard has been the
only reason satellite radio has been able to survive this long. However, what does a future look like without
Howard Stern? I love Howard Stern, but there
are two facts about his show. 1) If you can’t live without Howard, and he is
the only reason you subscribe to Sirius, you could just as easily buy a
subscription to Howard TV from you cable or satellite provider. This gives the consumer complete access to
everything Stern Show for about $80 less per year than a Sirius subscription,
and 2) The drawing card will not be on the air forever. All die hard Howard fans know he is winding
down his radio career. The number of
hours he does on the show have drastically gone down the last ten years, and
all fans know he has hinted many times that he is ready to move on to new
adventures and challenges; ie America’s Got Talent.
The challenges the Sirius business model faces are obvious,
which is why the street has priced the stock near $2 per share. What is less obvious is the desire Liberty
Media (LMCA) has to acquire this headache. The immediate benefit is in the numbers when
you know John Malone’s aversion to paying taxes and love for free cash flow,
and Sirius offers both with positive free cash flow and negative earnings. However, without an immediate plan to combat
the other free choices available for consumers, and the one day departure of
Howard Stern, I do not see this potential takeover as a long-term positive for
Liberty.
Thank you and good luck everyone!
Disclosure: I do not have a long or short position in
SIRI and do not intend to establish one for any reason.
Jon R. Orcutt, founder
of Allocation For Life, is an asset allocation strategist and author of “Master
the Markets with Mutual Funds: A Common Sense Guide To Investing Success”
http://www.allocationforlife.com/
