SiriusXM Sees Success In The Embrace Of The Auto Industry (NASDAQ:SIRI)

SiriusXM has become a financial powerhouse at a time when other radio and digital music outlets are struggling to make a profit. Last year, the company reportedly earned $510 million on $4.6 billion in revenue. The company attributes most of its success to its presence in cars across the nation. According to the company, 75 percent of all new vehicles sold in the United States come with satellite radio installed.

SiriusXM has nearly 30 million people paying for radio, a form of media that has always been free. With more than 175 channels, SiriusXM has much more variety than typical AM/FM radio but a small fraction of the ads. Of the 29.6 million subscribers counted by the company at the end of last year, 24.2 million paid the $11 to $20 monthly fee themselves. The rest of the subscribers are covered through promotions by car companies. SiriusXM pays about $1 billion a year in subsidies and revenue splits to automakers.

Unfortunately for the company, cars are changing in ways that could damage SiriusXM’s position with in-car audio entertainment. Apps are threatening the company’s standing as new technologies are bringing the Internet to vehicles. Apple and Google have created their own car media platforms, which are expected to be in most new cars by the end of this decade. However, the company says that it is well positioned for the change and the slow pace of auto feature rollouts ensures it will retain its position at the top for many more years.

Satellite radio has experienced downswings before. The new medium started broadcasting in the early 2000s with two main companies, Sirius and XM. For years, both lost money, so they decided to merge in 2008, during the recession. After nearly going bankrupt, the combined SiriusXM was saved by last-minute financing from Liberty Media, controlled by John C. Malone, which lent the company $530 million in exchange for preferred shares. SiriusXM repaid the loans in five months, and the stake that Liberty now has in the company is worth about $11 billion.

 

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