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Robin Marchant / Getty Images for SiriusXM
Sirius XMshares fell on Monday following the acquisition of Pandora, but do not underestimate the importance of the transaction. Several years ago, it was Pandoraand the threat of digital music that has caused investors to doubt the future of Sirius and his stubborn subscription model.
In November 2013, with Sirius shares traded below $ 4, I wrote a cover for Barron suggesting that there was still potential in the stock, despite the company's reliance on fixed infrastructure and traditional radio units. The stock of Sirius XM has increased by 70% since. Pandora, meanwhile, lost 70% of its value, based on the sale price of $ 9 per Pandora share.
It turns out that this expensive physical infrastructure and traditional linear programming do not always condemn media companies in their fight against the digital surge. This is a particularly relevant point today, as Comcast continues to fight against Netflix.
Sirius has a thorny economic model, in which car buyers predictably switch on pre-installed Sirius XM radios in new cars. We are at the point where an increasing number of used cars are being purchased with the same Sirius radios still installed, making occasional car buyers a growing market for Sirius.
But a subscription to satellite radio still can not match the ease of use or cost of Pandora's smartphone app, which can go up to $ 10 a month for unlimited music.
A Sirius subscription starts at $ 11 a month and goes up to $ 21.
In a presentation to investors Monday, Sirius noted that Pandora expands the company's "beyond the vehicle" presence, while diversifying Sirius' revenue stream by adding "the largest digital advertising audio offering".
Sirius sees opportunities for cross-promotion between its 36 million paying subscribers and Pandora's 70 million active listeners. The majority of Pandora users are non-paying customers, but the company has about six million paying subscribers. Sirius can now try to sell its subscription package in Pandora's large user base.
A problem that Pandora will not solve: Sirius faces big changes in the way he pays for music, thanks to the so-called Music Modernization Act, which is about to be approved by Congress. Much of the industry has accepted the new framework for paid artists, but Sirius has opposed the bill, at least until recently.
A version of this article was published for the first time in Review & Preview, a daily email from Barron. Sign up here and every night, we'll look at the news that hit the markets during the day and anticipate what that means for your wallet in the morning.
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