XM announced that it has over 5 million subs and expects to hit 6 million after the holiday season. Sirius expects to get to 3 million. Interestingly, Sirius’ market cap at $8.49 Billion, is nearly $1 Billion more than XM’s $7.55 Billion. I haven’t looked at their balance sheets to figure out the discrepancy (given that the one has double the subs as the other), but I can imagine people calling it the billion dollar Howard Stern premium.
Hats off to the both of them. 5 years ago, I didn’t think both of them would make it, mainly due to the capital requirements (and especially when times were lean). But time and time again, they were able to sell their story to Wall Street and use them like an ATM as they continued to hemmorhage money in creating a new segment and buying great content to fill the airwaves. Now that there’s a light at the end of the tunnel, I think it will be easier for them to raise cash if and when they need it.
I still think satellite radio, as a technology, is a stepping stone — better than AM/FM but eventually to be replaced with some form of IP-based transmission. But it matters not — these companies have successfully built brands around being the MSO of audio with great sub-brands that act as anchor tenants for their content mall (like MLB for XM). They’ll be able to swap out the distribution technology when it does change, just like Comcast will eventually deploy IP-TV. Besides having built brands with all of that Wall St. $, they also have deep relationships with automakers – the key distribution platform for radio, as well as the CE makers.
Finally, I can see them morph into much more than a pay radio service. Already they’re offering rudimentary traffic & weather information services, which is really getting the traditional radio broadcasters nervous (as well they should be). By virtue of their brands and distribution, I can see them becoming "Music Service Providers" (MSPs). Already, XM has hooked up with Napster in a co-marketing deal. It’s not a stretch to imagine them one day buying Napster whose $170 Million market cap is roughly the same as Napster’s cash holdings, and equal to about a quarter of losses at XM. This would help counter a threat from Apple who is muscling into the car dashboard with iPod docks. While Apple doesn’t have a subscription service nor premium radio, they could do either or both without much trouble.
People have talked about a merger of XM & Sirius but this would be tough to pull off politically since the spectrum they occupy is a congressionally-created duopoly. By the time they become profitable, the two companies will have burned
through high single-digit billions of dollars but I’m not betting on
them going away.
[Disclaimer: I hold no positions on either stock nor am I making any recommendation on them.]