They’ve tried before, they’re trying again. Rumors circulate today that XM and Sirius are planning a merger (Updated to include Mark Evans and Ars Technica. Updated again: it’s official). The two companies together would represent about 13 million subscribers (6 million from Sirius, 7.6 million from XM), with a ~$8B market cap ($615/subscriber today), about $2B in debt, and roughly $600M in cash on hand (source: financial stats for SIRI and XMSR). Interesting, as Echostar has roughly the same subscriber base, more profitability (and more room for profitability), yet only twice the market cap.
Another interesting thought is on room for growth. 13 million subscribers represents roughly 6% of the ~240M cars in use around the US, or 10% of households, depending on which model you think is more successful (I vote car). So I ponder how much of a real growth opportunity lays ahead?
Apparently Howard Stern believes 30-40M households in the next couple of years. Bridge Ratings predicts 50 million subscribers by 2020. That’s 1 in 5 drivers paying for satellite service. This sounds high to me, from industry, professional, and personal experience. I don’t see enough factors driving consumers into “dissatisfaction” with standard radio, especially when compared to the option of consumer more of their own content via iPods and other players.
Some predict podcasting and integrated car-iPod adapters may kill satellite radio. That doesn’t really sound right either. Talk to the average XM or Sirius subcriber, they seem quite satisfied with their service. I think satellite radio has a “TiVo effect” where the product is quite good, and once in, you are hooked, but until you get there, you scratch your head a lot about paying extra money for something you seem to already have in your life.
Unfortunately, unlike a DVR, which makes the entire TV experience leaps and bounds better, satellite radio doesn’t have as broad an appeal. If you don’t commute for long hours, you’re hard to hook. If you work long hours at a desk and want more variety in radio, odds are good that Internet services have even more appeal (not to mention the fact that if you aren’t near a window, you aren’t getting a satellite signal).
We’re about 5 years into the satellite radio business. I believe there’s still a little growth ahead, but it’s going to be slow, and may cap out very soon. I believe the companies benefit from a merger, as it leaves less FUD for a prospective consumer. I believe it’s an industry doomed once pervasive Internet services become available and consumers get anywhere-access to services such as Rhapsody, Pandora, Last.FM, and their own personal media collections.