Sunday, February 9, 2014

Google Takes Aim at Apple, Which Was Taking Aim at Sirius XM (GOOG, SIRI, AAPL)

As if Sirius XM Holdings Inc. (NASDAQ:SIRI) shareholders didn't have enough to worry about already today, Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG) have managed to make things worse.

There's no denying that Sirius XM Holdings is the king of satellite radio. Then again, it's the only satellite radio choice out there, so its status as the king of its market is a kind of de facto victory. Nevertheless, SIRI has steadily cranked up its revenue - and subscriber count - for several years now, and credit should be given where it's due. The days of (relatively) easy growth are over though. Indeed, 2014 may end up being the tipping point for the company, as both GOOG and AAPL become better equipped and better positioned to hit Sirius XM Holdings where it hurts.

Let's call a spade a spade. The bulk of the reason Sirius XM Holdings has managed to grow its user base to roughly 26 million subscribers, up from only 1.6 million subscribers in 2003 is its utility in automobiles. Its mostly-commercial-free and wider array of channel choices is just a much better audio entertainment choice than broadcast radio. And, with no other threat to that foothold in the automobile world on the science, Sirius XM's progress understandably went unfettered. What if, however, the technology to be a real threat to satellite radio (particularly in vehicles) existed, and was not only viable, but becoming cost-competitive? Enter Google Inc. and Apple Inc.

AAPL may have been the first player to target consumers' cars, via the uncreatively-named "iOS in the car" experience that started by plugging an iPhone - or presumably and iPad - into a vehicle's dashboard in order to provide mapping services, music, entertainment, or anything else an iPhone owner might want when sitting behind the wheel of a car. While the technology couldn't be described as an overwhelming success (yet), it works, and shows promise. The biggest hindrance to Apple has been a lack of automobiles that have the required hardware built into the dashboard; Sirius XM has about a five-year headstart in terms of automakers' cooperation.

And truth be told, were Apple forced to make a yay/nay decisions on the "in the car" experience based solely on its demand to date, the company would probably opt to kill it so it could turn its attention on other, more fruitful ventures, as in-car smartphones and tablets just don't seen to be catching on.... that is, perhaps until now, thanks to a recently-unveiled effort from Google, and collaborative partner in a new project, Audi.

Simply put, Audi was been working with Google to develop an Android-powered dashboard, which would presumably do at least as much as Apple was hoping to do for drivers. In a presentation to be made this week at the Consumer Electronics Show in Las Vegas, Audi and Google will showcase a technology that has Android already built into the car. It's a full version of Android, and can do everything a regular Android tablet can do.

It's only a beginning, and Google has a ton of catching up to do with Apple before it can make a dent in the automobile space. (Ironically, 2014 could be something of a breakout year for Apple inside vehicles, as many 2014 models from Honda, Nissan, Chevrolet, Acura, and more are going to support iPhones and iPads.) But, the fact that Google is now competing with Apple on this front may well mean the era of in-car interactive computers has fully arrived, and that's something that should worry Sirius XM Holdings shareholders. See, while SIRI offers more than 150 channels of radio and talk, pretty much any audio that can be piped in via a Sirius XM receiver can be found via an app available for a smartphone.

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Fans and followers of Sirius may be quick to point out the satellite radio service only costs about $15 per month, and is unlimited, while the data plans that are needed to support mobile broadband streaming audio via a smartphone can start at $50 per month. It's a reasonable argument too. On the flipside, statistically speaking, smartphones with data plans are already more prevalent that satellite radio subscribers, and odds are that anybody who's willing to pay $15 for a device they can pretty much only use in a car is willing to pony up $50 per month to use a device that can do significantly more than an XM receiver, and can do it anywhere.

Yes, there are still data-consumption worries. Streaming 200 songs via a smartphone consumes about 1 gigabyte worth of data, and data costs about $10 per gigabyte. Most people aren't going to stream 200 songs over their mobile device though. In fact, most smartphone owners are apt to play music already stored on their device, and won't be using much - if any - of their data plan in their cars.

None of this is to say Sirius XM Holdings is going to be wiped off the face of the earth in 2014. There are plenty of die-hards who absolutely love their service, and aren't going anywhere. As technology advances though, opportunities for other companies and other venues to dethrone Sirius XM as the leader in this space are mounting. More and more companies are looking to walk through that door too. Indeed, given Apple's resources, it wouldn't be out of the realm of possibility for the company to develop a lower-cost satellite-delivery system of its own, piping iTunes songs through to iPhone owners while in their cars.

That may be why SIRI shares are struggling so much now, having crossed under the 200-day moving average line for a second time in three weeks this week. The market's starting to put two and two together here, and recognizes Sirius XM Holdings has some serious challenges ahead, and won't be able to fend them off without making some major changes.

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