Biggest Threat to Sirius Earnings: Smartphones and Bluetooth

(MoneyWatch)  Sirius XM (SIRI) announced its earnings this morning, and the news was adequate to good, though not stunning. However, the numbers show an interesting and, I think, disturbing trend in subscriber breakout. Subscriptions through automobile sales, always an important marketing route for Sirius, is quickly becoming the single engine driving the company. Given that auto manufacturers are adopting technology that could displace satellite audio, that revenue source could turn into a liability.

The overall financial picture for the company has improved over the last 12 months. But I've long thought that subscription numbers were the real measure of Sirius, and their breakout shows a clear trend. The company obtains subscribers through three major channels:

• retail stores
• OEM (automobile manufacturers)
• rental car companies

I understand why they have the last two categories, because the dynamic of someone buying a car and getting the subscription at purchase time differs significantly from someone renting a car and spending a bit extra per day for an add-on rental service. However, I'd argue that there are really two categories of subscribers: retail and auto. So look at this breakdown of subscriptions in two categories -- retail and auto -- as they stood at the ends of the last three fiscal years and at the end of the last quarter:

Now look at a stacked graph that shows how retail and auto compare:

Auto subscriptions, which stood just under 50 percent a few years ago, now represents over 60 percent of all subscriptions for Sirius. This trend looks likely to continue. If so, that's an extreme reliance on car sales, and that explains why smartphones and Bluetooth are such a danger to Sirius. Streaming services are already available over the Internet are already available at a fraction of the price of what a satellite radio subscription costs.

Sure, you'll run into areas where cell coverage drops, but then you can run into areas where satellite transmissions don't penetrate. Some people will keep subscriptions to Sirius and a service like Pandora, but many won't. Wirelessly pipe the music from a smartphone to the car via Bluetooth, and who needs the satellite transmission?

Sirius is at great risk from the disruptive power of cell phones (as are so many technology market niches). The question is whether it can put together something so compelling as to demand the attention -- and dollars -- of consumers. A "yes" answer is hardly a foregone conclusion.

Car Image: RGBStock.com user Abyla, site standard license.