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Critics Say Sirius XM Should Unchain Itself From Cars. Wrong!


We do cars and do not forget it.
Sirius XM (SIRI), the once-struggling satellite radio service, has managed to get its business back on track and is now growing at a nice clip. So of course that's renewed a discussion over whether the company should break its long dependence on the auto industry and become a bigger player in the consumer and mobile space. But what sounds like a great opportunity would actually be missed one, as Sirius XM has never been in a better position to dominate in cars.

It already built a better mousetrap
Sure, there's a lot of speculation that as the automobile become more of a rolling technology platform, with an always-online computer at its core, satellite radio will be disrupted and surpassed by Internet services that stream music based on user preferences and social media stylings yada yada yada.

As BNET's Erik Sherman has pointed out, Pandora usually figures in this conversation. But Sirius XM and Pandora are hardly playing in the same league, as this Seeking Alpha post categorically explained last year:

...Pandora is no threat to Sirius XM. [As of late 2010], Sirius XM is earning $2.8 billion per year on exceptional subscriber growth numbers, while Pandora can barely keep its head above water after royalty fees, at about $32 million a year.
Mind you, I like Pandora (better than iTunes, in fact) and use it in my car. But I've also spent plenty of time with Sirius XM, and there's no contest. More importantly, Sirius XM is such a massive improvement over old school terrestrial radio that it has miles to go before it's fully exploited its auto market.

Where's the love?
Still, you continue to see opinions like this, from iStockAnalyst:

Sirius XM has built a true multi-platform service that not only caters to listeners in cars, but home and mobile listeners too. If the company is to continue its growth story, it will have to widen its perspective rather than seek it out from the auto-industry alone.
Wrong. Sirius XM has definitely seen its fortunes improve since the auto recovery began, and that's why its stock price has been ticking up and the company is no longer in danger of being delisted. But it shouldn't lose focus on the auto market until it has the government threatening it with antitrust action because it's created such a powerful monopoly. What eyes are to Google (GOOG), ears should be to Sirius XM.

Core strength
Sirius XM's main challenge is to convert its free users -- mostly people who get a complimentary subscription when they buy a sat-radio-equipped vehicle -- into regular, renewing users. Space radio addicts, if you will. The company has seen conversions, already under 50 percent, drop lower. Not good.

It's tempting to suggest the Sirius XM should consider this part of the overall disruptive trend that in-car Internet poses and look to expand its extra-automotive ventures. But what it really needs to do is double-down on its strength, leveraging its existing deals with automakers to build up its already exploding subscriber base to juggernaut levels.

Because let's remind ourselves what Sirius XM aims to replace: the car radio. Something that practically every vehicle constructed since World War II has had as a standard feature. Automotive ubiquity is the goal. That's not a diverse approach to business success -- but then again neither is Warren Buffett putting 100 percent of his personal investments in Berkshire Hathaway (BRK) stock.

Don't forget the programming
It's also worth noting that Sirius XM's killer app is actually its programming -- both the original stuff (Howard Stern!) and the way it dices and slices music into demographically unique channels. Simply put, SiriusXM has the ability to create and fund better broadcasting than, well, you. Or a music-streaming predictive algorithm.

The path for Sirius XM is clear: 14 million new cars could be sold next year, and 15 million the year after that. Millions of new subscriptions are on the line, which will force the company to fix its conversion problems. If Sirius XM sticks to this game plan, it can be king of the road.

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