Pandora Media Inc (NYSE:P) Media is emerging as a serious competitor for Sirius XM Radio Inc (NASDAQ:SIRI), as the availability of Internet connections in more cars is facilitating the media firm to challenge the satellite radio firm’s big selling points.
The drivers are of immense importance to both the companies, the fact is evident from the point that the top executives of each of the two companies visited Las Vegas this week to court automakers at the annual Consumer Electronics Show.
Sirius XM’s satellite radios are present in 70 percent of new vehicles, which helps the company to earn a major chunk of its revenue while from advertising, Sirius XM Radio Inc (NASDAQ:SIRI)’s, derives a fraction of its revenues. For Pandora, the case is reversed; it earns most of its revenues from advertising and has a budding subscription business.
Though Sirius XM enjoys the first mover advantage with its presence in new vehicles, but Pandora is making great leaps to cover the distance, with the advantage of wireless access that makes it easier to listen to its service.
"Internet-enabled radio in the car has already begun," Pandora Media Inc (NYSE:P) Chief Executive Officer Joe Kennedy said in an interview. "It will grow as a snowball, initially small but growing exponentially."
Pandora Media Inc (NYSE:P) has 60 million total listeners of which 77 percent use a mobile device to connect. The company’s revenues per 1,000 listener hours on mobile have increased to only $26.96 in the third quarter, from $23.60 a year earlier. Even after the increase in revenue per 1,000 listener hours on mobile, it is still less than half of the $56.40, the company generated from other listeners.
"They do have to continue their mobile monetization," said Cowen and Co analyst John Blackledge, who has a "neutral" rating on the stock.
Sirius XM's programming and content costs were $205.2 million for the first three quarters of the year, and for revenue sharing, and royalties it paid $409.4 million, as per the company. The figure is about 25 percent of the company’s revenue for the period while Pandora spends about 55 percent of its revenue on acquiring music.
"Having music is an important thing, but having the diversity of the content, the music, the news, the talk and the entertainment content is really what sets us apart," Sirius XM CFO Frear said at a Dec. 3 investor conference.
Sirius XM Radio Inc (NASDAQ:SIRI) claims to deliver a strong signal and high audio quality from its satellites, but the advantage is likely to fade due the widespread availability of faster and better Internet connections in cars.
"From the consumer standpoint, the reception advantages of satellite radio will be marginalized or go away over time," said a former Sirius XM Radio Inc (NASDAQ:SIRI) executive familiar with the business models of the company and its competitors.