Streaming-Media Firms Aren't Good Acquisition Targets, Says SiriusXM CFO
One of the “most interesting” applications of SXM17, the interactive platform that SiriusXM is developing with the major carmakers (see 1604280042), will be the platform’s in-car subscriber account management functionality, SiriusXM Chief Financial Officer David Frear told a Bank of America Merrill Lynch investor conference Tuesday.
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SXM17 will be “the first time that we are actually going to know what is happening with the radio in the car,” Frear said. “And so while it's nice that we will be able to smoothly integrate satellite and IT technologies to allow us to offer the sort of best of both products” through the SXM17 platform, “it's the ability to actually communicate directly with a customer that really gets us interested,” he said.
“When you think about a guy whose credit card has been changed out by his bank and so it shows up as no longer valid in our system,” that’s one example where SXM17 could really shine, Frear said. Ordinarily, “you have to start this communication effort to reach out to that subscriber and let him know that the card didn’t clear,” he said. But with SXM17, “if you think about how much easier that is when the message flash is up on the display in the car, that says, ‘please update your credit card,’” he said. “You know you are getting to the person and you are getting to them in a contextually relative way and so it reduces friction” of subscribing to the service, he said.
SXM17 could work in similar ways to alert a recent new-car buyer through a pop-up message on the in-car display that the SiriusXM free-trial period is about to expire, Frear said. SXM17 can make for a more “resonating way of communicating with a person,” as opposed to sending “snail mail at their home” or subjecting people to email or telemarketing calls while they’re at work, he said. “As they are sitting and they are listening to their radio and something pops on the screen, we think that can improve conversion,” he said. “We think it reduces churn and it certainly reduces our cost of reaching out to communicate with that customer.”
SiriusXM thinks all “is going well with the development of the product,” Frear said of SXM17. “We have got a couple of OEMs that are focused on adopting it,” he said. As a result, “we think we will begin to see it go into sort of different levels of testing and production later this year, early next year,” with the first “commercial availability of this” coming late 2017 or early 2018, he said.
On any possible SiriusXM merger or acquisition plans, buying a streaming-media company is one of “the things I'm pretty sure we won’t do,” Frear said. “The last four years, we looked at all the streaming companies that raised money around the world, and we just don’t find them to have compelling business models,” so that’s not likely to be “an area that we would invest in,” he said. Frear thinks it’s “equally unlikely” that SiriusXM would invest in a “terrestrial radio company,” he said. Combining “solid-growth stories like ours and low- to no-growth stories like terrestrial radio tend to not mix well and get valued well by the public markets,” he said. NAB declined comment Wednesday.
Frear singled out Pandora as having “a better opportunity for a solid business model than the interactive streaming guys do.” The problem with the interactive streaming services is that “the music labels and then your content distribution network take over 80 percent of your gross,” so it's “really tough to ever make money in that,” he said. On the other hand, Pandora, operating under the “compulsory license” of a DMCA-compliant service, is the better opportunity to make money,” Frear said of the Digital Millennium Copyright Act.
As for how SiriusXM might monetize its estimated $4 billion worth of Sirius satellite spectrum that gets freed up after the company finishes transitioning its receivers to the XM platform over the next decade, Frear said the company doesn’t “spend a lot of time thinking about selling the spectrum or leasing it to somebody else.” But “we do spend a good amount of time making sure that we do things in what we call the overall system design,” he said. “What we are doing with future satellites. What we are doing with the terrestrial repeater network. What we are doing with chipsets that go into cars.”
Frear surmised: “What if we wanted to offer 40 channels of video to self-driving cars?” In order to do so, “we want to make sure that we have system architecture that maximizes the optionality on that spectrum,” he said. “And for the moment that’s what we are doing.” But SiriusXM is still “nearly a decade away in doing something new with that spectrum,” he said. “The one thing we are fairly certain of, is that taste, interest and business plans will change over the course of the next 10 years. I think as we get out another few years, we will begin to assess what we think in that window is going to monetize the best.”