Image by: Oscar Rohena
By Steven Morrison II
After a long a bumpy ride, satellite radio has finally shaken out all of its kinks. Boy, there sure was a lot of them. So many, in fact, that at one point, the whole industry seemed on the verge of collapsing into complete failure.
Originally, there were two main players in the game, Sirius and XM Radio, and both struggled to stabilize their business models under the weight of incredible hype (gonna be the biggest thing ever) and big-check courage (Howard Stern took a mega-million dollar gamble on satellite radio after ruling syndicated broadcast radio for many years).
A lot of money was being thrown around and great products were being delivered – but it wasn’t working. The truth is, satellite radio couldn’t really handle two strong competitors that gave customers a choice during its early years, there just weren’t enough subscribers out there willing to pay $12.95 a month.
The Highlander Emerges
It was clear to everyone that there could be only one and Sirius ultimately won the battle and the right to put their name first in the settlement. Now, the satellite radio apocalypse yielded us the Frankenstein known as SiriusXM (SIRI) is lean and mean, bursting with great programming and better management.
True, there is competition from other subscription-based music services such as Pandora and Spotify, but those industries still face potential issues with record companies over royalty rates. This gives the old man of the bunch – SiriusXM – a leg up on the competition in that department.
Recent news revealed that SiriusXM’s short-term royalty rate would be 9% (instead of 13%), saving the company many, many millions. Longer-term, however, their royalty rate is set to rise.
But SiriusXM’s rates are still really low. Spotify? That company dreams of a 9% royalty rate. Last year, Pandora paid out 54% of their earnings to artists. SiriusXM is past all that and headed to big-time profitability.
But Sirius has been a dirty word in investor circles as the company was led down a bridge to nowhere by executives at the detriment of a whole lot of angry investors and customers, as coolly chronicled by the must-see 2009 doc Stock Shock. Bottom line here: Sirius scares the you-know-what out of people.
But that was the past and the future is the future, and in that future, SiriusXM will perform well. Why? More and more cars are being manufactured with build-in Sirius systems introducing the company to pools of new customers every year.
The board also made it clear via press release that they have a “desire to return value to stockholders” and boost “confidence in the long-term growth prospects” of SiriusXM’s business.
That press release was part of a push toward SiriusXM’s hardcore profitability, which also inlcuded the launch of a $2 billion stock buy-back program, which shows the bold moves and aggressive nature of their efforts.
And at only $2.95, the stock is a good deal. There is a SiriusXM sweet spot for investors, and I believe that sweet spot is here, gentelmen. Buy now and sing in late 2013 by tuning in to SiriusXM. Your portfolio will like what it hears.