How SiriusXM is dominating in the Spotify era - WSIL-TV 3 Southern Illinois

How SiriusXM is dominating in the Spotify era

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On-demand music streaming services currently dominate listening time across the globe, with the two leading companies, Spotify and Apple Music, boasting collective subscriber numbers north of 100 million. But, though the giants of on-demand music are extremely popular, from a business perspective contemporary music streaming services are in dire straits as a whole. Spotify loses over half a billion dollars annually, Soundcloud has been on the verge of bankruptcy for years, and Apple Music relies heavily on its ultra-wealthy parent company, including Apple’s download-based iTunes service, to subsidize it

In fact, there’s really only one major competitor in the modern musical universe that manages to maintain massive subscriber numbers and simultaneously post a healthy profit, and its name is SiriusXM. Yep, you read that right: The best music service in business is a glitzed up radio conglomerate with exclusive rights to Howard Stern. With over 32 million subscribers, the publicly traded company has seen steadily increasing share prices over the past decade, with a reliable profit stream and a total value of around $27 billion.

It might seem puzzling, but below we’ll outline the important factors that make SiriusXM one of the only financially stable listening services on Earth.

It comes with your car

The biggest and most important aspect of SiriusXM’s successful long-term business model is its inclusion in a vast majority of the cars sold in the United States. As of 2015, a staggering 75 percent of all new vehicles had SiriusXM installed, many with a free trial period included. Call it the crack cocaine model –  your first taste is free.

The fact that many dealerships offer as much as a year of free SiriusXM with the purchase of a new car means the radio service gets in front of tens of millions of potential new listeners each year. Once it has car owners listening, SiriusXM lets its diverse array of over 200 channels spanning virtually all listenable formats reel new subscribers in. It’s no surprise the service’s subscriber numbers continue to rise year-over-year; the company has a constantly rotating door of new listeners who have the money to make large-ticket purchases.

Music, news, and much more

While we touched on it above, it’s difficult to overstate just how diverse SiriusXM’s offerings are, even when compared to top on-demand music streaming services. The company provides subscribers with hand-curated stations dedicated to virtually all genres and eras of music, as well as international talk radio, comedy, live sports, and more. Case in point: The service has 24 channels dedicated to rock music alone. And with SiriusXM’s recently announced 4G integration, the company will soon provide subscribers with access to thousands of hours of pre-recorded radio shows in their car on demand, alongside its many live stations.

With such a wide variety of content, drivers can travel long distances and avoid the hassle of constantly looking for something good on the radio or on their phone. And because the same stations exist in Florida that exist in Oregon, there’s a comfortable stability to the SiriusXM universe that translates very well to travel. If you’re a follower of any one particular genre, a restaurant or retail store owner, or just a passive listener, it’s simple and easy to find well-curated stations in specific genres to leave on in the background.

Real, live DJs

For decades, SiriusXM has put big money into recruiting top radio talent to host its programs, and that investment has paid off big time. The list of celebrity personalities that grace the satellite airwaves is overwhelming. From talk show legends like Howard Stern (love him or hate him), to sports legends like Bill Walton and Tony Hawk, to legendary rock critics like Dave Marsh, the company has made a point of hiring some of the most important commentators for each individual station it broadcasts.

Even beyond celebrity DJs, SiriusXM routinely offers artist-dedicated channels like Willie’s Roadhouse, a Willie Nelson-themed station that often features Nelson and his family, as well as collaborators from across his many decades of performance. Other dedicated stations include artists of all kinds, from The Beatles to Pitbull, Garth Brooks to Kevin Hart.

A brilliant business model

SiriusXM also has a big advantage over streaming services in that it operates with a significantly lower royalty rate than its on-demand streaming rivals, thanks to its radio-style format. Though the United States’ Copyright Royalty Board voted to increase the payments from satellite radio services to 15.5 percent of revenue late in 2017, SiriusXM remains well below the rates that on-demand streaming services are forced to pay. By comparison, Spotify pays over 70 percent of its revenue to rights holders.

Though the former rival companies — Sirius and XM satellite radio – both lost money in their formative years, largely due to the immense start-up costs associated with launching satellites into orbit, SiriusXM executives have routinely proven to be shrewd business people. From getting the FCC to approve the original merger between Sirius satellite radio and XM in 2008 (a deal many called a monopoly) to investing in on-air talent, the company appears to staff well-schooled leaders. These days, SiriusXM buys back its own stock whenever possible, offering a modest dividend to shareholders, and invests its money wisely.

When SiriusXM took a 16 percent stake in Pandora in mid-2017, for example, it bought the shares prudently, raising the money it needed at an interest rate lower than the 6 percent dividend Pandora would have to pay SiriusXM for the preferred shares it bought — essentially financing the deal for negative interest. With such business-savvy minds running the company, it will likely to continue to make smart deals in the future.

The future, and beyond

With a wide variety of compelling stations, a massive number of partnerships with car manufacturers, and a smart business plan, SiriusXM has become one of the most successful brands at the forefront of modern music services. Sure, the number of subscribers to satellite radio may never skyrocket the way it has for on-demand streaming, but, for now at least, companies that serve as middlemen audio providers should look to SiriusXM as their guiding light. The fact is, without a fundamental shift in the way on-demand streaming services operate, nobody will be able to catch the satellite radio king any time soon.

This article was originally posted on Digital Trends

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