Digital & 4G Competition Pressures Sirius XM's Retail Subscriber Base


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Sirius XM Radio ( SIRI ) is a leading satellite radio service provider in the U.S., offering over 180 channels with music, sports, talk shows, news and more. It competes with traditional AM/FM radio as well as Internet radio offerings from Pandora and Rhapsody. The firm's satellite radios are primarily distributed through automakers and retail locations as well as through its own website. Sirius XM has ties with major automobile manufacturers such as Ford ( F ), GM ( GM ) and Toyota.

Apart from automobiles, Sirius XM radio channels are available through Internet or home stereos through the use of various accessories. The number of Sirius retail subscribers increased sharply from 4.6 million in 2007 to 8.9 million in 2008, due to its merger with XM. Since then, Sirius retail subscriber numbers have been declining due to competition from digital audio players like the iPod. We expect this trend to continue with the emergence of HD radio and 4G mobile Internet networks.

While we estimate that the number of Sirius XM's retail subscribers will decline to 4.35 million by the end of our forecast period, Trefis members have a more flat forecast of 6.95 million. The member estimates imply an upside of 8% to our price estimate for SIRI stock.

We currently have a price estimate of $1.97 for Sirius XM Radio's stock , about 10% above market price.

Digital Media Players Lowering Sirius's Subscription Base

Digital audio players like the iPod give users the flexibility of listening to their favorite music on the go and most modern car audio systems can be connected to these types of digital players to eliminate the need for any special radio service subscription. Thus, retail demand for Sirius XM radio is expected to decline going forward, as digital audio players become more robust and more technologically advanced.

HD Radio, 4G Mobile Networks Threat to Sirius XM

Upcoming 4G mobile networks and digital HD radio pose serious risks to Sirius XM's subscription base. These services provide reliable, high quality content to users and can be plugged into car stereo systems.  HD radio, which has been available as an option in automobiles since 2008, will soon become a threat as over 1,500 radio stations currently broadcast digitally, with many more to follow. Telecommunication companies like Verizon also provide radio services to users and don't require any special radio receiver.

Trefis Community Forecast

Trefis members forecast that the number of Sirius XM retail subscribers will decrease from 7.0 million in 2010 to 6.6 million by the end of our forecast period, compared to the baseline Trefis estimate of a more substantial decrease to 4.4 million during the same period. The member estimates imply an upside of 8% to our $1.97 price estimate for Sirius XM Radio's stock .

See our full analysis and $1.97 price estimate for Sirius XM Radio

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: F , GM , SIRI

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