This Changes Everything at Sirius XM


Sirius XM Radio (NAS: SIRI) is ready to give subscribers what they want -- when they want it.

Shares of the satellite-radio provider popped nearly 5% yesterday on a strong quarterly report, but an interesting nugget in its list of good news involves the launch of select streaming content on demand.

SiriusXM On Demand was unveiled yesterday, giving subscribers with Internet access the ability to check out more than 200 shows -- and initially more than 2,000 hours of content -- that can be streamed at their beck and call.

Catching up -- and moving ahead
Until now, radio in both terrestrial and satellite form has been a pretty straightforward process. You're either tuning in to the live show or you're not. Sirius XM has had receivers that can store a set amount of content, but that's about it.

The Internet obviously has been blowing up that notion for years. Folks can download podcasts or pirated show recordings. However, SiriusXM On Demand makes the process as seamless as it is legal.

"We are not reinventing the whole world," CEO Mel Karmazin said during yesterday's call, comparing this step to television companies that roll out set-top boxes. The arrival of TiVo (NAS: TIVO) didn't kill cable and satellite television providers. It just made viewing more convenient, and therefore more engaging.

If you've seen your cable bill inch higher every passing year, that's the rising cost of programming that cable companies pass on to you. If you haven't cut the cord yet, it's because TV is more engaging than ever as TiVo and on-demand cable provider offerings increase the perceived value of your subscription.

Now parlay that revolution on to satellite radio. Unlike your local cable company, Sirius XM is actually paying less in programming costs than it was a year earlier. Imagine the pricing elasticity that's possible for a product that's improving even though the cost structure remains the same.

It's all about the ARPU
Average revenue per user, or ARPU, has been inching higher at Sirius XM. The company's move to increase its standard monthly rate 12% back in January is starting to trickle in. More than half of active Sirius XM accounts are now paying the new rate.

However, that's only been good for about a $0.35 pop in monthly ARPU. The real driver here may very well be as car-based subscribers upgrade their plans to include streaming. It's just a few bucks more a month, but it would be substantial if a lot of the platform's 23.2 million subscribers buy in.

Making smartphones smarter
SiriusXM On Demand launched yesterday on Apple (NAS: AAPL) devices. Drivers with iPhones, iPads, and iPod touch devices can now stream satellite radio's marquee programming on their terms. Sirius XM promises to have a Google (NAS: GOOG) Android app out soon. More than 80% of the country's growing base of smartphone users are on either Apple's iOS or Google's Android, so this a big target audience for Sirius XM.

Cynics will argue that iPhone and Android owners have had access to Sirius XM programming for a couple of years now. Why should this matter? Well, SiriusXM On Demand is different. It makes the streaming product better. It's no longer merely the live product. It's the TV revolution, post-TiVo.

Can Sirius XM go too far? Can the streaming product become too superior? That could be a problem. Weaning receiver-based subscribers to Web-enabled content opens up a Pandora's box -- and Pandora's (NYS: P) box.

Subscribers will grow enamored with the advantages of cloud-served content over satellite-beamed programming, and that will open the door to Pandora for music discovery, Slacker for podcasts, and iHeartRadio for terrestrial broadcasts.

However, Sirius XM can't afford to live scared. Its subscribers will be exposed to the technology that makes in-car streaming easier as dashboard technology evolves. It's better for Sirius XM to stay ahead of the revolution -- and perhaps even start growing again at the retail level with non-car drivers -- than to delay the inevitable.

SiriusXM On Demand does change everything.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

I also just put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors that are both long and short the dynamic media giant. A year of updates is also included with the report. Check it out now.

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