Will Internet Radio and the Cloud Squash Sirius XM Radio?

Sirius XM Radio. (NASDAQ:SIRI) is a company that’s used to drawing controversy, but this week investors are worried that the lead satellite radio provider may be attracting the wrong type of attention. Concerns are rampant that upstart competitors with new business models such as Pandora radio, which will IPO this Thursday, as well as other young companies such as “Spotify” and “Beyond Oblivion” will be able to uproot Sirius XM by offering cheaper and more desirable services.

Sirius’ most pressing threat right now though may be internal as the stock price has fallen some 25% since hitting a 3 month high of $2.37 in late May. SeekingAlpha projects that this stock slowdown is a result of a “market saturation” that consumers finally appear to be appreciating. Over the last ten years the company has worked to expand its product to become available in new cars on sale. CEO Mel Karmazin recently claimed that by 2015, some 70 million cars on the road would have Sirius receivers installed. However, installation of the receiver does not translate into cash for Sirius. The company derives most of its revenues from subscription fees, and it is unclear how many of those new car owners will be willing to fork out cash for satellite radio.

And if they won’t pay for satellite radio…

The biggest threat to Sirius at this point appears to be Pandora, the Oakland-based leader in Internet Radio companies which offers an appealing, highly personalized music service. The immediate threat to Sirius from Pandora would be that if Pandora continues to strike deals with auto leaders to be compatible in mainstream cars. Pandora would represent a much cheaper — FREE — alternative to Sirius, though content-wise it would still pale in comparison to the 500 or whatever channels Sirius offers listeners. Still, free is free, and given that Pandora has already inked agreements with General Motors (NYSE:GM), Toyota (NYSE:TM), Ford (NYSE:F), BMW, Mini, and more, the company looks set to swipe at some of Sirius’ market share.

Sirius XM may also face new challenges from Cloud Music services provided by Apple (NASDAQ:AAPL) and GOOG (NASDAQ:GOOG), which offer mobile storage databases for personal music collections. In-car compatibility is already available and popular via mobile devices from both companies, and with data in the cloud things could get much easier (does a personalized cloud radio service loom?) for customers to access in transit. Sirius investors may be in for a rough ride yet again, but if they’re still holding a stock that was worth only a nickel a share two years ago, this should be familiar territory.

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