We Three Kings: Satellite-Terrestrial-Internet

Gold (The King of Satellite: Sirius XM)
Who would ever pay to listen to radio? If you've been investing in or subscribing to satellite radio for some time, that question most likely brings a knowing grin to your face as this inquiry has become somewhat of a repetitive, yet catchy "oldie but goody." The answer to the question is of course, "21 million people and growing."

Interestingly, this extraordinary number still just can't seem to impress the impressionable, yet similar numbers from companies like Netflix or Comcast can somehow inspire the raucous ovations and showers of crumpled cash more suitable for the clumsy, clear-heeled cacophony occurring at the local gentleman's club around 1:30 in the A.M., rather than for a logical long term investment plan.

You see, most investors choose to fixate on the high maintenance, glitter-laden companies sporting "rapid growth" while ignoring the somewhat less flashy, yet far more dependable "steady growth" companies like Sirius XM. Although stellar growth is attractive in the short term, the bubble-piercing tag team of gravity and faddish popularity are undeniably harsh and reliably swift, when they intervene with the cold slap of an unexpected correction.

Sirius XM attracts a comparatively older crowd relative to its precocious contemporaries. Older folks with more discerning palates, much deeper pockets and long established routines. An unembarrassed and unrepentant alumni from the worlds most prestigious fraternity, a fraternity that no one ever overtly seeks to rush, yet we all somehow secretly hope to one day slip unnoticed through its venerable wooden doors to bask in the warm glow of its golden crest, emblazoned with the eternal sobriquet... "The Old School."

That is to say, a clientele that is less susceptible to the fickle nature of pre-pubescent whims. A crotchety cadre, blissfully unaware of the pointlessly public and peer-reviewed musicological consortiums that govern the daily tack of their youthful brethren, not to mention the notoriously capricious technological gadgetry committees of the hormonally and socially entrenched.

Personally, I have never heard the question... "Who would pay to stream B-list movies and stale T.V. re-runs from the 70's and 80's?" (or) "Who would pay in excess of $200 per month for flimsy HD content and 300+ channels of nothing to watch while additionally paying to rent substandard DVR's?" (consequently, I would answer affirmatively on both counts) These respected companies who continue to lose their core subscribers and face considerable headwinds seem to only inspire such hard hitting headlines as "subscriber losses slow in 3rd quarter" at the same time Sirius XM, which inexplicably continues to add more paying listeners each and every day, generates a plethora of eulogistic prognosticators year after successful year.

A perpetual underdog, Sirius XM actually benefits from the soft bigotry of low expectations, as its slow growth prospects have quietly been lumbering the tortoise's path on its way to the #1 subscription service in the U.S., and had generated $762 Million from its self pay and promotional subscribers in the latest quarter. Sirius XM's listenership is estimated to be around 10% of the market. Most will have missed Sirius XM's transition from debt generator to cash generator in the coming months and years, focusing rather on the feverish growth of the next streamer du jour, who's sound and fury only ever seem to generate millions of "likes" in the place of meaningful cash.

It turns out that free is very popular... Who knew? I did. But is free profitable? Not very, incidentally, guess what is profitable? Charging to listen to compelling radio... Who knew? I did. When it comes to making money in radio, Sirius XM's irrational experiment has proven true, people really, really dislike commercial radio, and ''oldies" are in fact "goodies" especially when they come bearing gifts of Gold.

Myrrh (The King of Terrestrial: Clear Channel) Who is the king of all radio? Clear Channel. Who's radio stations come factory installed in 100% of vehicles? Clear Channel. Who offers music, news, sports, traffic, weather and talk for free? Clear Channel. In the year 2001, who's radio stations reached 110 million listeners per week? Clear Channel. 10 years later In the year 2011, who's radio stations still reach 110 million listeners per week? Clear Channel. In the 3rd quarter of the year 2001, who's radio revenues were $866 million? Clear Channel. Ten years later In the 3rd quarter of the year 2011, who's radio revenues were $799 million? Clear Channel.

I find it interesting that Clear Channel (the king of all radio) recognizes that terrestrial radio is so vulnerable, that even they couldn't resist the opportunity to compete with themselves by encouraging listeners to turn off the "local radio" on the factory installed FM dial in their vehicles dashboard in favor of the more costly, plugging in of smart phones to stream terrestrial radio, and to experience radio as they have never experienced it before... through an app!

Imagine if you will, luxuriating in the exotic local flavor of Ohio's Mix106 and hearing the local take on car salesmanship at "a dollar over invoice" or the innovative deep discounting scheme of the hometown mattress mega-mart while you drive the Baltimore beltway, it's almost as exciting as discovering another "Hot Topic" store in an unfamiliar mall during a cloud-burst while on your summer vacation.

If you weren't aware Myrrh is useful for embalming mummies or concealing the odor of decay. Clear Channel has experienced this onerous stagnation even with its exclusive access to the strong arm of one of the nations strongest lobbyists... The National Association Of Broadcasters, whom actually argued quite publicly, how the merger of Sirius and XM would be detrimental to the almighty "local" brand of terrestrial, not ever imagining that iHeartRadio could ever be the key contributor to such deterioration, and do it more effectively than any of its so called competitors. Ba-Humbug!

Frankincense (The King of Internet: Pandora) Not unlike the Boswellia tree, which only produces the Frankincense resin after 8-10 years of growth, Pandora is just beginning to produce a hint of the sweet smelling fragrance of profit, so paltry that in fact, that if its profits were actually the only source of Frankincense, it would likely be more valuable than Gold, due to its rarity.

In the latest quarter, Pandora's 40 million active users generated $67 Million in revenue. Pandora is the undisputed king of internet radio by a wide margin due to its ubiquity, ease of use and positive word of mouth. Pandora like the other radio investment opportunities is proving to be just as frustrating. Ten's of millions of active users, billions of hours of listening and an increasing push towards the failed overly-commercialized presentation of terrestrial radio, has only served to slightly blacken the bottom line and incrementally redden the teary eyes of its earliest adopters, who are now clamoring for any one of the multitudes of "more-free" alternatives.

For as little as most marketers would care to admit, the cost of commercialism on the ears of a consumer is sometimes more taxing than tax itself. Pandora's dominance in the online radio segment is substantial, and they remain the most attractive gateway mechanism for enticing the next generation away from the finite-dial of terrestrial radio. In this way, Pandora must be respected for this accomplishment, as they have done it without enjoying the relative monopolistic coziness of satellite or terrestrial.

Conclusion: Do you hear what I hear? A song, a song high above the tree, with a voice as big as the sea... The very song you can hear on any Satellite radio, Terrestrial Radio or Internet Radio, for fee or for free, it matters very little, unless of course you are looking for an investment related to radio, and on this Christmas Eve the brightest star in the sky just so happens to be Sirius...with a tail as big as a kite. Merry Christmas to all, and to all a good night!