Serious Threats to Sirius Radio

Web outfits like Pandora, Foneshow, Stitcher, and Slacker broadcast portable and mobile content that makes Sirius look overpriced and stodgy

By Olga Kharif

The idea for "Serious Threats to Sirius Radio" came from BusinessWeek reader Richard Hunsaker, a project manager at a non-profit health organization based in Northern Colorado.

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Timothy Der, a software engineer who lives in Los Angeles, was a fan of Fungus 53, a punk radio station on XM Satellite Radio. Alas for Der, Fungus 53 went off the air months after the July 2008 merger of XM into satellite radio rival Sirius. So Der canceled his subscription and switched to Internet radio.

Der purchased Slacker G2, a $200 portable radio that plays just the kind of music he likes. The player downloads content from Slacker's custom-made punk Web radio stations via Wi-Fi connections. The radio stream is stored on the player's 4GB of memory, so Der can listen to the music in his car and at home—spots where he once played XM. The sound quality is better, he reports. As for content, "It's not all there, [Slacker's] music selection isn't as wide," Der says. "But it's pretty close."

For Sirius XM Radio (SIRI), such migrations spell trouble.

Since its inception, satellite radio bragged that unique content represented a key competitive weapon in the crowded digital media market. Just last year, former rivals Sirius and XM spent a combined $446.6 million on programming and content alone. Sirius XM pays $100 million a year to shock jock Howard Stern and his team, for example, and $60 million annually to Major League Baseball. But as Web radio and mobile radio applications flourish, they are beginning to erode the value of Sirius's pricey content deals.

Cheaper—or Even Free

Companies like the Web radio service Pandora, Foneshow, Stitcher, and Slacker—as well as traditional content providers—are broadcasting portable and mobile content that is cheaper or even free. Moreover, these upstarts can often replicate Sirius programming. One example: On Mar. 30, MLB will release an iPhone (AAPL) mobile application that will stream games live from all 30 teams—which is what Sirius customers get now—and offer video clips and live score updates for $10 for the entire season. Sirius' subscriptions that include MLB games start at $10 a month. The new app doesn't violate baseball's contract with Sirius XM, which covers rights to stream games only on satellite radio.

For Sirius XM, this competition over price and content comes at the worst possible time. The company is looking to monetize its content through mobile phones to complement its traditional outlets. Auto sales, which have fueled Sirius's subscriber growth for several years, have slowed to a crawl. Ditto for retail store sales now that electronics retailer Circuit City is gone. Even worse, many consumers have slammed their wallets shut amid the recession.

Satellite's Decline

Now, new rivals are making Sirius look overpriced and stodgy. "I use Pandora with Wi-Fi a lot in campus, office, and home settings," says Andrei Jezierski, a consultant who lives in New York. "If it's unavailable, [there's] plenty of stored, synced-up music on the iPod itself."