Letting Pandora Take Control Of Your Car (P, SIRI, DISH)

Internet radio company Pandora Media Inc. (NYSE: P) has announced 23 agreements with automakers and after-market suppliers to include the company’s radio player in their product offerings. Pandora also claims to have more than doubled its inclusion in consumer electronics devices, from about 200 a year ago to more than 450 today. There is certain to be an impact on Sirius XM Radio Inc. (NASDAQ: SIRI) and its satellite radio product.

Pandora has also recently signed a deal with satellite TV provider Dish Network Inc. (NASDAQ: DISH).

Pandora does not require a subscription, and the company’s 125 million registered users far outnumbers Sirius XM’s 22 million subscribers. Pandora also claims a 68% share of Internet radio listeners who tune in an average of 18 hours a month, according to reseach firm Triton Digital.

In recent comments at a media conference, Sirius XM’s CEO Mel Karmazin had this to say about Pandora:

Pandora is a really good company. They’ve been around for as long as we have — they’ve been around for about 10 years. They have about 40 million regular users, maybe more now, and they have $300 million in revenue. So, you know, business models matter. We like our business model of subscription better than the advertising-driven model.

Karmazin’s boosterism aside, Pandora and other Internet radio/music services are a real threat to the Sirius XM model. For Internet users, ‘free’ is the model they like best and most are willing to put up with some advertising to get free music.

What Sirius has on its side, though, is a radio model that is understood by the music industry better than the models of companies like Pandora, Spotify, or MOG. Karmazin can leverage that understanding into lower costs for content than the huge upfront fees music companies demand from the likes of Spotify, which offers a hybrid advertising/subscriber model, and has just released its own radio player to compete with Pandora.

Whether Pandora, or Internet radio in general, can displace Sirius XM remains to be seen. If Sirius lowers its subscription price (rather than hiking it) anytime soon, we’ll have our first evidence that Karmazin is more concerned than he lets on.  Maybe radio programs with Howard, Oprah, Martha, and news just aren’t really important… Maybe. 

Paul Ausick