The stock benefited from a couple of catalysts this week. First, Sirius added two new channels to its growing lineup, one being Raw Dog Sirius XM Comedy Hits. The other catalyst, and perhaps more important, Sirius received upgrades from Standard & Poor's and Moody's on the company's 5.25% senior notes.
Moody's upgraded the notes from B1 to Baa3 while Standard & Poor's raised its rating to BBB from BB. These notes were coming due 2022, on which Sirius had granted liens. Now, aside from granting Sirius more liquidity options, these ratings don't materially address my concerns about its future. But all of that can change.
It's been pointed out that my recent Sirius discussions have been too bearish. I've been told that "I'm not seeing the forest for the trees." What I do see, however, is a company being attacked from all angles, especially from Apple (AAPL). Apple is now in the automobile dashboard. And it won't be just a drive-by. Sirius' first-to-market advantage has no bearing on its fate.
Given Apple's recent agreement with National Public Radio (NPR), Apple is gearing up to give Sirius a run for its money. And I mean that literally. We've all heard, "Content is king." As such, Sirius investors have never taken Apple seriously. Likewise, Pandora (P) has always been referred to as a "jukebox."
But with NPR in the mix, Apple is now breaking away from its "music-only" status. Plus, very few people aware that has entered the realm of concert sponsorships. The company is promoting a live music event for Maroon 5 on June 20. This is in addition to Apple's international expansion plans. iTunes Radio is now available in New Zealand and Australia.
This means Sirius will need to add more than a few new channels to keep its subscribers from fleeing. There's more to Apple these days than its entry into the automobile. While Pandora has already laid its own ground work, it, too, is on the verge of death. But a Sirius/Pandora union can tackle Apple together. A Pandora acquisition by Sirius should be done for the same reasons Sirius merged with XM. Its life depends on it.
When Pandora released its audience metrics for March, it showed the company's share of total U.S. radio listening grew 13% year over year to 9.11%. Last year, Pandora had 8.05% share. While reporting that it had 75.3 million active listeners, Pandora also achieved a landmark of 250 million registered users in the U.S.
Pandora's music genome platform, which gives listeners the ability to customize their music, has helped turned Pandora into a sticky service. This means that Americans love their jukebox. The problem is Pandora doesn't know how to make money. The more it grows in popularity, the more money it has to shell out in royalties.
Likewise, Sirius' main issue is that its business model is too closely tethered to auto sales. By contrast, Pandora's personalized music service can be accessed from a variety of ways, including tablets, PCs, smartphones and most car audio systems -- pretty much, anything with an internet connection. But Pandora also has a growing subscription service and the ability to grow advertising revenue.
As royalty fees continued to chew through the company's bottom line, Pandora hopes to mitigate this by raising the subscription service. The other potential growth area is advertising. Advertising revenue can become that dominant second stream of revenue Sirius lacks. Sirius has also talked about the connected car.
Its acquisition of Agero has excited investors. But Sirius is a radio/entertainment company. I don't see how Sirius can out-innovate Apple or Google (GOOG) in an area where technological advantages are required. Not to mention expensive capital investments. Sirius will not outspend Apple or Google.
But if it does buy Pandora, Sirius will raise its own acquisition profile. Its entertainment offerings immediately become more attractive. It's not out of the question that Microsoft (MSFT) would become interested. And with Pandora stock in a freefall, now is the time for Sirius to face the music and make the deal.
At the time of publication the author had a position in AAPL.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.