P Pandora Media, Inc.

The CEO of SiriusXM on how the company will leverage having two revenue streams

By Anne Steele 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 30, 2018).

Jim Meyer, chief executive of Sirius XM Holdings Inc., the satellite radio service available in some 112 million vehicles in the U.S., is looking beyond the car -- and beyond radio.

Sirius was built on car-radio subscriptions, which continue to grow. But the radio industry has faced competition from streaming music apps such as Spotify, which offer songs on demand.

Last month, Sirius said it would buy Pandora Media Inc., a music-streaming company that is known for letting listeners build custom radio stations but also has an on-demand service. The $3 billion all-stock deal, to be voted on by shareholders in the first quarter, would create an audio-entertainment company with a market value rivaling Spotify Technology SA -- and get Sirius into the on-demand business. Sirius had $5.43 billion in revenue last year, to Pandora's $1.47 billion.

Earlier this month, Sirius also said it would bundle its programming with Amazon.com Inc.'s Echo voice-activated home speakers.

Mr. Meyer discussed with The Wall Street Journal how his company plans to compete against more music streaming, and why it is looking beyond the car for more listeners. Edited excerpts follow.

The radio business

WSJ: The music industry's rebound is largely thanks to consumers' desire and willingness to pay for on-demand music. What is satellite radio's future in this ecosystem?

MR. MEYER: We've never been in the music-distribution business. We see ourselves in the radio business. Radio is a $22 billion to $24 billion business in the U.S. alone. We've been able to grow from scratch to over 33.7 millionsubscribers in a pretty quick period, and those people subscribe to our service for the bundle of content, not just for music.

That said, I believe strongly in giving our customers whatever they want and giving it to them in a way that's extremely easy to use. Many customers are subscribing to on-demand services, and certainly Pandora would give us the ability to easily offer our subscribers a true on-demand music service that we would own.

WSJ: What can Sirius do better when combined with Pandora?

MR. MEYER: I'm really looking forward to being able to cross-promote to Pandora's free users a better premium-subscription opportunity, whether that's the full SiriusXM bundle or some combination of the SiriusXM bundle and Pandora premium products.

The truth is most people in radio today don't want to pay for it, and when they finally reject paying for radio, at the end of a free trial, they are going back to broadcast radio. I feel strongly that at the end of those trial experiences there's a real opportunity for us to link those people back to Pandora, or perhaps Pandora with a little bit more added content.

I want anybody who comes through a subscription trial with either SiriusXM or Pandora to be using a service that we're monetizing either through subscription or advertising.

WSJ: SiriusXM has a lot of paying users, and Pandora has a lot of users but not a lot who pay. What is the future in terms of advertising versus subscription?

MR. MEYER: At Sirius a little over 3% of our revenue is generated by advertising. It's growing, but our business is driven by the other 97%. Our primary motivation is to get people who try out satellite radio to subscribe. Once they do, we work really hard to keep them. And we won't have advertising on our music channels certainly as long as I'm in charge, because our subscribers really value commercial-free. It's one of the reasons they pay.

But the vast majority of audio listening is done free, and the vast majority of that is AM/FM radio. I'd like to get a bigger share of the radio business, and do that in a way where I have two very productive revenue funnels: one subscription, the other advertising.

WSJ: Are you concerned about either service poaching the other's listeners?

MR. MEYER: We will be very conscious of that, and we'll test our way into this to make sure that that's minimized.

WSJ: How can SiriusXM and Pandora better compete with Spotify and Apple, in terms of numbers of listeners and listening time?

MR. MEYER: Terrestrial radio, AM/FM, is $15 billion. So that's the area I think that's available to take away listening.

The streaming phenomenon has been, in my opinion, really good for our business. It has allowed other services to take root and get going, but it really allows the best of both worlds. We have a private, one-way, nationwide, works-everywhere service that has only our content on it but has a limitation in that it's one-way, just like terrestrial radio. And now we can easily combine that with a two-way offer to our subscribers.

A great example of this is in the new Ram 1500 [pickup truck]. We've developed an interface called 360L which seamlessly blends our broadcast content with our stream content. If you're listening to Howard Stern and he references last week's Lady Gaga interview and you want to go directly to that Lady Gaga interview, even though that's not part of his live show, it can be done with a simple push of a button.

WSJ: Executives at other companies, including Spotify, have talked about capturing more listeners in the car. How will you maintain and increase market share in the car?

MR. MEYER: We have to continue to evolve our content. We think the best way to do that is with music, talk, sports, weather, all those things combined into one offer.

It's our duty after this merger to link more people into the Pandora free experience. That's how we're going to be able to make Pandora's in-car listening audience bigger, and we're going to do that by making it our favorite go-to for people who go through our trials and then reject us.

A change in behavior

WSJ: This month's deal with Amazon seems to mark a serious effort to capture listeners outside the car. Why is that important to do?

MR. MEYER: The smart-home-speaker business is a change in the way people behave. Whether it's Amazon or Google or whoever else, there's going to be tens of millions of these devices rolled out, and it's made listening to Sirius in the home a whole lot easier.

We started three years ago to invest heavily in the quality of our apps, and now we're getting those apps distributed across multiple platforms, both mobile and also across the smart devices that are going into the home.

WSJ: A lot of radio companies have been teaming up with podcast companies. What are your thoughts on podcasts? Is that part of SiriusXM's future?

MR. MEYER: I think podcasting is an important part of the audio entertainment experience going forward. It's got two problems today. One, it isn't monetizing very well almost anywhere. Two, unless you know specifically what podcast you want, it's really difficult to find in an easy manner what you want.

Sirius was already investing and thinking about what was the right way to introduce podcasting to our subscribers, and from that you should assume we will be offering it to our subscribers. Pandora is certainly also working hard on that strategy and down that path.

Combining the size of our platforms with our ability to move fast in this space because of our balance sheet gives us a real opportunity together.

WSJ: If there are issues with monetization, why are you bullish on podcasts?

MR. MEYER: I don't think anybody has tried that hard yet, and I think there's a whole lot more that can be done creatively to make the space much more entertaining.

Ms. Steele is a reporter for The Wall Street Journal in Los Angeles. Email her at anne.steele@wsj.com.

(END) Dow Jones Newswires

October 30, 2018 02:47 ET (06:47 GMT)

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