Weekly Radio Notes: No Impact Of Apple Music Launch So Far On Pandora And Sirius XM

-2.14%
Downside
8.38
Market
8.20
Trefis
P: Pandora Media logo
P
Pandora Media

The past week was relatively eventful for leading radio provider Pandora Media (NYSE:P) as Apple (NASDAQ:AAPL) announced the launch of its Apple Music and District Court of Southern Board of New York agreed to Broadcast Music Inc’s (BMI) proposed license fee for the content in its repertoire. Sirius XM‘s (NYSE:SIRI) shares remained relatively stable throughout the week indicating that investors didn’t see Apple Music as a threat for the company. The satellite radio company announced towards the end of the week that it bagged the exclusive nation-wide broadcasting rights for the U.S. Open Championship. It even said that it will broadcast the performances from Bonnaroo Music and Arts Festival to be held in Manchester, Tennessee. Here’s a quick roundup of the news that mattered for these companies.

Pandora Media

Relevant Articles
  1. Can Pandora End The Year On A Strong Note After Solid Q3?
  2. Is SiriusXM Paying The Right Price For Pandora?
  3. How Will Subscriber Growth Drive Pandora In The Second Half Of 2018?
  4. Can Subscriber Growth Drive Pandora’s Q2?
  5. Spotify Has Seen A Big Rally, But Still Faces Some Challenges
  6. How Much Can Pandora Benefit From Snapchat Partnership?

Pandora’s stock price remained at roughly the same level throughout the week despite Apple making further inroads into the music industry. Apple announced the launch of its Apple Music this week, a $10 a month streaming service, which is apparently a combination of features offered by players such as Spotify and Pandora, and social element of Tumblr and Instagram. [1] While the introduction of Apple Music is a definite increase in the competition in the music industry, Pandora does not feel threatened. The Internet radio company’s CEO believes that users will still rather listen to ads than pay for music. [2] One thing that can be deduced from this statement is that Pandora isn’t actually looking to convince its free users to turn into paying subscribers to get ad-free content. The company is still looking to propel its topline growth through advertisements as it does not have the desired variety or depth in its content to actually get users to pay for it. Neither does it have enough money to get better content.

In other news, the District Court of the Southern District of New York holds that Pandora should accept the license fee proposed (2.5% of Pandora’s gross revenues) by BMI (that licenses music on behalf of copyright owners and publishers). The court used the license fee paid by Pandora to Sony/ATV and Universal Music in 2013 as benchmarks for the trial. However, Pandora regarded these benchmarks as unsuitable for the current trial, citing only partial information available about Sony’s list of composers as the main reason, along with Universal’s provisions that did not allow Pandora to remove certain compositions from its services. [3] Pandora has always tried hard to keep its content acquisition costs under control, since it does not generate enough revenues through advertisements to offset the huge expenses.

We estimate revenues of about $1.18 billion for Pandora in 2015. Our price estimate for the company at $20.48 is around 20% premium to the current market price.

Sirius XM

Just like Pandora, even Sirius XM appears to be unmoved by the launch of Apple Music. Even though Sirius XM and Apple Music both are subscription based services, the diversity of content on offer at Sirius XM is expected to keep it several steps ahead of Apple Music. However, the fact cannot be neglected that over the long run, Apple Music will take away some listener hour share from Pandora and Sirius XM. Nevertheless, investors don’t seem to be concerned at all right now, and they have enough reasons to be this way. Sirius XM still has some potential for subscriber growth with its foray into the used car market, mobile apps and household plans.

Sirius XM’s content goes way beyond just music and news. Holding its reputation upright, the company recently announced that it will be the exclusive nationwide broadcaster of the U.S. Open Championship, taking place at Chambers bay, Washington between June 18-June 21. The comprehensive hole-by-hole coverage will last more than 35 hours through the four days of the championship. Interestingly, such long programming hasn’t been aired ever before. In addition to this, Sirius XM announced that it will broadcast the Bonnaroo Music and Arts Festival, featuring performances from Mumford and Sons, Earth, Wind & Fire, Awolnation, Twenty One Pilots, Royal Blood etc. [4] The satellite radio company consistently adds new and appealing content to its portfolio, providing users with enough incentives to pay for its services.

We estimate revenues of about $4.5 billion for Sirius XM in 2015, with earnings per share of $0.16, which is within the range of the market consensus of $0.18-$0.13, compiled by Thomson Reuters. Our price estimate for the company at $3.82, which is inline with the current market price.

View Interactive Institutional Research (Powered by Trefis):

 

Global Large CapU.S. Mid & Small CapEuropean Large & Mid CapMore Trefis Research

Notes:

  1. Apple Music unites streaming, radio and social for $10 a month, Engadget, Jun 8 2015 []
  2. Pandora Media’s CEO Downplays Apple Inc’ Threat, Financials Trend, Jun 10 2015 []
  3. Broadcast Media Inc v. Pandora Media, USDC S.D. New York, JDSupra Business Advisor, June 5 2015 []
  4. Sirius XM Press Releases []