|SiriusXM Fights to Dominate the Dashboard of the Connected Car|
By BEN SISARIO
New York Times
FEB. 20, 2016
From left, Howard Stern with James E. Meyer, SiriusXM’s chief executive, and Scott Greenstein, its president. Credit Chad Batka for The New York Times
On the 36th floor of a Midtown Manhattan skyscraper, the actors Ice Cube and Kevin Hart joshed with fans inside a glass-walled radio studio one afternoon last month. They were in the broadcast headquarters of SiriusXM, and across the lobby, near Howard Stern’s dedicated wing, Brooke Shields posed for selfies with three “Sesame Street” puppets, while Senator Rand Paul — at that point, still a candidate for president — hovered with a small entourage. Overhead, a screen announced the imminent arrival of the thrash-metal band Anthrax.
By any measure, it was an odd cross section of pop culture. Surveying the scene, Scott Greenstein, SiriusXM’s chief content officer, smiled and declared, “This is how I like it — just this diverse.”
At SiriusXM, the satellite-radio network, executives use terms like “mosaic,” “bundle” and, inevitably, “curated” to describe the company’s mix of programming. With more than 175 channels, SiriusXM has much more variety than typical AM/FM radio but a small fraction of the ads. It has channels dedicated to the Grateful Dead and the Metropolitan Opera; five feeds of thumping electronic dance music; every pro baseball, football and basketball game; and, of course, Mr. Stern’s blend of raunchy humor and celebrity interviews. Around the Super Bowl, it had 162 hours of live programming related to the game that ran across 22 shows on 10 channels.
From left, Sway Calloway, Young Thug and Heather B recording at SiriusXM Satellite Radio studios in New York. Apps are threatening the company’s lock on in-car audio entertainment. Credit Chad Batka for The New York Times
Once flirting with bankruptcy, SiriusXM has quietly become a financial powerhouse at a time when other radio and digital music outlets are struggling to make a profit, and also as the behavior of so-called cord cutters — who cancel their cable TV subscriptions to pick and choose their entertainment online (and to save money) — has made Wall Street nervous about the future of bundled media. SiriusXM last year earned $510 million on $4.6 billion in revenue, and renewed major deals with Mr. Stern and the National Football League.
“This has been a remarkable success story against huge odds,” said Barton Crockett, a media analyst with FBR Capital Markets. “Most of the investing public thought there was no way this would work, spending huge amounts of capital to launch satellites and put equipment in cars. But they were right. This is a great business.”
SiriusXM has hit on the formula for getting people — nearly 30 million of them — to pay for radio, a form of media that has always been free. But while the company likes to emphasize the awesomeness of its audio “mosaics,” there is another, more mundane, explanation for its success: cars.
SiriusXM pays about $1 billion a year in subsidies and revenue splits to automakers, and according to the company, 75 percent of all new vehicles sold in the United States come with satellite radio installed. (It works with every major carmaker.) Of the 29.6 million subscribers to SiriusXM at the end of last year, 24.2 million paid the $11 to $20 monthly fee themselves, with the rest covered through promotions by car companies.
“If I ask myself two questions every day,” James E. Meyer, SiriusXM’s chief executive, said in an interview, “the first one is, ‘What do I got to do to make sure people pay us $15?’ The second one: ‘What do I need to do to make sure that my position with the auto companies remains strong?’”
Yet cars are changing in ways that could threaten SiriusXM’s position. New technologies, loosely referred to as the connected car, are bringing the Internet to the dashboard. For drivers, that means that various new audio apps — many of them free — will soon be available at a touch. For SiriusXM, that means a lot of new competition in the car, the place where consumers listen to radio the most. This process has already begun, with Apple and Google pushing for their own car media platforms, and Mr. Meyer said that he expected the technology to be in most new cars by the end of this decade. Will listeners still fork over $15 for SiriusXM if they can just as easily tune in to Spotify, Pandora or Beats 1 from Apple?
“The major enemy of SiriusXM these days is Internet radio,” said Jack Nerad, executive editorial director of Kelley Blue Book. “It’s important for Sirius to be in automobiles, but I think that for the car companies, it’s going to be just another programming source.”
Young Thug, center, during a visit to SiriusXM’s studios in New York. Credit Chad Batka for The New York Times
Mr. Meyer, who spent years managing the company’s relationships with Detroit before he became chief executive in 2012, has been hearing this refrain for a long time. But he said that SiriusXM was well positioned for the change, with plans for a new, more interactive version of its radio system, code-named SXM17, and the advantage of knowing that car companies make changes to their machines very slowly. “Even when you’re Apple,” Mr. Meyer said, “they will still live with the speed carmakers want to go.”
Phil Abram, the chief infotainment officer of General Motors, said that Pandora, as well as platforms like Apple’s CarPlay and Google’s Android Auto, have had no significant effect on how many of its customers subscribe to SiriusXM.
“People like to have a plethora of content,” Mr. Abram said. “One day you might want to listen to music on your iPhone, the next day talk radio, and the next day you want a curated set of music from a company like SiriusXM. We want to try to make it as easy as possible for our customers to enjoy whichever they want.”
Satellite radio’s fortunes have not always been so rosy. After years of planning and investment in the 1990s, the new medium began broadcasting in the early 2000s from two companies, Sirius and XM. For years both lost money as they competed to build their programming slates and sign multimillion-dollar deals with celebrities like Oprah Winfrey and Martha Stewart.
The biggest catch, by far, was Mr. Stern, who signed a five-year, $500 million deal with Sirius to begin broadcasting at the start of 2006. His arrival instantly put satellite radio on the map. Sirius and XM merged in 2008 — during the recession, when car sales were plummeting. After nearly going bankrupt under the weight of its debt, the combined SiriusXM was saved by a last-minute infusion of capital from Liberty Media, the cable and entertainment empire controlled by John C. Malone, which in early 2009 lent $530 million in exchange for preferred shares convertible into 40 percent of the common stock of the company.
Gregory B. Maffei, Liberty’s chief executive and the chairman of SiriusXM, recalled that at the time of the deal, a colleague told him, “Either the world ends, or we’re going to make a lot of money.” They made a lot of money. SiriusXM repaid the loans in five months, and the roughly 62 percent stake that Liberty now has in the company — which is formally known as Sirius XM Holdings — is worth about $11 billion.
SiriusXM’s strategy for competing with free radio has been to give people a lot of the radio they like — music, sports, talk, news — and minimize what they do not, namely commercials. That means the station’s programmers do not feel the ratings pressures that bedevil terrestrial radio.
Senator Rand Paul, Republican of Kentucky, and his wife, Kelley Ashby Paul, right, in the greenroom at SiriusXM’s studios. Credit Chad Batka for The New York Times
“When you don’t have ratings,” Mr. Greenstein said, “you can be very open-minded about your belief in what might be a hit.”
That has freed the network to indulge a deep degree of niche programming, much of it seemingly reflecting an older male demographic, with channels devoted to Billy Joel, Elvis Presley, Tom Petty and Bruce Springsteen. But the network also aggressively goes after young ears, with dance, alternative and pop stations, and relishes its role as the early champion of hot new acts that later go big, like Halsey, Elle King and Chris Stapleton, who just won two Grammys. (Not that things between SiriusXM and the music industry are completely peachy: In 2015 the company also agreed to pay $210 million to settle a lawsuit over royalties for recordings made before 1972, an obscure copyright issue that became a rallying point for older artists.)
Another success story is “Honey, I’m Good,” an ode to monogamy by the clean-cut singer Andy Grammer that came out in late 2014. Steve Greenberg, the president of Mr. Grammer’s label, S-Curve, believed the song had hit potential but was too quirky for terrestrial radio. So he pitched it to Kid Kelly, a SiriusXM programmer, who put the song into heavy rotation on Hits 1, the network’s pop station.
The song caught on and was soon selling 30,000 copies a week, almost entirely because of SiriusXM’s exposure. But in the music business nothing happens in a vacuum, and after a few months, AM/FM stations began playing it, too. The song eventually sold about 2.5 million copies, making it one of the biggest hits of 2015.
The success of “Honey, I’m Good” underscores a fact that is often forgotten in the age of Spotify and YouTube: Radio remains popular and influential — according to Nielsen, 93 percent of adults tune in at least once a week — and music executives say that blanketing stations everywhere is still the most effective way to secure a hit.
“There is absolutely no chance in the world that this record could have launched without the backing of Hits 1,” Mr. Greenberg said of “Honey, I’m Good.” “And there is no way it could have gone Top 10 without the backing of terrestrial radio.”
Chris Russo, host of “Mad Dog Unleashed,” a sports talk show on SiriusXM. Credit Chad Batka for The New York Times
If the connected car is a challenge looming in SiriusXM’s future, the biggest threat in its recent past was the potential loss of Mr. Stern, perhaps the network’s only indispensable star — “the heart and soul of SiriusXM,” as Mr. Greenstein put it.
Mr. Stern’s contract was expiring at the end of last year, and speculation began to spread that he might abandon satellite radio for yet another media frontier. Don Buchwald, Mr. Stern’s agent for more than 30 years, said that he met with dozens of companies, all promising to be an exciting new home for the show. Mr. Stern himself sometimes grumbled on and off the air about whether, at age 62, it was time to retire. Longtime fans have heard this one before, but Mr. Buchwald said it was genuine.
“People think it’s a negotiating ploy, but I can tell you there is reality to it,” said Mr. Buchwald, whose Manhattan office contains decades’ worth of Howard Stern memorabilia, including an enormous cardboard theater stand for the 1997 movie “Private Parts,” released not long after Mr. Stern started calling himself “king of all media.”
“He loved when he did the movie, he loved when he published the books, he loved the TV shows,” Mr. Buchwald continued, “and he’s thinking, ‘Why am I getting up at four o’clock in the morning and doing the same drivel?’”
Adding to the uncertainty about the negotiations was the fact that Mr. Buchwald was unfamiliar with Mr. Meyer, who commutes to New York each week from Indianapolis and has spent his entire career in operations — “All I ever wanted to be was a plant manager,” he said — far away from the world of show business. (He took over from Mel Karmazin, who had a decades-long relationship with Mr. Stern but left SiriusXM in 2012 after battling publicly with Liberty over its plans to take over majority control.)
But Mr. Buchwald said that he and Mr. Stern were charmed by Mr. Meyer’s earnestness, and by SiriusXM’s willingness to experiment with new technology. The deal they agreed to at the end of 2015 would keep Mr. Stern doing his radio show for five more years, and also lock in 12 years of access to Mr. Stern’s audio and video archives, along with new video plans that are still under development.
Neither SiriusXM nor Mr. Buchwald would comment on the specific terms of the deal, but analysts say it could be worth $90 million a year, including salaries and production expenses for Mr. Stern’s team.
Mr. Meyer, whose New York office is mostly bare except for some landscape photos and jerseys of Indianapolis sports teams, was obviously pleased to have renewed Mr. Stern’s contract, which both he and Mr. Buchwald called a particularly complex deal to negotiate.
But Mr. Meyer was also proud of the broader programming surrounding Mr. Stern. He listens to SiriusXM’s classic rock and outlaw country channels, he said, and hardly ever listens to terrestrial radio.
“Too many commercials,” he said.