Boston, MA 07/04/2014 (wallstreetpr) – Sirius XM Holdings Inc. (NASDAQ:SIRI) is a provider of satellite radio service that include music, sports, news and radio talks. The company generates the majority of its revenue from subscription and activation fees. As such, increasing subscriber numbers has been high on its agenda because that translates to higher revenue.
However, the company loses money mainly through content acquisition and an increase in the number of players offering streaming music services also comes as bad news to its business because of heightened competition for listeners. In addition to Apple Inc (NASDAQ:AAPL), other prominent new entrants in streaming music business include Amazon.com Inc (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOG), all of which have the financial muscles to push through their agenda.
Impact on income
As concerns content acquisition, Sirius XM Holdings Inc. (NASDAQ:SIRI) is facing increasing royalty fees, which has a negative impact on its bottom line. For example, in 1Q2014, the company saw royalty fee at 20 percent of revenue while royalty fee was only 17 percent of revenue in 1Q2013. As a result, profit margin has declined to 61 percent from 63 percent in a year ago.
Apple Inc recently sealed a deal to acquire headphone maker, Beats for $3 billion. The move is expected to help the iPhone maker offset the impact in its revenue occasioned by the decline in music downloads. The acquisition also improves the company’s position in music streaming business against Sirius XM (NASDAQ:SIRI).
As such, Sirius XM Holdings Inc. (NASDAQ:SIRI) is likely to have a big slowdown in user acquisition, which will in turn adversely impact its revenue and bottom line.
Benefits against competition
Although competition is growing against Sirius XM Holdings Inc. (NASDAQ:SIRI) in the radio service business thanks to the grand entry of Apple Inc and other players such as Google and Amazon, the company enjoys some benefits in the market. The company’s dominance in the automotive market gives it an important edge against rivals.
Additionally, the fact that it is expensive for users to stream music on smartphone because of subscription and data costs makes satellite radio a natural pick for many people, which is good news for Sirius XM Holdings Inc. (NASDAQ:SIRI).
