General Motors Company (NYSE:GM) wants to woo wired drivers, and that may be a problem for Sirius XM Radio Inc (NASDAQ:SIRI).
The automaker announced on Monday during the Mobile World Congress that it’s teaming up with AT&T Inc. (NYSE:T) to offer mobile hotspots providing 4G LTE connectivity to most of the 2015 model-year Chevy, Buick, GMC, and Cadillac vehicles that will begin rolling out next year.
General Motors Company (NYSE:GM) is emphasizing the safety, security, and diagnostic features that convince drivers to pay up for speedy connections, but for many drivers it will ultimately boil down to entertainment. The ability to stream videos through backseat monitors and the ability to seamlessly stream audio through the dashboard will be the magnetic features of the new service.
Where does this leave Sirius XM Radio Inc (NASDAQ:SIRI)?
The good news is that GM has too much riding on Sirius XM. It was an early investor in satellite radio, and it’s generating healthy royalty revenue now through GM drivers who are premium Sirius XM subscribers.
However, here’s where things get hairy.
Satellite radio is no longer a differentiator for car makers. Every manufacturer is installing Sirius or XM receivers in most of their cars.
The automotive industry’s push is to differentiate the experience by adding features that rival vehicles lack. There are plenty of car companies that offer connectivity on some models, and a growing number of cars let smartphone owners use Bluetooth to perform online tasks. However, GM offering 4G LTE connectivity — at a price — on most of its cars will be a game changer.
GM will push this, even if it means losing satellite radio commissions, because it will result in car sales.
Oh, it’s gets even scarier.
What’s the profile of the typical drivers who will choose to pay AT&T for fast online connectivity in their cars?
1). They are affluent enough to afford premium services in a car.
2). They spend enough time driving to justify a financial investment in a service.
3). They embrace new technology.
That pretty much sounds like the early adopters of satellite radio. The moment that they’re paying for a connected car, shelling out $14.49 a month plus taxes and an escalating music royalty fee may not seem worth it when Pandora Media Inc (NYSE:P) — or whatever the hot streaming app at the time will be — for free.
The saving grace for Sirius XM here is that it’s been beefing up its own streaming platform to compete with Pandora, Spotify, and other popular digital platforms.
It also helps that the adoption rate for “mobile” mobile hotspots will be gradual at first. It will take time to become an industry standard. Let’s hope Sirius XM makes the most of that time.
The article GM’s Gain May Be Sirius XM’s Pain originally appeared on Fool.com and is written by Rick Aristotle Munarriz.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends General Motors.
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