(Reuters) - The new CEO of satellite radio company Sirius XM Radio Inc thinks radio is a good business, but for the future he said opportunities may lie with in-car services like automated safety.
The company is investing in telematics, another name for automated security and safety services in cars such as General Motor’s OnStar brand. It signed a deal with Nissan Motor Corp in the fall and is looking for more agreements, CEO Jim Meyer said in an interview.
Meyer laid out his plans after he was appointed full-time CEO on Tuesday. Meyer, 58, served as interim CEO since December when he joined the company’s board. He was hired in 2004 and oversaw relationships with the auto industry, which accounts for the bulk of the company’s revenue.
Sirius will focus on offering entertainment and “infotainment” services such as weather and gas prices to drivers, in addition to telematics, which includes stolen vehicle tracking and roadside assistance. These services tap Sirius XM’s existing satellites.
Analysts said they liked the plan because it could help diversify Sirius’ revenue stream as it faces more competition in cars from streaming Internet services such as Pandora. Sirius XM shares rose 4.2 percent to $3.19 on Tuesday.
A Barclays research note estimated that the auto audio and infotainment area, which includes telematics, is a $15 billion a year industry while information controls, which includes displays in cars, is a $12 billion a year business.
“It’s not going to happen in six months. This is going to take a while. We’re working hard about what role we can play and what (the car makers) would like us to do,” Meyer said.
The specifics of some of the services Sirius wants to offer are not yet known but Meyer sees a long-term opportunity for them in the next five to 10 years. Sirius XM plans to charge monthly fees for these new features that will be bundled with the satellite radio product.
Sirius XM is talking with automakers about what it can do in 2017 and 2018 car models, Meyer told investors on Tuesday’s conference call that followed earnings.
Meyer said that while a lot of companies are trying to sell in-car systems, Sirius XM has an advantage as it has been working with automakers for a more than a decade installing satellite radios on the assembly line. The Barclays research note points to a number of companies operating in this infotainment space including Harman, Delphi and Continental.
The company does not yet have a revenue target for this area. When asked if it wants to acquire companies in the automated car services space, Meyer hinted that Sirius XM was in the market.
“The specific pieces of how we’re going to evolve down that path will take shape in the next six to 18 months,” he said.
ISI analyst Vijay Jayant said Sirius should invest in these new services because it will face challenges as more cars become equipped with Internet and drivers can choose other entertainment options.
“Eventually they will have to compete with more choices so you have to try to make yourself more valuable to the car guys and to consumers,” Jayant said.
Liberty Media, which controls the satellite radio company, picked Meyer after searching for a new CEO since December.
Liberty, controlled by billionaire chairman John Malone, is known for engineering complicated financial structures to minimize taxes. Sirius XM said on Tuesday it was creating a holding company which will give it more financial flexibility to borrow money.
Sirius said it is under-leveraged and is aiming to raise its leverage target to 3.5 times EBITDA from a current 2.5 times ratio.
Sirius XM added 304,000 net subscribers in the quarter and plans to add 1.6 million net subscribers this year. The New York-based company said total revenue rose 12 percent to $897.4 million, missing estimates of $905.6 million, according to Thomson Reuters I/B/E/S.
Net income rose to $123.6 million, or 2 cents per share, in the first quarter, compared with $107.7 million, or 2 cents per share, a year earlier, which matched estimates.
Sirius XM bought back $494 million in stock in the quarter. It also raised its 2013 annual free cash flow forecast to $915 million.
Reporting by Liana B. Baker; Editing by Gerald E. McCormick, Chizu Nomiyama and Bob Burgdorfer