Sirius owner savages Spotify business model, warns of Amazon ‘commoditization’

Liberty Media CEO Greg Maffei hit headlines last month after he was reported to have made an unsuccessful $3.4bn bid for Pandora.

So it was little surprise that the topic of streaming music’s health came up in the latest earnings call of Sirius XM’s majority-parent Liberty on Friday (August 5).

The background: Sirius XM has just posted some very healthy financials.

For the three months to end of June, Sirius hit 30.6m subscribers, up 8%, with quarterly revenues in excess of $1bn.

The company’s monthly Average Revenue Per User (ARPU) in the period stood at $12.78.

Liberty owns 64% in satellite and digital radio service Sirius, in addition to stakes in Live Nation, Time Warner, Viacom and others.


Maffei confirmed to investors that, should Liberty eventually swoop for a streaming music service like Pandora, he would look to fold it into the operation of Sirius XM, rather than holding it separate.

But the exec also made it very clear he was no great believer in the business model of Spotify and other standalone music rivals – while warning of the effect Amazon Prime was set to have on the streaming audio market.

“In what we consider the stream [music] subscription space, you have several big players who are entering and are likely to further commoditize the market,” said Maffei (pictured).

“Spotify did something like $3.54 of ARPU per month with 84% of content costs… that sounds like a very hard business to me.”

“Spotify did something, like, for the last year, $3.54 of ARPU per month and had 82% or 84% content costs… That sounds like a very hard business to me.”

According to Spotify’s 2015 financials, it finished the year with an 89m active user base, and revenues of $2.18bn.

Maffei’s calculation is no doubt less crude, but that’s a basic ARPU of $24.50 a year, or just over $2 a month.

Subscription-wise, Spotify pulled in $1.94bn from 28m paying customers in 2015.

That’s an average yearly ARPU of $69.30, which breaks down to around $5.78 a month.


Maffei further noted that Spotify and Pandora now faced “Apple, Amazon, Google entering more deeply and more strongly” into their market.

“Apple appears to be doubling down their efforts in music and being more aggressive and obviously have other ways to get paid for their music business through the sale of devices and iTunes and the like,” he added.

“Amazon I think is a wholly unknown variable that fully hasn’t been realized, in the sense that Prime has an enormous amount of music if you are a subscriber that is embedded in that $99 [Amazon Prime] annual fee. That is surely a commoditization of music.”

“Prime [offers] an enormous amount of music if you are a subscriber that is embedded in that $99 annual fee. That is surely a commoditization of music.”

Maffei predicted that as the Amazon Echo speaker and its voice recognition buddy Alexa increased their reach in the US and beyond, it would prove “another hugely disruptive influence on the market”.

He concluded: “I think that subscription space is very hard.”


Maffei wasn’t arrogant about the threat posed to Sirius itself from these music services – and, despite his scepticism, didn’t rule out the radio platform’s own entry into Spotify’s realm.

“We watch [subscription] very carefully,” he said. “We look at some of the entities that are playing. We look at ways that we can play.

“I don’t know how I could have been more negative on streaming services.”

“Obviously some of the things where we have differentiation around ease-of-use and around our unique content are nice moats. Are they impenetrable against that commoditized music service?

“We surely will be affected and we think hard about how to create that moat and create value for customers that they are willing to pay for.”

When asked what Liberty would do if it ever did swallow a standalone music service, Maffei commented:

“I don’t know how I could have been more negative on streaming services. But I think it’s highly unlikely that anything would happen at the Liberty level.

“Sirius is our play for the online play for music, whether it’s distributed through satellite or, as Sirius already does, through the online system.”Music Business Worldwide

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