10-K 1 siri-20171231x10k.htm 10-K
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`FORM 10-K
`
`___________________________________________________________________________________________________________________
`
`þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
`FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
`OR
`
`___________________________________________________________________________________________________________________
`
`o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
`1934 FOR THE TRANSITION PERIOD FROM __________ TO ________
`COMMISSION FILE NUMBER 001-34295
`SIRIUS XM HOLDINGS INC.
`
`___________________________________________________________________________________________________________________
`
`(Exact name of registrant as specified in its charter)
`
`___________________________________________________________________________________________________________________
`
`Delaware
`(State or other jurisdiction of
`incorporation or organization)
`
`38-3916511
`(I.R.S. Employer Identification Number)
`
`1290 Avenue of the Americas, 11th Floor
`New York, New York
`(Address of principal executive offices)
`Registrant’s telephone number, including area code: (212) 584-5100
`Securities registered pursuant to Section 12(b) of the Act:
`
`___________________________________________________________________________________________________________________
`
`10104
`(Zip Code)
`
`___________________________________________________________________________________________________________________
`
`Name of Each Exchange on Which Registered:
`Title of Each Class:
`The Nasdaq Global Select Market
`Common Stock, par value $0.001 per share
`Securities registered pursuant to Section 12(g) of the Act:
`None
`(Title of class)
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
`Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to
`such filing requirements for the past 90 days. Yes þ No o
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
`File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
`registrant was required to submit and post such files). Yes þ No o
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
`contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-
`K or any amendment to this Form 10-K. þ
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
`company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
`12b-2 of the Exchange Act.
`
`Large accelerated filer þ
`
`Accelerated filer o
`
`Non-accelerated filer o
`(Do not check if a smaller reporting company)
`
`Emerging growth company o
`Smaller reporting company o
`If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
`with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
`The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2017 was $7,957,495,699. All executive
`officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
`The number of shares of the registrant’s common stock outstanding as of January 29, 2018 was 4,491,863,747.
`DOCUMENTS INCORPORATED BY REFERENCE
`Information included in our definitive proxy statement for our 2018 annual meeting of stockholders scheduled to be held on Tuesday, June 5,
`2018 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.
`
`Fraunhofer Ex 2005-1
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`Table of Contents
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`Item No.
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`
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`SIRIUS XM HOLDINGS INC. AND SUBSIDIARIES
`2017 FORM 10-K ANNUAL REPORT
`TABLE OF CONTENTS
`
`Description
`
`PART I
`
`Item 1.
`Item 1A.
`Item 1B.
`Item 2.
`Item 3.
`Item 4.
`
` Business
` Risk Factors
` Unresolved Staff Comments
` Properties
` Legal Proceedings
` Mine Safety Disclosures
`
`
`
`
`
`PART II
`
`Item 5.
`Item 6.
`Item 7.
`Item 7A.
`Item 8.
`Item 9.
`Item 9A.
`Item 9B.
`
` Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
` Selected Financial Data
` Management's Discussion and Analysis of Financial Condition and Results of Operations
` Quantitative and Qualitative Disclosures About Market Risk
` Financial Statements and Supplementary Data
` Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
` Controls and Procedures
` Other Information
`
`
`
`
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`PART III
`
`Item 10.
`Item 11.
`Item 12.
`Item 13.
`Item 14.
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` Directors, Executive Officers and Corporate Governance
` Executive Compensation
` Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
` Certain Relationships and Related Transactions and Director Independence
` Principal Accountant Fees and Services
`
`
`
`
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`Part IV
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`Item 15.
`Item 16.
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` Exhibits and Financial Statement Schedules
` Form 10-K Summary
` Signatures
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`PART I
`
`ITEM 1.
`BUSINESS
`This Annual Report on Form 10-K presents information for Sirius XM Holdings Inc. (“Holdings”). The terms “Holdings,”
`“we,” “us,” “our,” and “our company” as used herein and unless otherwise stated or indicated by context, refer to Sirius XM Holdings
`Inc. and its subsidiaries, and “Sirius XM” refers to our wholly-owned subsidiary Sirius XM Radio Inc. Holdings has no operations
`independent of its wholly-owned subsidiary, Sirius XM.
`
`Sirius XM Holdings Inc.
`Sirius XM is a wholly-owned subsidiary of Holdings. Holdings was incorporated in the State of Delaware on May 21,
`2013. Holdings has no operations independent of its subsidiary Sirius XM.
`
`Relationship with Liberty Media
`As of December 31, 2017, Liberty Media Corporation (“Liberty Media”) beneficially owned, directly and indirectly,
`approximately 70% of the outstanding shares of Holdings’ common stock. Liberty Media owns interests in a range of media,
`communications and entertainment businesses.
`
`Sirius XM Radio Inc.
`We transmit music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in
`the United States on a subscription fee basis through our two proprietary satellite radio systems. Subscribers can also receive music
`and other channels, plus certain other features such as SiriusXM On Demand, over our Internet radio service, including through
`applications for mobile devices, home devices and other consumer electronic equipment. We also provide connected vehicle services.
`Our connected vehicle services are designed to enhance the safety, security and driving experience for vehicle operators while
`providing marketing and operational benefits to automakers and their dealers.
`
`As of December 31, 2017, we had approximately 32.7 million subscribers. Our subscribers include:
`•
`subscribers under our regular and discounted pricing plans;
`•
`subscribers that have prepaid, including payments made or due from automakers for subscriptions included in the sale or
`lease price of a vehicle;
`subscribers to our Internet services who do not also have satellite radio subscriptions; and
`certain subscribers to our weather, traffic and data services who do not also have satellite radio subscriptions.
`
`•
`•
`
`Our primary source of revenue is subscription fees, with most of our customers subscribing to annual, semi-annual, quarterly or
`monthly plans. We offer discounts for prepaid longer term subscription plans, as well as a multiple subscription discount. We also
`derive revenue from activation and other fees, the sale of advertising on select non-music channels, the direct sale of satellite radios
`and accessories, and other ancillary services, such as our weather, traffic and data services. We provide traffic services to
`approximately 7.5 million vehicles.
`
`Our satellite radios are primarily distributed through automakers; retailers; and our website. We have agreements with every
`major automaker to offer satellite radios in their vehicles, through which we acquire the majority of our subscribers. We also acquire
`subscribers through marketing to owners and lessees of previously-owned vehicles that include factory-installed satellite radios that are
`not currently subscribing to our services. Satellite radio services are also offered to customers of certain rental car companies.
`
`Acquisition and Investment Transactions in 2017
`
`During the year ended December 31, 2017, we entered into several strategic transactions.
`Acquisition of Automatic Labs. On April 18, 2017, Sirius XM acquired Automatic Labs Inc. (“Automatic”), a connected vehicle
`device and mobile application company, for an aggregate purchase price of $107.7 million, net of cash and restricted cash acquired.
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`Recapitalization of Sirius XM Canada. On May 25, 2017, Sirius XM completed a recapitalization of Sirius XM Canada
`Holdings Inc. (“Sirius XM Canada”), which is now a privately held corporation. Sirius XM now holds a 70% equity interest and 33%
`voting interest in Sirius XM Canada, with the remainder of the voting power and equity interests held by two of Sirius XM Canada’s
`previous shareholders. See “-About Sirius XM Canada” for more information about this recapitalization.
`Investment in Pandora Media, Inc. On September 22, 2017, Sirius XM completed a $480 million investment in Pandora Media,
`Inc. (“Pandora”). Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners. See “-
`About our Pandora Investment” for more information about this investment.
`
`Programming
`We offer a dynamic programming lineup of commercial-free music plus sports, entertainment, comedy, talk, and news,
`including:
`•
`•
`•
`•
`•
`
`an extensive selection of music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin and classical;
`live play-by-play sports from major leagues and colleges;
`a multitude of talk and entertainment channels for a variety of audiences;
`a wide range of national, international and financial news; and
`exclusive limited run channels.
`
`Our diverse spectrum of programming, including our lineup of exclusive material, is a significant differentiator from terrestrial
`radio and other audio entertainment providers. We make changes to our programming lineup from time to time as we strive to attract
`new subscribers and offer content which appeals to a broad range of audiences and to our existing subscribers. The channel lineups for
`our services are available at siriusxm.com.
`
`Internet Radio Service
`We stream select music and non-music channels over the Internet. Our Internet radio service includes certain channels that are
`not available on our satellite radio service. Access to our Internet radio service is offered to subscribers for a fee. We also offer
`applications to allow consumers to access our Internet radio service on smartphones, tablets, computers, home devices and other
`consumer electronic equipment.
`
`SiriusXM Internet Radio offers listeners enhanced programming discovery and the ability to connect with content currently
`playing across our commercial-free music, sports, comedy, news, talk and entertainment channels or available through SiriusXM On
`Demand. SiriusXM On Demand offers our Internet radio subscribers the ability to choose their favorite episodes from a catalog of
`content whenever they want.
`
`We are developing significant enhancements to our Internet radio service. These enhancements will include a substantial
`redesign of our mobile app and are expected to be introduced in 2018. The redesign of our Internet radio service will include, among
`other things, additional functionality, video streaming, content discovery and other features designed to increase consumer engagement
`with our Internet radio product.
`
`360L
`
`In 2018, we are introducing a user interface, which we call “360L,” that combines our satellite and Internet services into a
`single, cohesive in-vehicle entertainment experience. 360L will allow us to take advantage of advanced in-dash infotainment
`systems. 360L is intended to leverage the ubiquitous signal coverage of our satellite infrastructure and low delivery costs with the two-
`way communication capability of a wireless Internet service to provide consumers seamless access to our content, including our live
`channels, on demand service and even more personalized music services. The wireless Internet connection included in 360L will
`enable enhanced search and recommendations functions, making discovery of our content in the vehicle easier than ever. 360L will
`also allow consumers to manage aspects of their subscriptions directly through their vehicles’ equipment and is expected to eventually
`provide us important data to better enable us to understand how our subscribers use our service and how we can more effectively
`market our service to consumers.
`.
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`Distribution of Radios
`Automakers
`We distribute satellite radios through the sale and lease of new vehicles. We have agreements with every major automaker to
`offer satellite radios in their vehicles. Satellite radios are available as a factory or dealer-installed option in substantially all vehicle
`makes sold in the United States.
`
`Most automakers include a subscription to our radio service in the sale or lease of their new vehicles. In certain cases, we
`receive subscription payments from automakers in advance of the activation of our service. We share with certain automakers a portion
`of the revenues we derive from subscribers using vehicles equipped to receive our service. We also reimburse various automakers for
`certain costs associated with the satellite radios installed in new vehicles, including in certain cases hardware costs, engineering
`expenses and promotional and advertising expenses.
`
`Previously Owned Vehicles
`We acquire subscribers through the sale and lease of previously owned vehicles with factory-installed satellite radios. We have
`entered into agreements with many automakers to market subscriptions to purchasers and lessees of vehicles which include satellite
`radios sold through their certified pre-owned programs. We also work directly with franchise and independent dealers on programs for
`non-certified vehicles.
`
`We have developed systems and methods to identify purchasers and lessees of previously owned vehicles which include satellite
`radios and have established marketing plans to promote our services to these potential subscribers.
`
`Retail
`We sell satellite radios directly to consumers through our website. Satellite radios are also marketed and distributed through
`national, regional and internet retailers, such as amazon.com.
`
`Our Satellite Radio Systems
`Our satellite radio systems are designed to provide clear reception in most areas of the continental United States despite
`variations in terrain, buildings and other obstructions. We continually monitor our infrastructure and regularly evaluate improvements
`in technology.
`
`Our satellite radio systems have three principal components:
`•
`satellites, terrestrial repeaters and other satellite facilities;
`•
`studios; and
`•
`radios.
`
`Satellites, Terrestrial Repeaters and Other Satellite Facilities
`Satellites. We provide our service through a fleet of five orbiting geostationary satellites, two in the Sirius system, FM-5 and
`FM-6, and three in the XM system, XM-3, XM-4 and XM-5. Our XM-5 satellite serves as a spare for both the XM and Sirius systems.
`
`We have entered into agreements for the design, construction and launch of two new satellites, SXM-7 and SXM-8, which we
`plan to launch into geostationary orbits in 2019 and 2020, respectively, as replacements for XM-3 and XM-4.
`
`Satellite Insurance. We have procured insurance for SXM-7 and SXM-8 to cover the risks associated with each satellite's
`launch and first year in orbit. We do not have insurance policies covering our in-orbit satellites, as we consider the premium costs to be
`uneconomical relative to the risk of satellite failure.
`
`Terrestrial Repeaters. In some areas with high concentrations of tall buildings, such as urban centers, signals from our satellites
`may be blocked and reception of satellite signals can be adversely affected. In other areas with a high density of next generation
`wireless systems our service may experience interference. In many of these areas, we have deployed terrestrial repeaters to supplement
`and enhance our signal coverage and, in many other areas, we are planning to deploy additional repeaters to reduce interference. We
`operate over 1,000 terrestrial repeaters across the United States as part of our systems.
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`Other Satellite Facilities. We control and communicate with our satellites from facilities in North America. Our satellites are
`monitored, tracked and controlled by a third party satellite operator.
`
`Studios
`Our programming originates from studios in New York City and Washington D.C. and, to a lesser extent, from smaller studios in
`Los Angeles, Nashville and a variety of venues across the country. Our corporate headquarters is based in New York City. Both our
`New York City and Washington D.C. offices house facilities for programming origination, transmission and personnel.
`
`Radios
`We do not manufacture radios. We have authorized manufacturers and distributors to produce and distribute radios, and have
`licensed our technology to various electronics manufacturers to develop, manufacture and distribute radios under certain brands. We
`do manage various aspects of the production of satellite radios. To facilitate the sale of radios, we may subsidize a portion of the radio
`manufacturing costs to reduce the hardware price to consumers.
`
`Connected Vehicle Services
`We provide connected vehicle services. Our connected vehicle services are designed to enhance the safety, security and driving
`experience for vehicle operators while providing marketing and operational benefits to automakers and their dealers. We offer a
`portfolio of location-based services through two-way wireless connectivity, including safety, security, convenience, maintenance and
`data services, remote vehicles diagnostics, and stolen or parked vehicle locator services. Our connected vehicle business provides
`services to several automakers and directly to consumers through aftermarket devices.
`
`Subscribers to our connected vehicle services are not included in our subscriber count or subscriber-based operating metrics.
`
`Other Services
`Commercial Accounts. Our programming is available for commercial establishments. Commercial subscription accounts are
`available through providers of in-store entertainment solutions and directly from us. Commercial subscribers are included in our
`subscriber count.
`
`Satellite Television Service. Certain of our music channels are offered as part of select programming packages on the DISH
`Network satellite television service. Subscribers to the DISH Network satellite television service are not included in our subscriber
`count.
`
`Subscribers to the following services are not included in our subscriber count, unless the applicable service is purchased by the
`subscriber separately and not as part of a radio subscription to our services:
`
`Travel Link. We offer Travel Link, a suite of data services that includes graphical weather, fuel prices, sports schedules and
`scores and movie listings.
`
`Real-Time Traffic Services. We offer services that provide graphic information as to road closings, traffic flow and incident data
`to consumers with compatible in-vehicle navigation systems.
`
`Real-Time Weather Services. We offer several real-time weather services designed for improving situational awareness in
`vehicles, boats and planes.
`
`About Sirius XM Canada
`In 2017, Sirius XM completed a recapitalization of Sirius XM Canada (the “Sirius Canada Transaction”) which is now a
`privately held corporation. Sirius XM holds a 70% equity interest and 33% voting interest in Sirius XM Canada, with the remainder of
`the voting and equity interests held by two of Sirius XM Canada’s previous shareholders.
`
`The total consideration from Sirius XM to Sirius XM Canada, excluding transaction costs, was $308.5 million, which included
`$129.7 million in cash and we issued 35 million shares of our common stock with an aggregate value of $178.9
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`million to the holders of the shares of Sirius XM Canada acquired in the Sirius Canada Transaction. Sirius XM received common stock,
`non-voting common stock and preferred stock of Sirius XM Canada.
`
`In connection with the Sirius Canada Transaction, Sirius XM also made a contribution in the form of a loan to Sirius XM
`Canada in the aggregate amount of $130.8 million. The loan is denominated in Canadian dollars, has a term of fifteen years, bears
`interest at a rate of 7.62% per annum and includes customary covenants and events of default, including an event of default relating to
`Sirius XM Canada’s failure to maintain specified leverage ratios. The terms of the loan require Sirius XM Canada to prepay a portion
`of the outstanding principal amount of the loan within sixty days of the end of each fiscal year in an amount equal to any cash on hand
`in excess of C$10,000 at the last day of the financial year if all target dividends have been paid in full.
`
`In connection with the Sirius Canada Transaction, Sirius XM also entered into a Services Agreement and an Advisory Services
`Agreement with Sirius XM Canada. Each agreement has a thirty year term. Pursuant to the Services Agreement, Sirius XM Canada
`will pay Sirius XM 25% of its gross revenues on a monthly basis through December 31, 2021 and 30% of its gross revenues on a
`monthly basis thereafter. Pursuant to the Advisory Services Agreement, Sirius XM Canada will pay Sirius XM 5% of its gross
`revenues on a monthly basis. These agreements superseded and replaced the former agreements between Sirius XM Canada and its
`predecessors and Sirius XM.
`
`As of December 31, 2017, Sirius XM Canada had approximately 2.8 million subscribers. Sirius XM Canada's subscribers are
`not included in our subscriber count or subscriber-based operating metrics.
`
`About our Pandora Investment
`Pursuant to an Investment Agreement with Pandora, in 2017, Sirius XM purchased 480,000 shares of Pandora’s Series A
`Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $480
`million. The Series A Preferred Stock, including accrued but unpaid dividends, represents a stake of approximately 19% of Pandora's
`currently outstanding common stock, and approximately a 16% interest on an as-converted basis.
`
`The Series A Preferred Stock is convertible at the option of the holders at any time into shares of common stock of Pandora
`(“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock and an initial conversion rate
`of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to certain customary anti-dilution
`adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable
`quarterly in arrears, if and when declared. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in
`shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved
`the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted
`into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of June 9, 2017.
`
`The investment includes a mandatory redemption feature on any date from and after September 22, 2022 whereby Sirius XM, at
`its option, may require Pandora to purchase the Series A Preferred Stock at a price equal to 100% of the liquidation preference plus
`accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof.
`
`We have appointed James E. Meyer, our Chief Executive Officer, David J. Frear, our Senior Executive Vice President and Chief
`Financial Officer, and Gregory B. Maffei, the Chairman of our Board of Directors, to Pandora's Board of Directors pursuant to our
`designation rights under the Investment Agreement. Mr. Maffei also serves as the Chairman of Pandora's Board of Directors.
`
`Our right to designate directors will fall away once we and our affiliates fail to beneficially own shares of Series A Preferred
`Stock and/or Pandora Common Stock issued upon conversion thereof equal to (on an as-converted basis) at least 50% of the number of
`shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment
`Agreement. Following the earlier to occur of (i) September 22, 2019 and (ii) the date on which we and our affiliates fail to beneficially
`own shares of Series A Preferred Stock and/or Pandora Common Stock that were issued upon conversion thereof equal to (on an as-
`converted basis) at least 75% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred
`Stock purchased under the Investment Agreement, we have the right to designate only two directors.
`
`We are subject to certain standstill restrictions, including, among other things, that we are restricted from acquiring additional
`securities of Pandora until December 9, 2018.
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`Except as to matters that may be voted upon separately by holders of the Series A Preferred Stock, we are entitled to vote as a
`single class with the holders of Pandora Common Stock on an as-converted basis (up to a maximum of 19.99% of the Pandora
`Common Stock outstanding on June 9, 2017, unless stockholder approval has been received). We are also entitled to a separate class
`vote with respect to certain amendments to Pandora’s organizational documents, issuances by Pandora of securities that are senior to,
`or equal in priority with, the Series A Preferred Stock and the incurrence of certain indebtedness by Pandora.
`
`Upon certain change of control events involving Pandora, Pandora is required to repurchase all of the Series A Preferred Stock
`at a price equal to the greater of (1) an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid
`dividends through June 9, 2022 (assuming such shares of Series A Preferred Stock remain outstanding through such date) and (2) the
`consideration the holders would have received if they had converted their shares of Series A Preferred Stock into Pandora Common
`Stock immediately prior to the change of control event (disregarding the 19.99% cap).
`
`Beginning on September 22, 2020, if the volume weighted average price per share of Pandora Common Stock exceeds $18.375,
`as may be adjusted, for at least 20 trading days in any period of 30 consecutive trading days, Pandora may redeem all of the
`outstanding Series A Preferred Stock at a price equal to 100% of the liquidation preference thereof plus all accrued but unpaid
`dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, provided that, unless
`stockholder approval has been received, Pandora may not settle the redemption for shares of Pandora Common Stock to the extent the
`19.99% cap would be exceeded.
`
`Pursuant to a registration rights agreement entered into with Pandora, we have certain customary registration rights with respect
`to the Series A Preferred Stock and Pandora Common Stock issued upon conversion thereof.
`
`Competition
`Satellite Radio
`We face significant competition for both listeners and advertisers in our satellite radio business, including from providers of
`radio and other audio services.
`
`Traditional AM/FM Radio. Our services compete with traditional AM/FM radio. Traditional AM/FM radio has a well-
`established demand for its services and offers free broadcasts paid for by commercial advertising rather than by subscription
`fees. Many radio stations offer information programming of a local nature, such as local news and sports. The availability of
`traditional free AM/FM radio may reduce the likelihood that customers would be willing to pay for our subscription services and, by
`offering free broadcasts, it may impose limits on what we can charge for our services. Several traditional radio companies own large
`numbers of radio stations or other media properties.
`
`Internet-Based Competitors. Internet radio services often have no geographic limitations and provide listeners with radio
`programming from across the country and around the world. Major online providers make high fidelity digital streams available
`through the Internet for free or, in some cases, for less than the cost of a satellite radio subscription. Certain of these services include
`advanced functionality, such as personalization, and allow the user to access large libraries of content. For some consumers, these
`services may compete with our services, at home, in vehicles, and wherever audio entertainment is consumed.
`
`Advanced In-Dash Infotainment Systems. Nearly all automakers have deployed integrated multimedia systems in dashboards,
`including in many cases Apple CarPlay and Android Auto. These systems combine control of audio entertainment from a variety of
`sources, including AM/FM/HD radio broadcasts, satellite radio, Internet radio, smartphone applications and stored audio, with
`navigation and other advanced applications. Internet radio and other data are typically connected to the system through an Internet-
`enabled smartphone or wireless modem installed in the vehicle, and the entire system may be controlled by touchscreen or voice
`recognition. These systems may enhance the attractiveness of Internet-based competitors by making such applications more
`prominent, easier to access, and safer to use in vehicles.
`
`Direct Broadcast Satellite and Cable Audio. A number of providers offer specialized audio services through either direct
`broadcast satellite or cable audio systems. These services are targeted to fixed locations, mostly in-home. The radio service offered by
`direct broadcast satellite and cable audio is often included as part of a package of digital services with video service, and video
`customers generally do not pay an additional monthly charge for the audio service.
`
`Other Digital Media Services. The audio entertainment marketplace continues to evolve rapidly, with a steady emergence of
`new media platforms that compete with our services now or that could compete with those services in the future.
`
`Fraunhofer Ex 2005-11
`Sirius XM v Fraunhofer, IPR2018-00690
`
`

`

`7
`
`Fraunhofer Ex 2005-12
`Sirius XM v Fraunhofer, IPR2018-00690
`
`

`

`Table of Contents
`
`Traffic Services
`A number of providers compete with our traffic services. In-dash navigation is threatened by smartphones that provide data
`services through a direct vehicle interface. Mos