February 11, 2009

Sleeping Satellites

Is this the beginning of the end?

This is not news, this is not even shocking, and this has been on the way long before the economic downturn that is being used as the reason for all faltering businesses these days.

Bad business plans, crushing expenditures and time constraints will affect any company during any economic climate.

Satellite radio – as we know it – may be on the way out

This is bad news for investors and customers. Sirius and XM have spent millions attempting to beat terrestrial radio at their own game. They have done countless radio and television campaigns, purchased major sponsorship affiliations; hired Howard Stern for $100M U.S. a year, while offering hundreds of crystal clear “commercial free” radio choices.

The now merged venture is drowning in debt.

It was announced yesterday that Sirius XM is going to file for bankruptcy protection on Tuesday. The fingers are pointing in all directions on this mess.

This was not a newsflash for company officials this week. They have known the costs and timeline since inception. The price tag on a satellite is $1.5 to 2 Billion and building hundreds of audio entertainment choices then market them is an enormously costly endeavor.

To believe that Sirius XM management wasn’t aware is like saying that the people running AIG didn’t know about the problems until they were 80 Billion in debt. Wouldn't alarms go off at around (say) the 10-15 Billion mark?

A quote here from Business Week:
The few poor souls who still hold Sirius XM (SIRI) stock may get poorer still. "I'll lose $1 million," says Michael Hartleib, a longtime activist shareholder. "They completely destroyed a perfectly viable company." Shares of the company closed at 11.39¢ on Feb. 10 after The New York Times said the company is preparing for a possible filing for Chapter 11 protection from creditors. Sirius declined to comment on the report.

I have given the radio industry over two decades of my life, and it is one of my true loves. Radio can be immediate, can react quickly and can create magic.

But if you start a business with no money, convince a bank to lend you some, then rack up your line of credit miles past your company’s ability to see the top of the pile, it is doubtful that you will be able to build quickly enough to write black ink.

Sirius XM have balloon payments due this year in the millions - and there just isn't the money to pay them.

Subscription based radio remains a foreign idea to most people and the offering has to be sweeter. Tell me why I need to buy gear and pay a monthly fee. Apple seems to have found a way to do that.

Add to that, the troubles in the auto industry which is where a significant number of pre-installed units were giving listeners an introduction to the services. Less cars sold, less new listeners.

Other issues for radio include: dwindling younger demos listening to satellite or terrestrial radio as well as consistent and better content. A morning show and music all day isn't enough. And there is a large percentage of people under 20 whose lives don't include radio. Younger becomes older and older becomes the target audience very quickly.

More from the Business Week article:
A bankruptcy filing by Sirius XM would have widespread implications not just for holders of the satellite radio company's debt and shares, but also for millions of listeners and for the celebrities like Howard Stern whose fat paychecks have made it harder for the company to pay its other bills.

A lot has been said about the Stern contract and the price of satellites in the atmosphere and the debt load. At the core of the issue are the discussions that took place at that first meeting when the idea began.

Too often companies attempt to retro blame some unforeseen factor. Satellite radio is a cool idea, but not an overnight fix or quick money grab. Anyone who claims they didn’t know that is not being completely honest with themselves.

What are your thoughts about satellite radio? Tried it? Like it?

Do you want Sirius XM to survive?


km

 
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