If Sirius XM Died, No One Would Miss It

Sirius XM [SIRI] is preparing to file for bankruptcy as early as Tuesday, due to a $175 million debt maturing this weekend that the company can't pay. If satellite radio as we knew it disappeared, would it really matter?

Granted, "preparing" to file for bankruptcy doesn't necessarily mean that the company will have to do it, according to the Washington Post; it's just a procedural necessity in case talks for more funding fall through. And even if Sirius XM does file, it probably wouldn't mean an interruption of service for radio subscribers according to Chris Murray, senior counsel for the Consumers Union.

But getting through next week as a solvent company will mean that SIRI's CEO Mel Karmazin will have to find a heaven-sent investor who may not exist. The company is experiencing a virtual standstill in subscriber growth, and it is operating at a loss, making it unattractive to banks; it's also already highly leveraged with $3.3 billion in debt maturing before 2014, meaning any financing terms Karmazin could get would be highway robbery.

A glimmer of hope lies in a potential deal with Charlie Ergen, CEO of Dish Network [DISH]. His company already owns $300 million in Sirius XM bonds, and a satellite radio business could be complementary to the Dish Network's TV offerings. The AP also reported that Liberty Media Inc., that is affiliated with DirecTV [DTV], may also be involved in talks with Sirius XM.

But serious regulatory issues over buying the nation's only satellite radio company would abound because of antitrust laws. The Sirius XM merger itself took nearly 18 months and involved a host of strict stipulations that could hamstring a potential buyer. It's rumored that Ergen and Dish Network might want to dismantle Sirius XM radio and use its valuable frequency for a new high-speed Internet service the company is building, but that would involve disenfranchising 19 million satellite radio subscribers--another move that the FCC would stonewall.

Which options are left? There's structured bankruptcy, like the kind that Mitt Romney suggested for American automakers in his November op-ed in The New York Times. A managed bankruptcy deal with federal regulators would give Sirius XM the flexibility to re-make its business model in a sustainable way; a new round of bonds or leniency from investors will simply keep the radio provider on its same failed track. As Anya Kamenetz noted in her Tuesday post, radio listeners just aren't responding to the Sirius XM model. And why should they, with Internet radio and iPods at their disposal?

The company could also use bankruptcy to find a way to divorce itself from the health of the auto industry; right now it gets the lion's share of its new subscribers from new cars sold with built-in satellite radios, when it really should have a viable sales model of its own. It also needs to find a way to bring down its astronomical operating costs by re-negotiating with its star players, or by finding new, cheap talent that won't come at a premium. Is Howard Stern really worth a $100 million contract when the company is on the verge of failure over just $175 million in maturing bonds?

All that would require new management and new vision, that may be better provided by a deal with Dish Network. Dish has the resources to execute a rebirth. What if Dish dismantled Sirius XM as it currently exists, and re-introduced it as a high-speed broadband service that could carry music as well as Internet access? Would anyone miss having plain old commercial-free radio when XM could be so much more?

Backward-compatible, the hybrid service could still allow all of Sirius XM's subscribers to get commercial-free radio on their existing radios. But buyers of new Sirius XM receivers could have access to in-car Web, giving aftermarket sales of satellite head units real appeal they currently lack. Sirius XM portable radios, which currently aren't selling next to iPods and Zunes, would become Web-enabled multimedia devices that could have Apple [AAPL] and Microsoft [MSFT] seriously worried. Dish Network could also give AT&T [ATT] and Verizon [VZ] a run for their money by selling USB dongle modems for PCs, and building out a TV-based Internet service that could enable consumers to buy digital media over their TVs.

Would it take work? Yes. Would it be disruptive? You bet. Let's hope something drastic happens at Sirius XM--consumers deserve more than the company can presently offer.

Add New Comment

13 Comments

  • Chris Vestal

    I agree it is better than "Terrestrial Radio" but I just can't justify paying for something that I can get for free via the internet. If I lived miles from civilization or frequented remote locations with no other means of connectivity, then Sirius XM would definitely be a good match.

  • Deb Sterling

    If Sirius XM went away, it would absolutely matter and so would millions of others. This is the largest subscription service in the world. The content of satellite radio is so far superior to that of free radio. I have been a subscriber for 3 years and every time I am forced to listen to Terestrial Radio, I am reminded why.

  • Chris Vestal

    I can't believe they have survived this long. There are tons of free internet radio options out there that have much better content and are truly "commercial free".

  • david cooper

    also dd - although you may hate stern (i'm not the biggest fan, either), he is by far the most listened to personality on sat rad. dump him and BELIEVE me, a few million people will follow...

  • david cooper

    ummmmmmmmmm.......chris, oh great genius, you have answered the title question yourself in the article - TWENTY MILLION (yes, million) subscribers would miss it. in an effort to come up with a clever title, you have fallen on your face. nice try, though....

  • D D

    The problem as I see it is Mel Karmazin. He never should have been hired. He comes from traditional radio (ex CBS radio CEO). And if you look at traditional radio...which is a huge failure, then it makes sense that Mel would screw things up here as well. The merger was a horrible idea. Then when they started merging channels, people dropped subscritions because they lost content. Then they merged the traffic channels. More people dropped subs who were angry. Dump Mel, and dump stern.

  • Mergen Chuluun

    The contract of Howard Stern never made sense to me. Neither did the large sums paid for baseball coverage.

    Personally, I think it's better to turn to profitability or at least have positive cash flows before doling out big bucks like Santa on Christmas eve.

    Technology is great, but the financial and executive directors just spent money to easy. I just wonder how they would have spent the money if they had their own cars and homes on the stake.

    --
    Business Web Solution - Internet Marketing, SEO, Web Design, and more!
    WEBGURU-CO.COM - your partner in business success through the web
    http://www.WEBGURU-CO.COM

  • jsl4980

    I love Sirius the way it is today. I hope they can turn it into something better. I think we all know if they can't they won't stay around long with the economy tanking. I'm not sure why this website has written so many articles about SiriusXM with such incredibly negative titles. Stop with the pointless sensationalism, I would hope you'd be above that.

  • Mike Aden

    Most of the time I use it in the car, tough to use the video and web access. I also use for in home music, which contains web and video.
    I enjoy all the new technology that"s out there.
    Would I miss it if it was replaced with better technology? Probably not! But if I have to go back to AM and FM I would rather do without, thanks!

  • Chris Dannen

    To Don and Mike -- would you miss XM if it was replaced by a satellite-based service that not only offered commercial-free radio, but Web access and video too? That's my point; if XM dies, it could be reborn as something more useful.

  • Mike Aden

    I would miss XM, I agree with Don on this, there should have never been a merger. Stern is the one dragging this down. Dump him!!!
    I enjoy the music! The lack of commercial BS and the option to listen to what I want all the way across the country.
    I'm not a top 40"s guy nor do I like news every 20 minutes.

  • Dave Long

    The biggest favor DirecTV did their customers was to give them a preview of XM content via their satelite link. It convinced me there was nothing being offered that was different enough to be worth purchasing the equipment and service.

    Dish Network is barely able to manage their own enterprise. They misplace so many payments in-house, they have a "mis-posting" department to try to find them. In the meantime, they disconnect ther customers service until they track down the payment. What idiots! Any attempt by a company like Dish to revive a dying technology is a sure to be a disaster.

    Add to that the coming WiMax(3g) and LTE(4g) technologies, which are likely to proliferate free music and information content to compete with fee based services, and XM/Sirius doesn't stand a ghost of a chance.

    I just never could see spending $12/month just to hear some sophomoric fool like Howard say naughty words on the radio.

    Will I miss them? Not a bit

  • Don Johnson

    I would miss XM a bunch -- we are on the road a lot and it is a lifesaver - compared to finding a local station-- I objected when they merged? with Sirius -Stern is a liability and not worth a dime