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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.

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