Sirius XM, Yesterday and Today

From the Motley Fool

Five years may not seem like much when compared to the nearly 25 years that Bob Edwards served as a morning-show host on National Public Radio. But a lot has changed for Sirius XM Radio (Nasdaq: SIRI) since he arrived.

Edwards was a pioneer. He migrated from terrestrial radio before bigger media icons Howard Stern, Oprah Winfrey, and Martha Stewart inked their big satellite-radio deals. Now Sirius is celebrating the fifth anniversary of Bob Edwards' arrival on satellite radio this month. The distinguished radio newsman joined XM shortly after it hit the 2-million-member milestone. Sirius was considerably smaller at the time. In fact, Sirius and XM together accounted for just 3 million subscribers.

Times have certainly changed. Even though this has been a rough year for subscriber acquisition and retention rates, Sirius XM still manages to claim 18.4 million subscribers. It's hard to think of any other premium subscriber-based industry that has grown sixfold over the past five years. Comcast (Nasdaq: CMCSA) and DirecTV (Nasdaq: DTV) have broader audiences, but they definitely weren't as small as Sirius XM was in 2004.

Today's subscribers are also paying more for access, and that's important when you consider the scalability of the satellite-radio model and Sirius XM's need to beef up margins to command the market's respect.

After all, margins and profitability are crucial for any business. Five years ago, Netflix (Nasdaq: NFLX) had 2.2 million subscribers. Its user base has grown quickly, but it's a far cry from Sirius XM's audience. One of the reasons Netflix is a market darling while Sirius XM trades at a fraction of its 2004 price is that a lack of cash flow has forced Sirius XM into printing new shares to keep creditors away.

Now that Sirius XM has gotten its financial act in order, its hope is that the stock gains that failed to materialize during its subscriber-growth heyday can show up and help create a positive-cash-flow story. It would be ironic to see Sirius XM's stock rise as its user base flattens out or possibly even declines, but that's what the market needs to see before it buys into the satellite-radio model.

Enjoy the birthday cake, Edwards. Let's see how rich dessert tastes in five more years.

Gloomy Predictions Hurt Sirius Says CEO
Originally Posted at The Wall Street Journal

Sirius XM Satellite Radio Inc. Chief Executive Mel Karmazin blamed the company's poor fourth-quarter subscriber numbers in part on reports of the possibility, since averted, of the company's filing for bankruptcy and outlined plans for expanding its business despite the poor economy.

In a conference call with analysts, Mr. Karmazin said the "doom and gloom" reports on the company's financial position "had a tremendous impact on the consumer buying our product." Last month, Liberty Media Corp. took a 40% stake in Sirius and lent it more than $500 million in order to cover looming debt payments that Sirius was unlikely to be able to meet.

The company earlier this week reported its subscriber numbers grew by just 83,000 in the fourth quarter, compared with 1.1 million for a combined Sirius and XM the year before. Mr. Karmazin also blamed the bankruptcy of Circuit City Stores Inc., which he said had been a strong seller of satellite radios.

The company also elaborated on its efforts to tap into owners of Apple Inc.'s iPhone and iPod touch.

The application it is developing for those devices will be available in the second quarter and will allow these consumers to subscribe without buying a satellite radio, Mr. Karmazin said, but he didn't provide pricing details. Currently, consumers who don't want to buy a satellite radio can subscribe to an online-only option for $12.95 a month, the same that a regular subscriber pays.

Pushing applications for mobile phones implicitly acknowledges the wealth of competition the company faces. Already, some consumers skip regular radio in favor of streamed Internet stations in their cars, a phenomenon analysts say will grow in popularity as more mobile phones improve their Internet capabilities and specialized Internet radio companies like Slacker Inc. and Pandora Inc. find new ways to get onto dashboards. But Mr. Karmazin seemed upbeat.

"Our competition, especially terrestrial radio, is getting weaker, and we will capitalize on that," he said.

Declining car sales mean the company won't see as many subscribers as previously hoped for from auto lots, but the company said its increasing penetration rates on dashboards should help it bounce back once car sales do. The company said it was ramping up its efforts to reach second-hand car buyers, focusing on the certified-preowned programs most car companies offer.

Additionally, the recent near-miss with bankruptcy may have spooked many potential subscribers seeking the best rates, which require up-front payment for several months' service.

The company withdrew its previous guidance that it expected to close 2009 with 20.6 million subscribers. Sirius said it expects to end the year with over $300 million in adjusted operating profit, but declined to provide any further guidance.

In 2008, the combined Sirius and XM posted a $136.3 million adjusted operating loss. Cost cuts resulting from the merger between the two companies last year would account for a significant part of the improving operating profitability, Sirius executives said.

Sirius and Liberty have been discussing joint marketing opportunities between Sirius and Liberty's DirecTV subscribers. Those opportunities might include a package for DirecTV subscribers to get Sirius radio at reduced rates, Mr. Karmazin said.

Sirius Unveils Raft of Options for Programs

Looking to boost its revenue and number of subscriptions, Sirius XM Satellite Radio Inc. Thursday announced a range of new programming options that lets subscribers buy programming from both of the recently merged rival services.

The moves are the New York company's first steps toward boosting and integrating the services of the former Sirius Satellite Radio and XM Satellite Radio Holdings since their merger was completed earlier this year. A new programming package known as "Best of Both" lets subscribers receive a range of stations from each for $16.99 a month, $4 more than the $12.95 a month most XM and Sirius subscribers now pay for over 100 channels.

XM subscribers who didn't have access to the Sirius show of talk show host Howard Stern will now be able to listen to it. Sirius listeners will now be able to add XM's Oprah & Friends channel to a lineup that already included Martha Stewart's programming.

Other new pricing plans allow consumers to pay less, raising different issues for the company. A plan that allows consumers to choose 50 Sirius channels "a la carte," costs just $6.99. For now, the a la carte option doesn't include XM stations.

Sirius XM desperately needs to boost revenue and subscriber growth in order to shore up its financial picture. Next year, it has over $1 billion in debt coming due, and needs to show its business is growing in order to refinance on favorable terms. Its shares have taken a beating since June, when the Federal Communications Commission approved the merger. Thursday shares closed at 60 cents, down five cents. Before the merger was finalized Sirius shares were trading above $2.50.

Although the two radio companies merged earlier this year, customers so far might not have noticed -- because programming from each was still almost entirely separate from the other. Now, the new options could be a boon so people like Mike Arenella of Pleasanton, Calif. A self-described XM junkie, Mr. Arenella says he'd love to be able to get some programming from Sirius, too.

"To be able to listen to a specific ice hockey game or football game when you're on the road would be nice," says Mr. Arenella, who does the bulk of his satellite radio listening on weekend trips to various motorcycle-racing events. Under the new plan, he will be able to get those extra Sirius channels.

To some extent, the plan is a gamble, since it is unclear how much consumer appetite there will be to pay extra -- especially during the current economic turmoil.

Sirius XM has said publicly that it expects the new programming options to drive subscriber and revenue growth, although it has not offered specifics. But some critics predict a hit to revenue as consumers trade down to cheaper offerings.

However, others say less expensive, more tailored options will discourage people from canceling their service altogether, helping the company in the long run. "If you're getting what you want, there's less of a reason to leave, and more of a reason to sign up," says Tony Wible, an analyst at Citigroup.

The new options also come with plenty of upselling opportunities. For example, customers who choose the $11.95-a-month "family friendly" plan are offered a plan that throws in some more G-rated programming from the other company's service -- in other words, bonus Sirius content for XM subscribers, and bonus XM content for Sirius subscribers. That costs $14.99 a month. And anybody who chooses the 50-channel a la carte option for $6.99 will hear about the 100-channel option for $14.99.

By: Sarah McBride and Ethan Smith
Wall Street Journal; October 3, 2008

Sirius XM Sends Signals of Change

CEO Karmazin Seeks Revamped Financing and Subscriber Options for Satellite Radio

Does anyone trust Mel Karmazin?

Controversy and confusing clouding Sirius XM Merger.

Mel Karmazin Latest Blunder Riddled With Debt and False Projections

With satellite radio's growth slowing and Wall Street rattled, Sirius XM Radio Inc. Chief Executive Mel Karmazin last week joked at an investor conference about how difficult it is to refinance some of the company's debt on reasonable terms. "Am I going to lend the company the money?" Mr. Karmazin asked. "I hope not. I hope we don't get to that.

Sirius XM shareholders weren't in the mood for wisecracks. Since the merger of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. in late July, the company's stock has fallen about 40%, and now trades at less than a dollar. The downward trajectory accelerated last week after the company issued subscriber forecasts that fell below analysts' expectations and failed to reassure investors about looming debt payments.

In an interview, Mr. Karmazin conceded that his comments about the company's debt were flippant. "I wish I didn't say it," he said. "I tend to be candid. I said something off-handed. I wish it was as simple as that." Ultimately, he says there has been "a tremendous overselling of the stock" and that his company "is heading toward making a bunch of money in the future."

The merger of Sirius and XM was supposed to build confidence in satellite radio, in which subscribers pay a monthly fee for programming that is delivered through special receivers. But already, the normally cocksure Mr. Karmazin is on the defensive about satellite radio's prospects.

The months ahead will be a crucial proving ground. Sirius XM hopes to regain traction with consumers during the holiday season with its first programming packages and radio receivers that combine the Sirius and XM services. As an enticement to consumers who tried satellite radio but didn't stick with it, Mr. Karmazin has considered a plan to reactivate the radios of lapsed subscribers and give them a small selection of programming free of charge.

Meanwhile, Mr. Karmazin's focus is to shore up investor confidence by refinancing $300 million in convertible bonds that come due in February, replacing them with bank debt. Last week, he told investors that he had already begun a series of meetings with banks. "They didn't want to hear that we're having discussions," Mr. Karmazin said. "They wanted it done." While the refinancing is a priority, Mr. Karmazin says he wants to arrange it at favorable terms; the last time he renegotiated debt in a hurry -- in July, the day before the merger closed -- the stock price dropped 16%. On the consumer front, the company is currently negotiating with big retailers like Best Buy and Circuit City to ensure top-notch placement and promotion for its product over the key holiday sales season. The retail market has been dead for well over a year, Mr. Karmazin said, because of confusion over the Sirius-XM merger.

The company will soon introduce radios that allow consumers more flexibility in the programming, including a 50-channel plan that costs $6.99 a month. Sometime next year, radios that can play the entire lineup from both Sirius and XM will hit the market.

Starting next month, even those who don't upgrade their radios will be able to pay an extra $4 a month and get a few "best of" channels from the other company's service. For example, a current XM subscriber will be able to get Howard Stern and Martha Stewart, now exclusively on Sirius.

One potential use for inactive radios: zapping a limited selection of programming to them. "That would be a very efficient use," says Mr. Karmazin, adding the company has considered the move but currently doesn't have plans to implement it.

Given Sirius XM's low stock price, Mr. Karmazin said he would love to take the company private. But given the state of the credit markets, "How do you find [the money] today?" If the company were generating positive cash flow, which he expects it to do for the full year in 2009, privatization would become much more feasible, he says.

Talk-show host Howard Stern's five-year, $500 million pay package, announced in 2004, included 34.4 million shares payable to him and his agent, Don Buchwald. Then, the shares were worth about $110 million; by the time he joined the company in 2006, they were worth more than $220 million because of the stock's sharp rise. Today, those shares would be worth $32.6 million. Mr. Karmazin declined to comment on Mr. Stern's current holdings; Mr. Buchwald wasn't available for comment.