Why Satellite Radio May Be Grounded

I care about radio.  I love radio and grew with radio since the days I had my old clock radio in my room, long before I got a TV.  There was FM and AM and I listened to it every night before bed.  It was a great companion.  The beauty of radio is that it is a medium that allows our imaginations to take over a little, like a book.  You have images of what the DJ looks like, what the studio looks like, what the ballpark looks like, what that naked girl on Howard Stern’s show looks like, if you hadn’t seen those things previously.  The radio is an old friend, and one that really grew when satellite radio became available.  I could not wait to be add some new friends in this new era in technology.

I became a Sirius satellite radio subscriber in 2005.  This was shortly before Howard “The King of All Media” Stern was joining the company in 2006.  I love music and could not stand regular, or terrestrial radio anymore.  I had a long commute to work and my CD collection was growing stale.  I loved having Sirius.  The programming was new, I loved seeing what song was playing and it was great to have the talk, the sports, and Howard.  People said to me, “You’re paying for radio?”  I said yes, it is commercial free and it is terrific.   Howard was great, he could say and do anything.  But, as time went on, my commute got smaller and the memory on my Zune got bigger and my love affair with satellite has begun to diminish.  Today, seeing an email that Sirius XM is going to increase rates and remove free Internet listening really made want to write about the failures of Sirius XM.  This dog is crawling on its last legs and I am not sure how it will stand again.

Echostar came in as the White Knight today.  The White Knight is  Echostar’s CEO, Charlie Ergen, one of the 100 richest people in the world worth roughly $9 billion.  I cannot see the FCC allowing a Satellite TV provider to also have satellite radio.  The FCC sat 16 months on the merger of Sirius and XM, and that was when we all the economy was still growing.  Now, in a deep recession, I cannot see this being a priority to the Feds.

If this should happen, I would recommend anyone who held in positions in either Echostar or Dish Network to get out if they have not already.  Sirius XM is riddled in debt, in upwards of $4 billion.  Barring their is another White Knight with the ability to absorb such massive debt and is not involved in the communications industry where they do not have to worry about the FCC holding them up, Sirius XM may be able to avoid Chapter 11.  I can’t see what Echostar would want in owning Sirius XM, I could see them trying to buy what the satellite equipment they have, especially the terrestrial repeater network and then letting the rest go to someone else or down the drain.

Here are some of the reasons for the failure of Sirius XM:

Antiquated Technology & Rushing To Market – It’s the 21st Century and in order to have Sirius in the car, if my car does not have it installed is to

In 1995, this would have been great to have.  There were no iPods, no music on the Internet, just CDs or tapes and regular radio to get your music, news and sports.  XM began in 1988.  Sirius began in 1990, but few knew anything about it.  Had they gotten into the mainstream earlier and before everyone had broadband Internet connections, I believe they would have been very profitable.  Satellite radio would have been the product you couldn’t live without.

If a GPS device can work by just plugging the unit into my cigarette lighter, why does my Satellite radio need a 50 foot wire that goes through my car?  Was a Plug and Play model not easy to accomplish?  Sirius decided to use Directed Electronics exclusively to provide the equipment for the radios, and that really limited growth of the units.  The Sirius Stilleto came with its antenna attached the earphones.  This could not have been less comfortable.  I am not sure how anyone who tested these out on their own ears and said this feels good and I would like to wear this for a long time.  At least with XM’s portable units, there was an antenna on the unit and you could use your OWN headphones with the unit.  The problem is that the antenna only uses about 3% of the total satellite signal on its own.  Your chances of getting a signal at home without the wired home antenna kit is slim to none, also the portable units do not do well under areas with a lot of trees.

The fact that neither Sirius or XM has a unit that can play indoors or in your car without wires is preposterous.  In this generation, people like mobility and being without wires.  Sirius brought back the wires and the annoyances that come with that.

Obscene and Obese Contracts – Sirius and XM let the money fly like they actually had cash on hand and were profitable.  Neither were true.  Everyone quickly points to the Howard Stern megadeal.  Adding Stern in 2006 was a huge score for Sirius, but he came at an awful big price.  A five year-$500 million contract, plus another $200 million in stock.  As egregious as the deal was, it did bring in millions of subscribers.  Sirius needed a big radio star to grow the company, and it got it.  The number of subscribers before Stern were about 600,000, a year after Stern was on, the number grew almost 10 fold.  No other programming on Sirius or XM can come anywhere close to saying that.

How many subscribers did Oprah bring in at $18 million a year, or Martha Stewart at $7.5 million per year and now Chris “Mad Dog” Russo at $3 million per year.  All three would need to bring in over 200,000 subscribers just to break even.  I do not know of anyone who went out and got Sirius XM for any of these three.  In terms of sports, there need to be over 400,000, baseball fans subscribing to break even on the $59 million per year baseball contract.

Do the music stations really need professional DJs at an additional cost?  It seems to be that you could hire a chimp to play tunes on the stations and not really miss a beat.  I am not sure I know too many people who listen to their favorite music stations on Sirius XM looking for a single DJ.  They just want to hear music from that time or that genre.

The cost of just acquiring the content cost Sirius XM nearly $500 million.  That is nearly 3.5 million in subscribers which is equaled to an estimated 25% of the company’s total revenue.  Sirius XM has a total operating cost of around another $500 million.  Add the two together and you have about a $1 billion in costs and that eats into roughly 50% of the total revenue.  Remember that Sirius XM may say they 18 million total subscribers, but those numbers include new cars sold with satellite radio already installed, it does take into account whether those drivers actually keep and pay for the service.

The iPod & Free Internet Radio – There are over 100 million iPods that have been sold.  That is more than 5 times the amount of satellite radios.  Back when I bought my satellite radio in 2005, iPods could just play music.  Now, with units like the iPhone, you can listen to music, watch video, record video, surf the Internet, text message, and do it all without wires and no additional bills. Podcasts were in their infancy, and now there are millions of podcasts available, many without a fee.  Satellite radio cannot compete and finally is close to signing a deal with Apple.  Internet radio was always available, but now it has become even more popular as units are being made just for Internet radio.  There are hundreds of websites that you can listen to music just like Sirius for absolutely no cost.  You can listen to stations all around the world, unlike with Sirius XM that only has around 200 stations.

Not Giving Subscribers the Best of XM and the Best of Sirius for Free – In 2007, Sirius and XM agreed on a merger that would be hopeful in trying to pair two losers together to create a winner.  The merger took 16 months to take place and the FCC stalling on the merger did not help anyone.  During this time the value of both companies plummeted, and their stock prices became running jokes.   Sirius CEO Mel Karmazin took the only thing he had left which was the residual shareholder value to complete the deal.    We had been promised that this would benefit the subscribers and that our radios would not be obsolete.

As a gift to subscribers, I thought Sirius XM should give ALL subscribers at least 3 months free of what they call the Best of Sirius or Best of XM. This way the loyal subscribers could feel that this new company cares about us, and also we could get a feel of what we had been missing.  Sirius XM decided to give that to new subscribers, and if you wanted the Best of the other package, it will cost you an extra $4 a month, if you had a compatible radio.  If the cost had been the same, I may be more inclined to get a new radio.  Not all radios were compatible for the transition.  Another mistake.

They Are Increasing Subscription Rates At The WORST Possible Time – The company is no position to stunt subscriber growth.  Satellite radio is not a necessity, it is a luxury.  Mel Karmazin went in front of Congress and promised lower prices for subscribers in this article in July.  Today, I received an email from Sirius XM that The company is taking away subscribers ability to listen online for free in March.  It will cost $2.95 a month to listen online if you do not renew by March.  A little drastic for a company skidding on the balls of its ass, don’t you think?  Annual rates are supposed to be increased as well, but I have not seen any proof of that just yet.

I liken Sirius XM to the dot-com boom and subsequent bust of the late 90’s.  Neither Sirius or XM has ever turned a profit.  There was always future talk of positive cash flow but that has never even been close to happening.  I am predicting that with these changes their subscriber growth has stopped and they will see a reduction in subscribers for the first time.  If you did not own the product and you knew about the company’s financial difficulties, would you feel comfortable signing a year, 2 year, 3 year or more contract?  People are thinking, geez, are they going to be around next year?  With the economy the way it is, and with so much free media available online, I think less and less people will see the need for this, instead of more and more people saying they can’t live without Sirius XM.

Sirius XM is highly dependent on the automobile industry for its subscriber growth.  I do not think I need to tell anyone that any growth in that area is going to be few and far between in 2009.  I do think in the future automobiles will be wi-fi ready and be able to find radio stations online and all over the world.

I am sure if you are a present or former subscriber you have your own reasons that are in addition to what I mentioned.  Their customer service is tragic to say the least.

Sirius XM has $700 million in debt come due this year.  $175 million is due in just a couple of weeks.  They may be able to pay off the debt, but the company will still be miles away from turning a profit.  I am not sure what the solution is, do we just junk this technology, is their another company out there who will buy out Sirius XM and take the hit on their books in this economy, will the government take over satellite radio?

Whatever happens here; I think there was a golden opportunity that was mangled.  Management should have been more serious about their spending.

I may be telling my kids some day of the years that I paid for radio.  Hey, at least I didn’t buy an HD Radio.  For now, I’m off to bed and my clock radio is right there, oh and this radio has a MP3 input jack.