Sirius XM: Bankrupt?

[Cheech Tremendous 0]

Link to nytimes.com article

 

Sirius XM Prepares for Possible Bankruptcy

 

By ANDREW ROSS SORKIN and ZACHERY KOUWE

Published: February 10, 2009

 

Last summer, Mel Karmazin was rattling off his trademark one-liners to talk up the future of Sirius XM Radio, the combined company he ran that had just been blessed by regulators.

 

He was planning to cut costs and expand a business that was already a fixture in the lives of millions of Americans. “Forty-three cents a day — it’s not even vending machine coffee,” he said at the time, parrying a question about whether the softening economy might hurt subscriptions.

 

But now Sirius XM, the satellite radio company, has problems with much bigger price tags. It has hired advisers to prepare for a possible bankruptcy filing, people involved in the process said.

 

That would, of course, be a grim turn of events for the normally upbeat Mr. Karmazin, Sirius XM’s chief executive, who had hoped to create a mobile entertainment juggernaut with stars like Howard Stern.

 

It is unclear how a bankruptcy would affect customers. Service is unlikely to be interrupted, but the company might have to terminate contracts with high-priced talent like Mr. Stern or Martha Stewart.

 

A bankruptcy would make Sirius XM one of the largest casualties of the credit squeeze. With over $5 billion in assets, it would be the second-largest Chapter 11 filing so far this year, according to Capital IQ. The filing by Smurfit-Stone, with assets of $7 billion, has been the year’s biggest to date.

 

Sirius XM, which never turned a profit when both companies were independent, is laden with $3.25 billion in debt. Its business model has been dependent, in part, on the ability to roll over its enormous debts — used to finance sending satellites into space and attract talent like Mr. Stern (who was paid $100 million a year) — at low rates for the foreseeable future until it could turn a profit.

 

The company’s success and failure are also tied to the faltering fortunes of the automobile industry, which sells vehicles with its radio technology installed and represented the largest customer base among Sirius XM’s 20 million subscribers.

 

Sirius XM owes about $175 million in debt payments at the end of February that it is unlikely to be able to pay.

 

Sirius XM’s problems could pave the way for a takeover by EchoStar, the TV satellite company, which has bought up Sirius XM’s debt.

 

Mr. Karmazin has been locked in talks with EchoStar’s chief executive, Charles W. Ergen, over Sirius XM’s options, people involved in the talks said. The men are said not to get along, these people said, and Mr. Karmazin had rebuffed Mr. Ergen’s takeover advances before.

 

Sirius XM hired Joseph A. Bondi of Alvarez & Marsal and Mark J. Thompson, a bankruptcy lawyer with Simpson, Thacher & Bartlett, to help prepare a Chapter 11 filing, these people said.

 

Documents and analysis are close to completion and a filing could come in days, according to a person familiar with the matter.

 

The threat of bankruptcy could also be part of a negotiating dance with Mr. Ergen, who could decide to convert his debt into equity instead of demanding payment.

 

In addition to the $175 million due in February, EchoStar also owns $400 million of Sirius XM’s debt due in December. If Sirius XM files for bankruptcy, EchoStar could seek in court to take over the company. Mr. Ergen, however, may be able to negotiate to convert his shares before bankruptcy at an attractive rate and gain control of the company, these people said.

 

For Mr. Karmazin, the sale or bankruptcy of Sirius XM would be one of his first failures. He founded Infinity Broadcasting, sold it to CBS and later merged the combined companies into Viacom, where he had a notoriously difficult relationship with Sumner M. Redstone, the chairman, before being ousted.

 

Mr. Karmazin bought two million shares of Sirius XM at $1.37 a share in August. Before that, he had bought 20 million shares at an average price of $5 each. On Tuesday, Sirius closed at 11.4 cents a share.

 

Since the summer, the company’s prospects have dimmed.

 

“I’m not trying to paint the rosy picture, because we have challenges connected to our liquidity and certainly our stock price is dreadful,” Mr. Karmazin said in December. “But, you know, our revenues are growing double digits. We’re growing subscribers. We’re not losing subscribers.”

 

A spokeswoman for Mr. Karmazin declined to comment. A spokesman for EchoStar could not be reached.

 

Mr. Karmazin staked the success of the merger on nearly $400 million in annual cost savings and the potential to gain subscribers through deals with auto companies to put satellite radios into cars.

 

But satellite radio failed to win over many younger listeners, and competition from other sources slowed subscriber growth.

[Sideburnious 0]

It'll probably have it's debt bought out by Echostar. Even if it does file, they won't get rid of Stern. Probably Oprah & Martha Stewart

[bob_barron 0]

That'd be crazy if they cut Howard, they'd lose even more subscribers

[Cheech Tremendous 0]

I really, really enjoy the service, but with the budget a little tighter this year I might actually cut this if they drop Howard Stern. All the music channels are wonderful, but I end up Stern's channel at least 60-70% of the time.

 

Maybe I'm not understanding this properly, but it seems like you'd have to have a really screwed up business model to go billions of dollars in debt on a product that has 20 million monthly subscribers. Sure, there are huge capital investments in a venture like this, but they've hung around for five plus years already.

[Sideburnious 0]

It's the stock that's scaring people. Something like this would usually get 20+ years to get on it's feet and I believe they still have loans from banks to cover the current debt, it's just that someone is trying to buy it before they can make the payment. This bankrupt talk has been going on for a while.

And yeah, if they got rid of Stern, they might as well close the doors.

[bob_barron 0]

I think Sirius overestimated how many people wanted to pay for radio, and just went all out, and it just didn't work.

 

Which is sad, since terrestial radio is awful. I think they'd have to keep Howard, but does anyone care about the other celebrity talent?

[YourKock'sReallyGreat 0]

The Merger was a horrible mistake and prices were raised after the fact. I had Sirius last year because of Howard Stern. I ended up cancelling because of him taking Fridays off, 1-2 weeks vacation per month and constantly bitching about how much he hated working/couldn't wait for his contract to end.

[Cheech Tremendous 0]

I disagree. The merger needed to happen much sooner than it did. These two companies spent way too much money in advertising and on talent to try and kill their competition. The marketplace simply wasn't large enough to support two competing satellite companies. The fact that that the merger was caught in bureaucratic hell for 18 months did far more damage to the companies than anything else.

[the max 0]

I'm just relieved that 202 will likely be unaffected as neither show is really a hemmorhage of cash. I will be happy once this is over and they stop pulling replays because of controversy too. Also if we could get some of the old XM music channels back, that would be great. Instead of "let's include both company's music channels" it was "let's get rid of every XM channel and just make the entire platform Sirius". They got rid of some great channels and really changed some of them badly.

 

And while I don't think Howard will be kicked off, I can't see him getting huge money to re-up with SiriusXM. He's Mel's boy and rumored new boss Charlie Ergen HATES Mel. They've had issues in the past that have ended with Ergen posting Mel's home phone number online.

 

[EVIL~! alkeiper 0]

I was ticked that they raised rates on the family plan radios, specifically after promising not to raise rates. "It was only promised not to raise the base rate." Meanwhile service has suffered. The MLB package is the only thing that keeps me attached to satellite radio.

[MarvinisaLunatic 0]

Echostar is only interested in XMSirius for XM (not Sirius') satellites which they can use for their TV service (Sirius's satellites aren't in the right orbit). The question then becomes, after they dump off XM's satellites for Dish Network, do they only use Sirius' which would basically force everyone with an XM radio to buy new radios or do they just abandon sat radio entirely. My guess is they'll just abandon it all for good because A) everyone with XM built into their car is hosed and B) I doubt very few people will spend the money to buy a new radio for a service that no one would know what it would be like. Not to mention if you have 6 month (like me) or longer contracts and they file for bankruptcy, you're out your cash if you recently re-upped because whoever the new owner is doesn't have to honor any past contracts with customers and on air talent (ie good bye Howard, O&A, baseball, football, etc)

 

.

[EVIL~! alkeiper 0]

I doubt they'd dishonor a long term service agreement, that'd be seriously bad PR. Now if they CEASE operation, you're out of luck.

[Guest Czech please!]

Satellite radio was doomed from day one. It seemed like their entire business model was predicated on getting average shlubs to shell out money to hear decrepit old Howard Stern* say "show your tits" on the radio, and there's just not enough of a market for pay radio. It's a novelty and a luxury, much more so than pay television. Free radio, personal music collections, and podcasts seem to be enough to fulfill most people's drivetime entertainment needs. Maybe I'm just a radio romantic, but I still have faith in the medium's ability to reach people.

 

*It's time for a lot of these old jocks to move along. Steve Dahl fucked shit up thirty years ago, and by the time CBS fired him in September, he was just an old sobered-up middle-aged guy talking about where he went to dinner last night and the mild indigestion it gave him. That there's still a market for the greats of the 1980s baffles and depresses me. I know the old AM1000 produced some of the most entertaining and nationally influential radio programming in history, but I wasn't there for it in 1989. They shouldn't be there for me in 2009. They're washed up.

[Sideburnious 0]

It looks like someone bought 40% of the stock/ paid $540+mil. I'll find the article later.

 

Apparently the stock is up 90%.

 

 

 

I knew I should have bought stock in december *sigh*

[MarvinisaLunatic 0]

Liberty Media, 48% shareholder of Directv and operator of QVC and Starz.

 

I cant wait for QVC Radio on XM.

 

 

 

 

[BUTT 0]

*It's time for a lot of these old jocks to move along. Steve Dahl fucked shit up thirty years ago, and by the time CBS fired him in September, he was just an old sobered-up middle-aged guy talking about where he went to dinner last night and the mild indigestion it gave him. That there's still a market for the greats of the 1980s baffles and depresses me. I know the old AM1000 produced some of the most entertaining and nationally influential radio programming in history, but I wasn't there for it in 1989. They shouldn't be there for me in 2009. They're washed up.

Czech, you know you're my e-bud and all, but one of these days you're going to have to learn that not everyone on this board is from Chicago.

[Guest Czech please!]

I think Dahl was national for a while.