Storm Ahead for Sirius XM Merger

by Marta Kowalczyk February 16 2009, 01:33

I. Introduction  

            On July 25, 2008 the Federal Communications Commission (“FCC”) approved the XM Satellite Radio and Sirius Satellite Radio merger voting 3-2 to approve the deal without imposing many restrictions on the combined entity.[1] Critics of the merger asserted that the combination of two principal satellite radio companies would result in a monopoly.[2] The FCC recognized that the Internet age has revolutionized how individuals obtain and listen to music opening the market to a variety of competition.[3] However, the question remains whether the Sirius XM Radio merger will survive. On July 25, 2009, the day of the announcement of the merger, Sirius shares plunged 43% and XM stock declined 40%. Recently, reports indicate that Sirius XM Radio is preparing to file bankruptcy.[4] This article will analyze the state of Sirius XM Radio as well as give recommendations to Sirius XM radio on increasing revenue.  

II. State of Sirius XM Radio since Merger

              The combined entity Sirius XM radio when merged had $5 billion U.S. in assets.[5] However, shares from the merged entity have continued to plunge. The company is now carrying a debt of about $3.25 billion.[6] Sirius XM radio is attempting to refinance about $172.5 million of debt of its outstanding 10% Convertible Senior Notes due December 2009, and the combined entity is in talks with “others” to refinance their debt.[7] Those others include Liberty Media Corp. and also Charlie Ergen, the CEO of Dish Network Corp. and Echo Star Corp.[8] However, Sirius XM Radio issued a statement admitting that “if these transactions are not consummated, it may be forced to file for bankruptcy protection as early as February 17, 2009.”[9]   

III. Recommendations

              However, if Sirius XM Radio does receive refinancing of its debt, the combined entity needs to restructure their business model in order to remain relevant and successful during these difficult economic times.

              First, Sirius XM Radio should reduce operation costs. Sirius XM Radio should renegotiate its programming agreements.[10] For example, for the Howard Stern Show, Howard Stern is paid $100 million per year.[11] Also, Sirius XM Radio pays $60 million per year to broadcast Major League Baseball until 2010.[12]  Not only should Sirius XM radio focus on renegotiating agreements but also Sirius XM Radio should concentrate more on retaining the more popular and monetary successful programs rather than having a wide variety of programming. For example, programs with a limited audience should be cut in order to pay for retaining the more appealing programs to viewers that are profitable to the company. By refocusing their programming, Sirius XM Radio could cut losses by removing the less profitable and less viewer favored programs.

             Second, Sirius XM radio should change their model of being a purely subscription service. Sirius XM radio has relied on new car purchases as its source for customers.[13] Due to the economic climate, car purchases have significantly decreased.[14] Thus, the company should focus on other avenues of revenue. One example could be the Apple iTunes business model. Sirius XM Radio should allow for purchase of podcasts of certain talk shows or the purchase of song tracks through its website, like the iTunes model.[15]  Furthermore, instead of focusing on satellite radio service in new cars, Sirius XM Radio should allow the podcasts or song tracks to be uploaded to iPods or iPhones.[16] By broadening the accessibility of their satellite programming, this will increase revenue for Sirius XM Radio.

  IV. Conclusion

              Even if Sirius XM Radio does obtain refinancing of its debt, this will only delay the inevitable - the dissolution or takeover of Sirius XM Radio. Thus, in order to prevent this occurrence, Sirius XM Radio must change its business model to remain relevant in this competitive music market.  


[1] Olga Kharif, The FCC Approves the XM-Sirius Merger, Bus. Wk., July 25, 2008, http://www.businessweek.com/technology/content/jul2008/tc20080725_360276.htm [hereinafter Kharif, The FCC Approves the XM-Sirius Merger].

[2] Id.

[3] Id. Examples of competition include Web Radios, iTunes, and HD radio. Olga Kharif, Sirius XM’s Dual Concerns: Debt, Delisting, Bus. Wk., Dec. 12, 2008, http://www.businessweek.com/technology/content/dec2008/tc20081212_917411.htm [hereinafter Kharif, Sirius XM’s Dual Concerns].

[4] Anthony Castellano, Sirius XM Preparing for Bankruptcy, NBC NEW YORK, Feb. 14, 2009,  http://www.nbcnewyork.com/news/business/Sirius-XM-Preparing-for-Bankruptcy.html.

[5] Sirius XM Warns It May Seek Bankruptcy Protection Tuesday, CBC News, Feb. 13, 2009, http://www.cbc.ca/technology/story/2009/02/13/sirius-xm-debt.html?ref=rss.

[6] Id.

[7] Press Release, Sirius XM Radio, Sirius XM Radio Announces Exchange of $172.5 Million of Existing Convertible Senior Notes Due 2009 for New Senior Secured Notes Due 2011 (Feb. 13, 2009).

[8] Castellano, supra note 4. “Liberty Media Corp. owns DirecTV, a satellite TV company.” Id.

[9] Press Release, Sirius XM Radio, supra note 7.

[10] Kharif, Sirius XM’s Dual Concerns, supra note 3.

[11] Castellano, supra note 4.

[12] Sirius XM’s Dual Concerns, supra note 10.

[13] Press Release, Sirius XM Radio, supra note 7.

[14] Kharif, Sirius XM’s Dual Concerns, supra note 3.

[15] Id.

[16] Id.

 

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