October 14, 2008, 11:38 am
The Future of Sirius XM: Playboy and the Pope
Posted by Heidi N. Moore
You can understand if investors in Sirius XM Radio are in despair. After all the company’s shares look more like a penny stock than the shares of the second-largest U.S. audio company–created by the combination this year of Sirius Satellite Radio and XM Satellite Radio Holdings. Shares were trading at 54 cents in midmorning trading–and that was a 6% boost from Monday’s close.
For CEO Mel Karmazin (left), that means it is time to sell, sell, sell–not the shares, but the company’s prospects. At the Dow Jones Media and Money conference this morning, Karmazin talked up Sirius XM’s future as a content company.
And what kind of content? In a classic Karmazinian juxtaposition, the CEO crowed, “We have 24-hour-a-day Playboy Radio, we have a 24-hour-7-day-a-week Catholic Diocese channel…” Interesting synergies that.
The rest of Karmazin’s time on stage was spent on the hard sell. With analysts questioning Sirius’s ability to meet revenue forecasts and the company having agreed to offer a la carte pricing as a condition of the merger, Karmazin made his case for the full-subscription model (currently $16.99 a month at Sirius XM, with a la cart options starting at $6.99 a month), saying a full subscription was a way of guaranteeing options. “We consider ourselves a content company,” he said, reminding the attendees of the power of Sirius-only broadcasters like Howard Stern. “People can listen to commercials on radio, or pay us 43 cents a day.”
Karmazin acknowledged analysts’ skepticism about Sirius XM obliquely, by mentioning, near the end of his interview, how the company needed to increase its free cash flow.
But he saved much of his ire for competitors such as HD radio and Clear Channel Communications’ mammoth terrestrial radio network. In Washington, there has been talk of requiring car makers to install HD radio gear as an alternative to Sirius XM. Karmazin scoffed at the idea, which he said would drive up car prices.
Karmazin’s sales job was lost on no one. Wrapping up the interview, his interviewer concluded, “Well. You’ve made your pitch.”
That pitch might have been better served for the credit markets. That is because the company has $1.1 billion in debt to be refinanced next year, and Merrill Lynch analyst Jessica Reif Cohen wrote on Sept. 29 that the real fear around Sirius is that it won’t get the three debt deals done. “Investors are currently pricing substantial risk that SIRI will be unable to refinance ‘09 maturities, potentially forcing a restructuring,” she wrote.
“I wish the debt market wasn’t what it was,” Karmazin said today. “It’s very challenging, but we’ve been talking to our debt holders and I’m confident we’ll be able to work something out.”