This gets down to the classic argument about whether a company should do what is right by the consumer first, or do what is right by the company. In an article published by John Paczkowski of All Things Digital, he seems to be critical of the company for making moves that have alienated some subscribers because they have lost their favorite channel in a recent channel shuffle in satellite. The changes were brought about because of the merger.

Paczkowski is critical of this comment by Karmazin:

“We’ve gotten hundreds of people who hated it and claimed they were going to cancel. So we’ve analyzed all the cancellations since the rationalization…. If we took the most aggressive number of people who canceled and we take that away the $120 a year they pay, it doesn’t get to a $1 million as compared to the significant amount of cost savings as a company that needs to make money…. You as a subscriber, though you may miss your channel, need to make sure we make money because you want us to be around so we can invest in programming and we can provide you with all these services.”

Certainly if you are a consumer, you will be ired by the comment. However, if you are an investor, such news would be welcomed with open arms. 8,000 cancellations at a cost of less than $1,000,000 to realize substantial savings in duplicate content, duplicate program directors, duplicate dj’s, and duplicate supporting staff.

Given the numbers, I can’t blame the company for making the move. While fans of specific channels may be upset, there is a fine line between the types of programming a company such as Sirius and XM should put on the air vs. additional programming that acts like a “loss leader” (a program that costs the company money relative to the revenue they derive from it.

With Sirius’ music channels, there is no advertising revenue. This means in point of fact that each and every music channel actually costs the company money to broadcast. The hopes of the company are that enough subscribers will pay a monthly subscription fee that will at least offset the programming costs and hopefully deliver a profit. The problem is that the company has never made a profit. Thus, changes need to be made.

Paczkowski takes Mel’s comments to mean that the channels are gone forever, and that consumers should pony up the dollars to the company even though they do not have what that particular consumer wants. I disagree. Mel was being pragmatic. He was basically stating that he needs to get the company to profits before allowing for the luxury of more niche type programming that has a smaller audience. In other words, when the company is profitable, they will better be able to consider additional programming. A long term investor actually hopes for the day that a “wind chimes” channel exists.

This is not to say that Sirius and XM were budget conscious a few years ago with some of the high priced talent they brought on. Indeed, they were. Part of the reason was the competitive landscape, and another part was that they needed to bring in big names to spread the word. Rest assured, now that the bottom line is a bigger focal point, some of those big names will fall by the wayside. Maxim Radio is no longer a deal that costs money. There is no longer a Maxim channel. Instead, it is a show, and the dollars going out the door to Maxim no longer exist. XM made a similar move prior to the merger in their deal with Starbucks. The branded channels cost the company money.

There are those that are critical of Mel for not saying anything, or saying things that frustrate one person or another. Get used to it. The days of trying to satisfy everyone all of the time are gone. The company needs to make money. Satellite radio is many things, but it simply can not be all things to all people and continue to exist. The growing pains need to happen. Investors have had to bear the burden, now some subscribers will as well. It simply needs to happen.

Sirius XM Radio needs to get leaner to get stronger, and that is what is happening. The survival of the medium is at stake, and even without your favorite channel, odds are that the service is still better than the alternatives. Like it or not, satellite radio has to have a better mass appeal before it can add back some of the less popular programs.

[All Things Digital]