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Sirius Satellite Radio Inc. (NASDAQ: SIRI) Chief Executive Officer Mel Karmazin seems exasperated that the Federal Communications Commission has yet to rule on his company's merger with XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) which was filed more than a year ago."We share the reasonable frustration that many of our investors feel regarding the time it has taken," said the loquacious CEO during yesterday's earnings conference call (via SeekingAlpha). "We also share the outrage that some have expressed to me regarding press reports of opportunistic parties trying to take advantage of the process and extract value for themselves that properly belongs to SIRIUS subscribers and shareholders."
Karmazin has a point. The FCC review of the satellite radio merger has moved at a glacial pace because of the opposition of the terrestrial radio industry which figures that any medium that employs Howard Stern needs to be stopped at all costs. As yesterday's earnings report indicates, the industry is not big enough to support two companies.
Sirius reported a first-quarter net loss of $104.1 million, or 7 cents a share, narrower than $144.7 million, or 10 cents a share, a year earlier. Revenue rose 33% to $270.4 million. The results, which matched Wall Street expectations, were helped by a drop in SAC per gross subscriber addition to $91 in the first quarter from $101 a year earlier. The company ended the quarter with 8.64 million subscribers, up 31% from a year earlier. Average revenue per subscriber was little changed at$10.42,
The results at XM were worse. The Washington-based company had a net loss of $129.3 million, or 42 cents, on sales of $308.5 million. Janco Partners analyst April Horace told Bloomberg News that "the company is retaining more customers after a free introductory period and is putting its radios into a bigger variety of vehicle models."
Good thing too since subscriber acquisition costs rose to $73 in the quarter from $65 a earlier. Conversion and churn rates both improved year-over-year, according to the company's earnings release.
My colleague Douglas McIntyre, like many observers, is pretty pessimistic about the merger, writing "It is now too late for the proposed merger to do either company any good, so, the merger has fundamentally failed before it was consummated."
I am not sure I would go that far but I agree that satellite radio at best is a niche medium with an uncertain future,
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Reader Comments (Page 1 of 1)
5-13-2008 @ 8:11AM
Dominick LaViola said...
Crunching the numbers this a.m., cash flow break even will occur with the addition of another 4 million subs a piece as stand alone companies, or approximately 1 1/2 - 2 years from now. Maybe a little less as oem ramp up installations and the pre-owned plan take effect..
With the merger however, cash flow break even is almost immediate.
Using round numbers with sirius. 100 million loss per quarter is 400 million per year. At 120.00 a year in per sub revenue, sirius needs 3,333,333 subs to cfbe, if all other revenue streams stayed the same. xm will obviously need a lot more as their losses grow.
Make no mistake that it will happen with or without a merger. Obviously sirius is on the right path to prosperity....just a matter of time.
And the terrestrial radio lobby knows this...and more. A recent chip patent allows for satellite radio to be dually broadcast as commercial free and simultaneously ad supported. The only slowdown is the rate at which auto manufacturers can get it into their vehicles.
Hardly a niche market...more like the future of radio. The NAB would not be paying off politicians to the tune of millions if it had nothing to fear.
5-13-2008 @ 8:00AM
Bill Benson said...
This arcticle is factually inaccurate, and just plain not true. It's a good example of what Mr. Karmazin is speaking about. If you doubt "Mr. McIntyre's" knowledge on the subject, you should try Sirius for your home or car (YOURSELF) and you will see that it really is an excellent prouduct. Or simply ask anyone else who has it.
5-13-2008 @ 8:19AM
Matt Miller said...
This delay by the FCC underscores that Kevin Martin is a bureaucratic incompetent that should be relived of his duties.
This malfeasance doesn't cut it in the private sector. The American public deserves better.
Fire Kevin "Brownie" Martin and end Katrina II.
5-13-2008 @ 8:59AM
Jim Kamp said...
The FCC is really a disgraceful organization. Somebody needs to fire all the top heads of that
organization, and restore some respect to that organization.
5-13-2008 @ 10:14AM
Abbottpark said...
This deal will get approved in June with conditions. Sirius will not like all the conditions and it will end up in court. After the all the lawsuits and appeals are exhausted the company will definitely be sold to somebody like Directv. So in the long run it will be a good stock to own.