Sirius's problem: A niche business with broad market expenses

Posted Feb 16th 2009 10:40AM by Sheldon Liber
Filed under: Consumer Experience, Rants and Raves, Competitive Strategy, Motorola (MOT), Sirius Satellite Radio (SIRI)

It is being reported that Sirius XM is preparing for bankruptcy and this could be the week it happens.

After reading numerous stories about Sirius XM Radio (NASDAQ: SIRI) posted by my colleagues here and elsewhere, and tossing in my own two cents (see GM/Chrysler or Sirius/XM: Two losers don't equal a winner and Sirius and XM: Two losers -- A follow-up), I was pondering what, if anything, might have been missed by analysts and investors alike that has hurt the success of this company. It may be something as simple as misjudging the size of the market.

The idea is that Sirius has always been viewed as something that could have global reach and broad market appeal. I think the truth is that its highest praise has always comes from niche market customers. Therefore it has struggled because it has what amounts to a niche business that cannot pay for broad market expenses. This is not the only problem, but it is a critical one that has never been considered, to my knowledge.

To elaborate, many of the comments I received talk about how wonderful it is driving across the country and being able to listen to the same stations and to receive a strong signal. Except for truck drivers, that's a small market. Others have stated that in rural areas it is valuable. Also true -- also a modest market. Then there are those who speak about the variety of listening selections. That's nice but NOT enough difference to want to pay for it. Howard Stern may have high ratings but not across all segments of the market, he cost a fortune, and even he is getting tired.

The truth may be that, like Motorola's Iridium Satellite telephones that were popular with foreign correspondents, the Defense Department, and filmmakers with large budgets in far off lands, these services are just not needed at home. Why pay a lot extra, and in the case of Iridium, lug around a less-convenient sized phone? Most of the users did not pay for the Iridium themselves. It just could not compete against cell phones -- and Motorola (NYSE: MOT) was making those too.

In the major cities (i.e., major markets), there is plenty of variety, good reception, and it's free. Internet radio is growing rapidly, and that allows even more variety at less cost, in cars and everywhere else. So it could be that all this time the discussion has been misguided. SIRI has been spending and borrowing and spending as if it had a huge market -- but it doesn't.

Two years ago, when SIRI was about $3.50 a share, I wrote the merger was not going to help and investors should put their money elsewhere. Now it is 11 cents, and that too may be reduced to zero in the coming days.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not hold any position in SIRI.

Tags: featured, Iridium, MOT, motorola, satellite phones, satellite radio, Sheldon Liber, SIRI, Sirius, sirius xm radio, XM

Print this

Reader Comments (Page 1 of 1)

2-16-2009 @ 11:27AM

rw729 said...

The writer of this article has no idea what he is talking about.

2-16-2009 @ 12:47PM

ME said...

I think he does. We don't need to pay for all the extras, and everything that a company has to offer. Just like phone companies, with caller id, waiting, forwarding etc. This is all useless spending, and ways to get your money taken.

Actually, my investments are with very few. Instead, I trade on the forex. If you want to, and don't yet know how, you can go to http://forex-currencyexchange.com Click the top left corner if I remember correctly. All you have to do is give your name and email, then you can start practicing trading. (don't bother watching that useless video on the sign up page. After you sign up, you will have better choices of trading videos... if you want to watch any)

Who knows, trading on the forex might be something you have a knack for. I'm not saying to trade with the company with the simulator, because you will have to research if/who you want to trade with. But, practicing with their demo account will teach you much... it's very fun too.

2-16-2009 @ 1:27PM

Sheldon L said...

I am not in favor of Forex / daytrading.

2-16-2009 @ 2:24PM

tom said...

I don't believe the problem is the growth of subscribers. Revenue growth has been about as expected or better. Its purely a cash crunch as management misjudged their ability to refinance their debt. I believe the enterprise value (the present value of projected free cash flow) is north of 4 billion which would leave an extra billion above debt.
The new owners will do great.

2-16-2009 @ 7:10PM

william lindblad said...

Good point. XM & Sirius, while conceptually a great idea, do not have a large enough market to enjoy extended profits, especially in a "let go of frills economy". The same could be said for Dish/DTV if they were confined to rural only use. (there was one associated with DTV - Rural Tv coop? - they went under)
While this is a good point, I can give you an opposite. This is not in our time frame, but it happened non the less and in the same economic structure. How would you open a business today, sell only high end merchandise and survive, not only do this, but continue to grow into a major corporation? This occurred in 1893 which is the second largest depression (not by much) in U.S. history. The company was Lenox, the china maker, now group 66.
I only have a guess as the founder was a man of secrets, but he pulled it off and with the U.S. still on shaky economic ground, it reorganized in 1905 - as a major company.
That sums things up - timing and the right product - everything.
In 1934 Chrysler had the airflow - it bombed worse than the Edsel.
When they brought it back as the P.T. Cruiser it made money. Look at a picture of the airflow if you think I am joking.
Same can (or might) be said for XM/Sirius. They are in the same boat as trying to sell cable TV in 1952.
Now, if someone can come up with an effective inertia damper they will have a good market. Seems like many things are likely to be running into walls these days.