Harry’s post earlier today regarding the possibility of a bankruptcy filing by satellite provider Sirius XM should come as a shock to no one. In fact, the news reminded me of a story I wrote back in August of last year for BetaNews that essentially warned of significant financial problems for the company.
At the time, Sirius XM CEO Mel Karmazin admitted to reporters that the company was not in the best of financial health — including to Bloomberg TV that same day. Essentially, the company had just taken on unfavorable financing terms for debt, which would put $1 billion in debt repayments due this year.
For almost any company, such a large amount of money would be quite painful to repay. For Sirius XM, it could be deadly. It’s stock price has fallen from about $1.50 at the time of that story to only 6 cents now. Add to this a sagging economy, and apparently slow growth, and the company does not have much money to work with.
The company up until recently had seemed to argue that it was fine and would survive its debt issues. But reality has set in for Sirius XM. It is not in good financial shape at all, and never has been. The chickens have come home to roost, as they say.
Sirius XM’s problems are probably most damaging to Mel Karmazin. Up until Sirius he had great successes in turning businesses profitable. This time, there are just too many problems with the way the satellite radio business has been structured for it to be turned around.
Raising your rates is not going to solve the problem either: if anything, its going to drive folks away. Also with the quality of service dropping — from audio artifacts and cut-outs in the broadcast to questionable programming decisions and service reductions — Sirius XM may have very little time to turn itself around.
What is next? The loss of signature content like Howard Stern or sporting events? More rate hikes? More cuts in programming so that the service sounds even more like FM than it already does lately?
I ask then, what is the point of satellite radio? Might as well go to streaming media via 3G, as Harry has repeatedly suggested.
Could it come down to Sirius being bought out by someone like EchoStar? It may have to: it owes about $575 million in debt repayments to the company, $175 million due next week, and another $400 million due in December.
The Wall Street Journal is reporting that — but it looks like Mr. Karmazin is resisting. Sir, I hate to say it, but you may have no choice, you’ve had your chance. Declaring bankruptcy would open the company up to possible shareholder lawsuits, while a deal with EchoStar may keep the company afloat.
In the meantime, I think for shareholders sake, Sirius XM needs to be honest and forthcoming with us all about its financial health. After the way it handled its channel merge, I just get the feeling that this company either does not understand how, or does not want to communicate with its customers.