Is Sirius XM doing enough to save its business?

Quite a bit has happened to satellite radio over the past year. First, we had two companies vying for your dollars and then, in a ridiculously long merger process, the two companies finally became one.

Since then, the new Sirius XM has tried to find its footing in a world where terrestrial radio still reigns supreme and advertising dollars aren't floating around as much as they did last year. And to make matters worse, the company is forced to pay Howard Stern $100 million per year on a total subscriber base of about 19.1 million by the end of the year -- not the kind of numbers that would attract advertisers, let alone shareholders.

Following that, we can't forget that the company's share price is at a woeful $0.26 and $1 billion in debt is coming due in 2009 as the company posted a huge $4.88 billion loss. Sirius XM is working on refinancing and recently reduced a $300 million note to $210 million, but its troubles persist.

And although it sounds like the company is facing enough issues already, this whole discussion has left out an important piece of the puzzle: automotive sales are declining at a rapid rate, there are no signs of that slowing down next year, and America's three major car manufacturers -- Ford, Daimler-Chrysler, and GM -- are hoping the U.S. government will bail them out. And considering most people listen to Sirius XM Radio in the car, the company is feeling the effects.

So what can really be done? Should Sirius XM dump Howard Stern and other prominent radio personalities and stick to music? Should Sirius XM call it a day and try to sell its operation to the highest bidder? Or should Sirius XM forge ahead with its current strategy and hope against hope that everything will be OK?

To answer those questions won't be easy. But at this point, I simply don't know how Sirius XM can survive unless it does something drastic.

Satellite radio is probably one of the best technologies to come out of the industry in quite some time. Clear Channel and the rest have presided over radio for so long that it was becoming boring and they were becoming complacent in their programming thanks to no competition.

And while I hope Sirius XM will turn things around and emerge from its troubles with strong profits, I just don't see how it will. Its stock price continues to slide with each passing day as investors lose what little confidence they have in the company and its debt keeps piling up.

Sirius XM's CEO, Mel Karmazin believes that by refinancing the debt and maintaining a relatively stable operation over the coming months will help Sirius XM stay afloat and eventually turn a profit, but I'm not so quick to agree. I think something more radical needs to be done in order for Sirius XM to truly turn things around.

Some have called on the company to end Howard Stern's contract and make the service offer just music, but I think that's ridiculous. Why waste talent or give popular talent to competitors? It doesn't make any sense.

No, I think the best way to fix Sirius XM may be counter-intuitive to some, but I think it makes sense given the climate we find ourselves in: drop the price of subscriptions by at least 20 percent for the next year.

I know that that may sound radical to some and given all the issues with debt the company is facing, possibly reducing revenue may sound like a problem, but I think the major issue facing Sirius XM right now is that most people who consider subscribing to the service simply don't see a reason to pay each month for access to radio, since they've been weaned on free radio their entire lives.

I should note that subscription pricing should only be cheaper for new customers. Existing customers are a fine source of income and there's no reason to reduce revenue on those that are likely to keep using the service. But for new customers, they should be able to use Sirius XM for the next year at a rate that isn't nearly as high as $12.95 per month. Sure, that may be cheap for some, but for those that already enjoy free radio, why would they want to forgo that money each month in an economic downturn just to hear the same music with no commercials?

By dropping the price of new subscriptions, Sirius XM can solve two issues: how to coax new users to pay the company for the subscription and how to maintain a relatively strong revenue growth rate during an economic downturn.

Upon dropping the price of new subscriptions, Sirius XM may become a more attractive target for holiday shoppers this year. With prices on radios that are relatively low -- you can get one for as little as $39.99 -- paying as much as $10 every month isn't asking too much from customers that had heretofore decided satellite radio isn't for them. And in the process, Sirius XM will be able to maintain the same basic revenue level on existing customers and increase the number of subscribers to an even higher level than if it charged its current rate.

There's not much hope for Sirius XM unless the company can find a way to turn things around. Maintaining status quo isn't going to do it. But if you ask me, a well-publicized drop in pricing could make a difference.

At this point, it's worth a try.

Check out Don's Digital Home podcast, Twitter feed, and FriendFeed

[RobinQueens]

Don, I have XM, if you add sirius favorites , they jack up the price by 1/3 . They have begun getting rid of some channels that are more or less the same on both services , they mostly picked the sirius version of that channel,for example classic rock on XM is now sirius classic vinyl, which IS better,
There are more changes as well. but I dont want to get into all the details , that's what they get paid to do P
Nonetheless, they do have issues, and I hope they not only improve the bottom line, but also improve the sound quality to near HD radio quality, as it stands now, the sound is average at best, and that has little nothing to do with signals from satellites.

[deeskwared]

Brilliant insight into recession economics... I would actually suggest an even lower rate of $99 per year, available to new subscribers as well as for subscription renewals. What actually does it cost to add a subscriber into the system? There is the administrative cost of physically permissioning the receiver in their database, which takes a human at the present; then, there's... well, NOTHING. It costs no more to have a billion subscribers than to have a million subscribers. The economics of consumer spending is rather simple really... the increase in sales for any given item will equal the square of the difference in price. For example, for every N-number of sales for Zizzwatts @ $10 each, there will be N-squared sales of the same Zizzwatt @ $5 each, assuming equal quality and demand, and of course limited by market saturation as a ceiling.

I salute your insight into the process... amazing a company of that size can't afford better economic strategists, eh?

[Grumpypaul]

Perhaps it's time to ship Stern to Mars where he and all the other overpaid spoiled "DJ's" belong. $100 Million a year is an absurd amount of $$ in any currency. No entertainer/performer/sports person is worth that kind of money. The greedy station owners who are fed by the equally greedy advertisers (actually we pay for the products to underwrite those advertisers) have driven up the ego driven salaries paid to many TV, radio, music, and movie personalities. We have advertising where we've never seen it before and will have it in even more previously private locations in the future. It's bad enough we have to sit through as much as 30 minutes of advertising in the prequel to a movie. I can see the future when a recorded message will try and sell you Coke or Pepsi prior to you starting your car!

While removing Stern, Opie and Dopey, and any other namby pambies from the air, or at least scaling back their salaries to maybe a "paltry" $1M a year, SiriusXM might make it. Otherwise they're going the way of a raft of other "great" ideas that just didn't pan out.

[Renegade Knight]

It's a good start. There are plenty of other talents that I'd not mind listening too. What the heck was Wolfman Jack paid in his ear? You would think they could find some hard working eager and good DJ's who need to make their name. They could build a channel around the fresh ones and run it like "America's next top DJ".

[dlstough]

My problem with them is I don't use my account all the time, so if I deactivate a radio, and want to reactivate it later, I have to pay their activation fee yet again, I don't like paying multiple activation fees for the same radio.

Also, to be perfectly honest, Sirius XM sound quality or lack thereof, just doesn't justify paying for it IMHO.

[nitrobassett]

After the changing and rearranging of the stations over this last week, I feel Sirius XM is a sinking ship. They have really POd a lot of original XM clients with dropping music format that were important to them. They have went to a sirius music format that has a smaller playlist, which has resulted in a repeating playlist. I have heard the same song played on the same station 4 times in 3days, this was unheard of in XM's day.

As a Xmer for the last 5 years I am close to canceling my XM account. The station that I used to listen to on the XM format has been replaced with water down music and DJ's dropping the F-Bomb. I can no longer play this music at my office. It may be good by for me.

And a 100mil for Stern, come on! If Howard truly cares about the future of satellite radio he would redo his deal and take 1/2 of that.

Doug

[neowolfwitch]

I was an "early adopter" of Sirius, and have been a fan for years.

I'm not really happy about the merging of content they did in the last week. I listen to music stations for music, and they seem to have increased the amount of gab from DJs now. I have to assume XM had more DJ talk on their stations, although I've never heard anything on XM up to this point . They also eliminated several of my favorite stations, although I am slowly finding alternatives. I was more pissed off that the dramatic changes they made ended up screwing up the presets I've had for a couple of years now.

One thing I do like is Sirius used to only have an "All you can eat." plan- all of their channels for one price. Now that they have merged, I was able to pick a "Mostly Music" package that costs $5 less/month. They STILL don't have traffic for where I live (Denver), and I wouldn't listen to Howard Stern if they paid me. In a way- they are paying me not to. :)

I do hope they are successful, as terrestrial/local radio needs to die. I swear for most local stations it is ten minutes of commercials and DJ gab for every five minutes of music. The only place I actually listen to local radio is in my shed/workshop, and I'm seriously considering getting another dock and antenna so I can move my Sirius system in there when I'm working.

[AndrewRich]

How to save its business? I can only speak to whether *I* will continue as a subscriber, and that is entirely dependent on whether S/XM manages to fix the awful mess they've made of my favorite XM stations in the last couple of days. Fred/Ethel/Lucy gone, System gone, Chill and BMP reduced to pathetic imitations of their former glory. Cinemagic gone. I have several months left on a one-year contract and if there are no changes, will not renew.

[AppleSuxLeo]

Get Serious...HD radio is free. And free is good in a sour economy.

[BillyBobbbbb]

Even in a good economy I'll pay a little to escape those gawdawful long strings of commercials. YIIIIkes!!

[davidwb45011]

I have 18 months to go on my subscription and I'm neither entirely happy nor unhappy with the merge. I lost a favorite station and picked up two I like. But 18 months into my first experience with satellite radio I'm no longer convinced it is such a great deal. I think I'd be better off with an iPod, the iTunes Genius, and Pandora to find new music.

[KingofMPHS]

Personally, I think that Sirius XM is a sinking ship. Many Sirius customers are just as angry over this merger as some of our stations have been done away with as well. I've seen a lot of complaints over the demise of Sirius Disorder, but I'll speak on the more urban stations since those are the ones I listen to most.

They got rid of Hot Jams and replaced it with a station called The Heat. Only problem is...The Heat plays CENSORED music. I'm not paying these people to give me a station that I can listen to for free on FM. Backspin has been done away with completely which is ridiculous. If you're a fan of old school/90s rap/hip hop, then you're SOL. Also, I never got over the retiring of my favorite station, Slow Jams 52 which has been gone for 3 years or so. And of course, since it played some songs that I have NEVER heard anywhere else, there are some that went away forever with that station. Maxim Radio. Gone. Surprisingly, Covino & Rich survived although they're as corny as corny can be. Foxxhole Radio has jumped the shark because they bombard listeners with Bud Light ads and plug them every 5 minutes on the show. Everyone that was not an original member of the show is annoying. Most of the comedians that get played are NOT funny. The musical selection is horrid and we're flooded with Jamie Foxx songs and he happens to be the most mediocre singer I've ever heard. Nothing special about him at all, but people swear he has talent. While listening to Shade 45 one day, I heard one personality complain that the powers that be are too tight with the playlist. But there's always room to add AC/DC, Grateful Dead, and E-Street Radio. The hip hop/R&B channels have essentially been reduced to terrestrial radio with cussing. Not worth it for me. This is an expense that I'll gladly cut from my budget.

I'm letting my subscription expire next month. It's time to get reacquainted with my Ipod and CDs. I'll let them know how displeased I am, but I don't expect them to do anything about it. It's going to be tough for them to right the ship after alienating subscribers on both sides.

[Quemannn]

There's no more Daimler/Chrysler.
More importatly, satellite radios won't be a successful business model, the way wireless technology evolves. I wouldn't pay a dime for any satellite radio subscription for now.

In-dash navigators are most likely to take center stage on vehicle dashtop. In South Korea, vehicle navigators are equipped with DMB mobile TV options, an indication that USA will see the same thing in another 3 to 5 years. Nobody's going to opt for paid satellite radio subscription, when mobile TV is available on the dashtop.

[CopeFuture]

I can understand why people would be pissed if they lost their favorite channels. Although, I did not. I on the other hand I was forced with the subscription of XM by buying a new car. Being a long time Sirius fan, I wasn't too pleased. So, in all fairness, you win some, you lose some. And get Howard Stern off the radio. I can't believe people wanna listen to someone that puts their worth on a 100 million dollar a year level. If you like Howard then listen to Jason Ellis and you'll understand what an entertaining DJ sounds like.

Satellite radio is now a huge monopoly and in time will be a new dream home for smart investors. With almost every new car comes a subscription or capable radio that will play satellite radio. They market it by giving it to you for free for the first few months. You get use to it and a smooth 12.95 will easily be debited from your account every month. And you wont get upset because every time you get in your car you can listen to exactly what you want.

[chorne01]

As their cash crunch continues and YOUR favorite channels start disappearing, I wonder if you'll be so forgiving. The way they handled this changeover stinks to high heaven.

[gbpgh]

Has everyone forgotten that Sirius was at 600,000 subscribers before Stern? Lets say that we give a small figure of 3,000,000 listeners joined because of him. At $13.00 a month , that is 39 million dollars a month he brings in without adding the advertisement money. 468 million a year. Pretty big return on their investment.

That being said, Sirius XM will fail when he retires. They failed to find a good replacement. In fact , I really do not think that there is really anyone in the entertainment industry that can bring people in to pay for what is a free service each and every month. Sirius XM failed to educate potential buyers on how to set up their service. It looks simple now, but how many felt it looked hard to set up. The radios tend to break also. They do not make it user friendly and to get their service, you need to really want it.

[GetSerious]

I agree that the subscription rates need to come down, WAY DOWN. Face it, there are zero incremental production costs to add an additional subscriber, therefore any money received from a new subscriber is pure profit. Since I only listen to the radio occasionally, the cost has to be low enough to make me tune out the commercials and tune in SiriusXM. For me, that's about $5/mo. -- which is still $60/year more than SiriusXM is getting from me now. It's an end-sum game. SiriusXM can continue trying (unsuccessfully, it seems) to milk big bucks from a few yuppie subscribers, or they can have a few bucks each from tens of thousands of people like me.

Another piece of advice: Get rid of high-maintenance prima donas like Stern, or charge more to the vacuum-heads that want to listen to them.

[GetSerious]

Apparently I can't edit my submission, so I'll post the correction here. I underestimated the number of subscribers, so let me change the order of magnitude to "millions of people like me." The point is still valid -- I think there would be a huge increase in demand at a significantly lower price point.

[BillyBobbbbb]

I think they did a good job picking the best out of both services. I subscribe to both, and as to why I pay for radio?

For one thing I can escape those mind-numbing, annoying commercials that seem to drag on and on, as Sirius-XM has NO commercials on the music channels; also, I get a dizzying variety of programming choices, many having name-brand, marquee value converstation, talk and news, and specialty music channels, nearly all of which are quite intersting; also, when I travel out of town in my car (which I do very frequently) I can enjoy the same programming in near-CD quality audio.

It?s radio for people who care about quality and choice. The phrase that sums it up for me: You get what you pay for.

[livewireinc]

I will never go back to radio unless Sirius XM goes under.
Why get SAt radio and pay?
1. NEVER hear commercials at least while listening to music
2. Variety of programing you wont find elsewhere. NO FM radio i know of plays the music you hear on sat radio. I get the decades channels. I love the 40s channel no where else can i listen to 40s big band and then seriously sinatra i get lots of Frank. 80s i get a channel that is 80s 24 7 its great.
3. anywhere you go you have the same station. Nothing i hate more then traveling and having to hunt a radio station. No matter where we go on vacation or travel for work i get my stations.
4. variety, i get music of all kinds, news, traffic and weather for my city (if its in your city) comedy radio and more.
5. I dont have to listen to stupid Djs who talk for 10 minutes then another 15 minutes of commericals every hour. Dont get me wrong i hate musak there needs to be some DJs but keep it limited.
5. So you pay $12 a month to have sat radio. and your upset because thats expensive? So if $12 makes that big of a deal to you that your worried about losing your house or something over it. Dont eat out 1 time or eat 1 less pizza a month there is your $12. Or maybe you should rent 2 less DVDs from blockbuster. I can think of hundreds of things to do in order to pay $12 a month and never listen to commericals again.

I think they could call all trucking companies and tell them if you put our radios in all your trucks we will give you some special deal to all your drivers. Either get the trucking company to pay for it or if the radio is already in the truck the driver would be more willing to subscribe. Or give them a trial for 60 days or something.
Then work out a deal with delivery companies to get the radio in the cars.

i dont understand people and getting upset over paying $12 a month to never have commercials

[SnittyKitty]

My 1st piece of advice to Sirius XM's Music Channels - No commercials, no promos, no anything. Straight music, period. Artist and song information is provided via the text on Sirius' and XM's respective radios. Next, three words, "A La Carte". Sirus SM is to pay Sterns $100 million a year, have listeners pay to hear this guy. Same for the NFL, MLB, PGA, NHL, NASCAR, Oprah, Playboy, etc. I don't get $12.95 a month for everything and $9.99 for all music and $9.99 for all news, talk & sports. I agree with Reisinger, lower the price, but create different tiers and packages. At most, I listen to 12 channels and that's about it. Do we really need 170 channels? I don't need Boston traffic in Auburn, AL thought I might need Atlanta, GA. Why not offer this as a package for $0.50 each city? Jesus Christ, how many rock stations do we need? How many country stations do we need? Give me 12 channels, charge me $5.00 and you will have a customer for life; give me 200 channels and charge me up to $16.99; where does it stop? It wasn't that long ago it was $9.99.

[SkydiveGuy]

I have been a subscriber since March 2004 and love sat radio.
I decided on XM over Sirius for a couple reasons. Once reason (and most importantly) was the playlist XM offered. The second reason was the $9.99 per month price tag.
Well, needless to say, I was NOT happy when XM raised their price per month from $9.99 to the current $12.99, but what bothered me was not the increase in price (which I figured was bound to happen anyways) but rather the sharp (30%) increase in price.
If my cable bill went up 30% (that would raise it from it's current $150 to almost $200) I would drop cable.
While reducing the price has always been what I thought would save sat radio, keeping the current subscribers at their full rate is B.S.
When cutting costs in a tight economy, most current subscribers will immediately drop their $156 a year radio subscription to free up a little cash.
Maybe a free radio with a subscription (like wireless companies offer) would also be a better business model?

[chorne01]

So, aren't you angry at how many XM channels were cut in favor of more mainstream Sirius channels?

I love Howard Stern but for 100 million he does pay the production costs for his show.. What angers me is when he was on terrestrial radio he was on 5 days aweek but now he is on 4 days a week and he is on for 34 weeks per year. the rest of the year are weeks off for vacation.
Now that is some deal and I will bet when his contract is up in 2 years he will want more money and will not settle for less. He will be gone in 2 years..

I love Howard Stern but for 100 million he does pay the production costs for his show.. What angers me is when he was on terrestrial radio he was on 5 days aweek but now he is on 4 days a week and he is on for 34 weeks per year. the rest of the year are weeks off for vacation.
Now that is some deal and I will bet when his contract is up in 2 years he will want more money and will not settle for less. He will be gone in 2 years..

[crswerd]

As a shareholder that is obviously losing everything at this point would like to see "new contracts" written for Stern. That's a ridiculous amount to pay for a stupid talk show host that basically discusses the same thing over and over, year after year. Its old now! Hes not worth $100 million a year and would like to know who else would pick him up? Let him go, its the music and sports that most are paying subscription fees for sat. radio.

I also feel the money is in the subscription and not the units. If the company were to supply receivers at the actual cost to produce so no money is lost to consumers, they would make up their money in subscriptions. Its like the early 80's and VCR's. The money was in the rentals, not the machines. FIX IT PLEASE!

[everettc]

Quite honestly I didn't mind paying the subscription cost for XM and I'm not a person that throws money around. Unfortunately, the new lineup deleted ALL the stations that compelled me to purchase several sets and a couple subscriptions. It was also quite a shock because I had no idea it was coming -- pretty rude for a company in the communication business.

Now I'm back to considering my alternatives. All though I can't be sure of the number of subscribers that feel like me, it strikes me that the change was pretty ruthless and may be the nail in the coffin. If the current subscribers drop out and the new subscribers get even cheaper deals then Sirius/XM is going to have a real fight to regain revenue $$.

The new line-up seems pretty mainstream for my tastes -- the kind of thing I can get for free on FM or easily download if I'm interested. I'm just not sure people are willing to pay for a few less commercials and take the risk that the execs will pull the plug again and drain off the music they paid for.

[chorne01]

agreed!

[jhnwats]

Please sign the petition regarding the XM change to Outlaw Country. Already 1300 as of this post.
People just want what we've paid for, not a lot of talk and blatthering on about their opinions.
Also, the music isn't near the quality. They say they will bring back some XM progarmming to this station but it they can't change it enough to satisfy it's loyal listeners. Add another alt-country station that doesn't have "famous" DJ's and we'll keep our subscriptions...or we're all gone!