Wednesday, February 11, 2009

Code Blue for Satellite Radio

I've been predicting the death of satellite radio for awhile now (since 2005) but I thought it still had a few years to go.
It appears that I was being too optimistic.

News today out of the US has people speculating about possible bankruptcies for Sirius/MX in the states:
"Rival satellite radio companies Sirius and XM merged last year because of financial difficulties.

But Sirius XM has never made money and it's carrying a debt of more than $3.25 billion US.
In good times, it could manage the debt and pay high-profile shock jocks such as Howard Stern, who makes $100 million annually.

But now there's a deep recession and tight credit markets are hurting the business.
So maybe, in a better economy, they would survive but if the dot com bubble taught us anything it's that a company that has never turned a profit and is $3.25 billion in debt is probably not a good bet, even in good financial times.

It is true that Sirus and XM Canada are separate companies from their US counterparts and the CBC article says that they are considering merger again, but what chance do the Canadian companies stand if their US counterparts go under?

Sirius is currently a private company and isn't required to disclose financials but according to this the two companies between them have just over 1.25 million subscribers. If each of those subscribers pay $15/month that would give the combined company 225 million in gross revenue annually to operate, maintain satellite connections, market themselves and supply content to those listeners.

If the U.S. networks go bust that means that the American stations will go to. Howard Stern (one of the popular U.S. draws) alone gets a reported 100 million annually (as mentioned above) so there is no way the Canadian company would be able to maintain the US programming. Along with a reduction in the number of stations and the loss of US listeners, the Canadian company would be competing with Internet radio - coming this year to Canadian homes and soon to cell phones too. The home units for internet radio will cost more (for now) but will get more stations without a monthly payment and there are already a dozen internet radio applications for iPhone and iPod touch (again more stations without a monthly payment).

While Sirus and XM Canada may want to try a merger to see if they can scrape by Satellite radio is currently on life support and waiting for someone to decide whether and when to pull the plug. What remains to be seen is what this may mean for CBC Radio 3 which is currently offered on Sirius. Radio 3 is the best and most successful (at least since Zed) of the CBC's adventures in the world of new media but it is unclear what the CBC would do if Sirius went bust. (The CBC currently owns 40% of Sirius). The financial blow to the CBC of losing Sirius could make shutting down Radio 3 attractive to them, but Radio 3 is also one of the corps best online initiatives and is available on internet radio (that's actually the only way I listen to R3). Pulling the plug on it would also signal that the CBC was quitting the job of trying to attract a new audience or make the necessary necessary transition to the internet as primary outlet.

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