"Let's try something different," I wrote last week. "What will it take to make Sirius XM Radio a winning investment? The question isn't rhetorical. Kick in with your thoughts on what can turn things around for Sirius. I'll be back in a few days to go over some of the best responses."
You certainly chimed in, nearly three dozen responses deep. As promised, I'm back to go over a few of the more compelling responses. With shares of Sirius XM Radio (Nasdaq: SIRI ) hitting a new all-time low this morning, I think we better get started on righting this ship before it's too late.
Show us the money, Mel
Time for Mel to move fast with the new financing structure and not general statements that he is confident it can be done. Investors are not as confident, will it be done and how?
Definitely. Sirius has three debt repayment milestones to tackle next year, and they're all huge.
- A $300 million Sirius convertible is due in February.
- $350 million in XM bank debt must be repaid come May.
- A $400 million XM convertible is due in December.
Until the company secures the funds to clear all three hurdles, the market is going to fear the worst.
Ad it up, Mel
Some factors I have never heard being talked about:
1) Double the satellites (post-merger) = double the bandwidth! More TV channels, and how about Internet capabilities? Mobile hotspot anyone?
2) Marginal increases of the ad revenue dollar -- 10 million subs is nothing to shake a stick at but 20 million will grab the attention of advertising heavyweights.
Doubling the bandwidth will become a greater selling point once interoperable receivers come out, capable of receiving both XM and Sirius. For now, the company is limited to offering up a sliver of the more popular channels from one service on vacant channels of the other as a smart upcharge service. Since the company can't replace the roughly 19 million hamstrung receivers already in the market that can only receive XM or Sirius, it will be limited in its upgrade.
The ad revenue potential is an even bigger head-scratcher. As an old-school radio guy, CEO Mel Karmazin should know how to milk ad revenue from broadcasting better than just about anybody. It hasn't happened here. In fact, it's actually going the other way. In the second quarter, Sirius ad revenue per subscriber clocked in at a measly $0.32 during the period. It was at $0.45 per member a year earlier. Naturally the commercial-free music channels are a big draw to premium radio, but if Sirius XM is going to sell ad space on its other content channels, it really needs to get on the ball here.
Is it a tough environment to smoke out sponsors? Sure, but even Six Flags (NYSE: SIX ) has been able to milk more out of turnstile clicks by generating more ad revenue. It can even brand its commercial-free music channels the way that XM once did with Starbucks (Nasdaq: SBUX ) , only this time with some real money flowing in the satellite radio giant's direction. Now that XM and Sirius are closing in on 20 million subs, why can't specialty retailers like Hot Topic (Nasdaq: HOTT ) or Zumiez (Nasdaq: ZUMZ ) sponsor an alternative rock channel? Pick any of the dozens of commercial-free channels and I'm sure you can come up with several potential naming right opportunities.
In with the new
With an extremely aggressive marketing/advertising campaign, the XMp3 could easily be perceived as the MUST HAVE tech-toy gift for this holiday season for baby boomers.
A hot new product can certainly kick a company out of the doldrums. The way that XM and Sirius have struggled outside of the car dealerships in moving new receivers, a retail hit would be huge.
XM and Sirius have put out promising portable players like Inno, Stiletto, and S50 in the past. The problem is that they have been dwarfed by the popularity of Apple's (Nasdaq: AAPL ) iPod as a cheaper solution. Since the iPod touch offers free Wi-Fi access to radio and music discovery sites like CBS' (NYSE: CBS ) Last.fm, AOL Music, and Pandora, it's hard to justify a $280 XMp3 purchase that's tethered to a monthly subscription plan. Marketing can distort the value perception, but this is probably not the best holiday season to peddle a premium subscription-based gadget, even if it certainly has the right ingredients to work in a kinder climate.
You still have more to say
I'm just scratching the surface with some of your great responses. I'll be back in a few days to tackle the rest of the killer suggestions to get Sirius XM Radio on track.
In the meantime, feel free to post other comments on what you think it will take to get Sirius XM back into the market's good graces.
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