2009 will be an adventure for many companies. For Sirius XM Radio
Can Sirius XM hold on? Should it hold on?
Filing for bankruptcy reorganization certainly has its benefits. The company would be able to shore up its balance sheet and reemerge as a financially stronger company. The downside, of course, is that common stockholders would likely be wiped out in the process.
I think bankruptcy would be a colossal blunder. As a consumer-facing company, filing for Chapter 11 can be devastating. Subscribers who don't know any better may feel that the company is actually going under and terminate their accounts. Getting new listeners to fork over cash for new receivers is a similarly stifling proposition. When's the last time you walked into a Kmart or a Sharper Image?
CEO Mel Karmazin certainly doesn't want it to get to that point, but it's not really up to him. When you have $3.4 billion in debt with a third of that due over the next 12 months, you're really at the mercy of your creditors.
Three steps to making it through 2009 alive
Given the absurdly low stock price -- even if it hasn't fallen as sharply on an enterprise value basis -- one would think that if Sirius XM is still publicly traded at this point next year, it will likely be trading much higher than it is today.
In boxing, a pummeled fighter would just dance around the ring to avoid getting knocked out, but this isn't a prizefight. Sirius XM can't afford to simply not make mistakes. There are barriers to overcome and opportunities to seize along the way.
Let's go over the three things that Sirius XM needs to do if it wants to live.
1. Dazzle the market with joint ventures.
If Sirius XM plans to issue more shares to help pay off its creditors, it's going to need to prop up its share price to give new investors a reason to buy. No one wants in on a stock heading to Nil City. The higher the share price at the time of the offering, the easier the inevitable dilution will be.
So how does Sirius XM begin pumping up its share price? A good starting point would be forging joint venture deals with market darlings that make sense.
A partial wish list:
- I'd love to see a proprietary app for existing subscribers to stream Sirius or XM through their Apple
(NASDAQ:AAPL)iPhone and iPod touch devices. It should be free, naturally, since no one is going to pay for radio when Pandora, Last.fm, and AOL Radio are all freely available.
- Team up with TiVo
(NASDAQ:TIVO)to offer streaming through the DVR boxes. TiVo will shake hands with just about anyone cool, including RealNetworks' (NASDAQ:RNWK)Rhapsody.
(NASDAQ:MSFT)Wi-Fi-enabled Zune would be even more desperate to ink a deal with Sirius XM, and would perhaps even pay for exclusivity.
The adoption rate on many of these versions would be low, but the point is really to lift the shares in the near term, as speculators once again bid up Sirius XM as a story stock.
2. Become a music authority.
The biggest appeal isn't necessarily the talk content. Many of the available networks like Radio Disney and Air America are freely available on terrestrial radio. Outside of Howard Stern, is there really any other magnetic personality that attracts millions of listeners? No. Commercial-free radio is the real appeal, and Sirius XM should be milking its role as a taste-maker.
I'm not suggesting accepting payola in throwback terrestrial style. However, now that Sirius XM has gone out of its way to consolidate its programming to create even greater universal genre brands, why stop there? Why not issue quarterly music compilations? Fringe artists who are receiving national airplay as a result of Sirius XM's deeper play lists would gladly generate even more buzz by appearing in channel-specific compilations. This certainly doesn't have to be a cost-intensive enterprise. In fact, not a single CD needs to be pressed if it goes strictly through digital music stores like Apple or Amazon.com
The musical mastery shouldn't end there. If it can license its channel brands to everything from musical magazines to music video shows, it would be incremental and ambassadorial. Oh, and don't forget about cyberspace.
"I want Sirius XM to make the most of its audience by launching dynamic and sticky online destinations," I wrote last week. "Shouldn't each of its genre-specific music channels be the catalyst for a social network?"
3. Fix the share mess
Once Sirius XM is inching its way back into favor, that is when the company needs to rip off its Band-Aid. The company's guidance calls for $300 million in adjusted EBITDA next year. That may help calm the creditors, but a recapitalization will probably still be in the cards, and that is never fun. A reverse split is a zero-sum game, but it too may have to rear its head in the Sirius XM playbook next year.
The point is that these dilutive and unpopular moves will be easier to swallow if Sirius XM shares are moving in the right direction. Sexy partnerships and brand-widening moneymakers are the key to point Sirius XM in that direction.
Let's just hope it doesn't take another step backward, because it's really running out of room at this point.
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