Liberty Media threw Sirius XM a lifeline with an 11th hour $530 million loan. If Sirius’s beleaguered balance sheet didn’t tell you everything you’d need to know about how the negotiations went, the terms would. The initial loan of $280 million comes at a steep 15% interest rate, and Liberty will get 40% of the satellite radio company in the end. Liberty Media will also get two board seats, expected to be filled by Liberty chairman John Malone and chief executive Greg Maffei, who techies may remember from his short, ill-fated stint at Oracle.
In what may be the most disingenuous quote in a press release ever Maffei said, “We have been impressed with the company, its operations and management team.” Really? Because I see a company that concocted an unsustainable business model where people pay less than a dollar a day for content, while it pays out $100 million-a-year contracts to celebrity talent. I see a company growing its revenues in double digits that can’t even pay the minimums on its debt. I see a company that was too wrapped up in the ego of winning than proving a business model. And perhaps most dire, a company way too dependent on the auto industry for generating new subscribers.
All that said, it was an advantageous deal for both parties. My criticisms aside, satellite radio can be a viable market, it’s just not as huge as its boosters thought five years ago. Once the debt and sky-high operating costs can be stripped out of the company, there’s arguably a nice business there for Liberty. Even one that might one day be spun off to another buyer. And even considering the waste, Liberty Media is essentially getting billions of dollars that went into building and evangelizing satellite radio for a bargain basement price. And Karmazin? Well he gets to keep his job one more day, which is more than 300,000 other people in tech can say.
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“Impressed” … uh, ok, suuuure. I see your point, Sarah.
Welcome to TC, by the way.
Love the Flickr photo.
Does Liberty have an online component to its revenue model? Or does it basically depend on the satellite broadcast system?
Erm, sorry – I meant Sirius, not Liberty.
“Does (Sirius XM) have an online component to its revenue model? Or does it basically depend on the satellite broadcast system?”
My understanding is that Sirius is moving its online offering behind the paywall after giving the basic level of service away for as long as I’ve been with them (12/04). This is the message that comes up when I log into Sirius Internet Radio:
“On March 11, we are upgrading our internet listening experience. On your next renewal date you will no longer get free online listening. We want to give you the opportunity to extend your existing radio subscription and will guarantee you free online listening until the end of that new term.”
So, basically, I’ll still be able to listen online for free until my current one-year renewal expires in December, which is nice.
Sirius also has a “premium” service with enhanced 128K streaming audio for $2.99/mo and an Internet-only subscription for $12.95/mo.
(source: http://www.siri...usinternetradio)
In summary, to answer your question: “Yes.” But I haven’t looked at the balance sheet to see what sort of revenue the online offerings have produced or their associated costs; and I don’t know how it works if you came in through the XM side of the merger.
Great post Sarah. I’d stopped reading TechCrunch a long time ago — but if they are now publishing real analysis, I’ll be back, at least as long as you’re substitute-teachering. Maybe while you’re elevating the reporting standards you can get the “community” of loser commenters to put on their big-boy pants.
Nice article!
Welcome to Techcrunch, and a great debut post.
Anjali Sen
Way to go Sarah. Calling out the corporate bigshots from day 1.
Mel’s not the guy to call out, if he survives this he carries the hardest grudge in the business.
Sarah,
Welcome to TC.
Your second paragraph should be used to define “hubris” from here on out. Great work!
Dave
Sarah — do you also see a company that was royally f*cked by the federal government, vis-a-vis the FCC?
That was all done in the name of consumer protection!
Sure, it’s weird that oil and telecommunications companies can get regulatory approval to merge in like two weeks, but our government officials are duty-bound to ensure that all due diligence is applied to something so powerful as a single satellite radio provider.
Oh! The fire! Yes I look forward to reading more of your posts.
In fact. I’m interested in hear your view on facebook’s change in their TOC.
H
Nice to read some passionate good writing on TC. Welcome!
Sarah–Nice to see a post with some substance on Techcrunch, but I think you’re wrong. The combined Sirius/XM has 20MM subscribers, and the company is close to $1B in revenues. These 20MM people pay for content when there are multiple free alternatives out there. Their heavy CapEx to get started is a burden, but this is a company where the money they’ve spent has not been for naught. With close to $1B in revs, there’s something to work with. And btw, Howard Stern has more than paid for himself. Sirius had 600k subscribers when he announced his deal, and before the merger they had 7MM, most of whom signed up for him. Do the math.
I questions Sirius and their math… in the past subscribers included nonpurchased cars in lots that had Sirius pre installed (in their 10K 2-3 years ago). not sure if the merger forces more transparency but likely it’s still the case. Also Howard Stern did not bring in all the subscribers.. good auto deals and a VARIETY of content did.. it’s not just howard… so it is fair to call that investment in Stern a bust…. Imagine if they didn’t give all that $ to Howard, Martha + others…
Keep up the good work Sarah
It is apparent nobody who writes here or comments has a subscription. I have had it for 4 years and live has never been the same. If you do not want to pay less than $1 a day for the content, then go about your business. But, over 20 million people are paying for this and enjoying this service. This number will double within 5 years. The FCC almost destroyed this company, to say Mel did this to save his job shows how ignorant you are to the facts. Do some research. BTW, 60% of sirius/xm listeners tune into Howard Stern each day. That 12 million is more than double the Tonight Show daily audience. Don’t hate the player, hate the game.
do 60% even get Howard? XM people have to pay more… and i doubt many do… until numbers are audited by a 3rd party they are worth nothing IMHO
Would be great if you added some context about who Liberty Media is. I just looked them up and was blown away buy who they either partially or fully own. Dollars and cents aside, its a good partnership for Liberty.
You’ve got some pair of stones talking trash on a company for not having a business model on a Web 2.0 blog.
Sarah said:
…”and Liberty will get 40% of the satellite radio company”
This should have said 100% ownership. John Malone is very smart. Just like when Malone took C. Michael Armstrong and AT&T to the cleaners.
What surprises me is that none of Mel’s fellow tribesman came to the rescue.
Howard Stern was a bad decision and it almost kille the company.
What is Sarah’s problem with Sirius-XM?, her first two posts on TC are attacks on the company.
Sarah, have you ever tried satellite radio? Sirius is as much a content company, as they are a delivery medium.
Hey, don’t interfere with the ability of TechCrunch’s staff to pull sh*t out of their ass.
Howard Stern was the primary reason Sirius came from behind and was able to take over…I mean merge with XM.
In fact, that was the biggest failing of XM – if they signed Stern, they could have wiped Sirius out early on and thus avoid the costs of the exclusive content each side has paid for.
“sky high operating costs”…I like that. For a company that just aggregates and distributes music, they chose the most expensive way to to do it.
Hooray for Sarah, sexiest tech blogger! Although “sexiest blogger” is like being dubbed “sexiest grave digger” or “sexiest HVAC contractor” hey, you’re still sexiest something.
Welcome to TC.
The terms of the deal seem to validate your last article on this subject.
Satellite radio may be here to stay, if it’s an efficient media. Looks like the original investors won’t benefit, however. Just looked at the stock history via Yahoo Finance.
Maybe getting Howard Stern into millions of car drivers’ brains is an inherently good thing, worth more than mundane financial considerations.
baby boey writes:
“If you do not want to pay less than $1 a day for the content, then go about your business. But, over 20 million people are paying for this and enjoying this service. …The FCC almost destroyed this company, to say Mel did this to save his job shows how ignorant you are to the facts.”
Wouldn’t it be reasonable to say that you’ve destroyed Sirius by paying less than a $1 a day for the content that you enjoy? Or rather, Mel Karmazin has destroyed this business by allowing you to pay less than $1 a day for the content that you enjoy? You realize that this company was facing bankruptcy right? You seem to be in denial of the basic facts of the situation.
exactly, lawrence. i’m not championing the FCC here. maybe they have destroyed it. that doesn’t mean it’s a well run business and a good CEO should have been aware of that as a business risk before squandering billions on marketing and other expenses. it’s still a HUGE loss for shareholders. this wasn’t a private company; it was a public company that took on huge amounts of debt.
“Sarah — do you also see a company that was royally f*cked by the federal government, vis-a-vis the FCC?”
So what? If the government wants to destroy a business, that is a valid reason for investors to avoid that business. Likewise, if Merck has a promising treatment for cancer, but the FDA won’t allow it to be sold, then that is a valid reason to downgrade one’s estimate of Merck’s future potential. Likewise, if someone would like to start a business selling cocaine, but cocaine happens to be illegal, then you would be a fool not to consider the legal environment that the new venture would face.
I think it’s legitimate to criticize stupid government regulations. But you shouldn’t let your criticism of the regulations effect how you judge companies that are under the control of those regulations.
“I think you’re wrong. The combined Sirius/XM has 20MM subscribers, and the company is close to $1B in revenues. These 20MM people pay for content when there are multiple free alternatives out there. Their heavy CapEx to get started is a burden, but this is a company where the money they’ve spent has not been for naught.”
The company almost went bankrupt. Where does that figure into your analysis?
“Really? Because I see a company that concocted an unsustainable business model ”
I have this odd sensation that this could be applied to TechCrunch’s darlings Twitter, another company that has a revenue stream of $0 and keeps spending more each time a new twatter joins.
“And perhaps most dire, a company way too dependent on the auto industry for generating new subscribers”
I disagree. While you and other people might wrap multiple facets of their lives in technology, the average citizen only listens to the radio during their round-trips for work 5 days a week. Until they can find a way to better compete with FREE, the service will be relegated to those with disposable income who have room in their budgets for luxury purchases. Howard Stern and commercial-free music is hardly a reason to pay 180.00 a year for background noise while you are busy concentrating on not hitting the Mexican Nationals running across 6 lanes of freeway.
They are hurting along with new car sales because there’s where most of their subscribers come from.
Caljob has a point. New cars means new radio subscribers. Liberty knows what they are doing. I’m not worried.
I also used to work for company that is more concerned of its appearance, doing lavish parties and ego, rather than getting a revenue.