Bleak Times for Sirius XM

Outside my home in the Colorado Rockies, the temperature now hovers at -9º F. That's really too cold for snow but Mother Nature is trying. With wind and low clouds she's whipped up a mist that sweeps past my window like frozen cobwebs in the gray afternoon.

It is, in short, a bit bleak around here. Which may account for my decidedly grinch-like mood. (Then again, reading today's Wall Street Journal interview wherein George W. insists that everything he's done is GOOD for the country may have helped too.) At any rate, while trying to think up a merrily Christmas-like SkyBOX, my eye lighted on some recent numbers from Sirius XM. Which got me thinking that, not unlike the Current Occupant, the satellite radio crowd has a lot to answer for. Just pity their poor investors as you consider:

XM and Sirius both launched in the early 2000s at a time when satellite was the darling of the new media crowd. The business was HOT and most dish heads expected XM and Sirius to capitalize on that. But the DARS duo fancied themselves even hotter. Rather than spend any energies courting satellite retailers (who might have really understood and promoted their product) they ran straight into the arms of the larger consumer electronics industry - where, of course, lots of video satellite was headed as well. They also decided that, never mind the spiff costs, installations in new cars would pave their way to riches.

While new car deals did bring subscribers, it turned out to be a little slower than expected and as Sirius struggled to grow its market share then-CEO Joe Clayton's eyes lit on Howard Stern. For a total cost then estimated at $100 million per year, Sirius signed Stern to a five-year contract. It was an enormous gamble that paid off in the short run but eventually proved more short-sighted than insightful. It ignited a programming bidding war, a money eating monster that DBS and cable platforms fervently hope the telcos will eschew (both kinds of wars - bidding for shows as well as bidding for subscribers). That war, plus lagging subscriber counts, ate into sat radio balance sheets.

This helped force XM and Sirius into a very expensive battle to merge. The merger happened but now sat radio's original eggs-in-one-basket way to riches (i.e. a ride in new cars) has melted into an economic morass. Even with the taxpayers' money in their pockets, GM, Ford and Chrysler have declared a halt to new production. They first need to sell off existing inventory.

Thus millions of new cars and trucks equipped with satellite radio will not roll off assembly lines. Enormous programming costs, however, roll on. Not surprisingly the Sirius XM stock price has rolled down, closing Friday at 12 cents.

A bit bleak? Oh yeah. And the question now is ... how long can it go on? Will bankruptcy be the "savior" --- for everyone but the investors?