I spent a lot of time traveling over the past couple of days. As a result, I probably read about 10-25 articles on the proposed XM/Sirius merger. Tonight, I read some more. Let me say this: can we please instead take a step back and realize the disastrous and costly mess satellite radio was, is and will be if we maintain this pace.
Niche product
First off, satellite radio is a niche product intended for a very small percentage of consumers. The simple reality nowadays is that the user wants to be in charge of programming in a non-linear fashion. Satellite radio’s programming is linear, it is non-linear in the sense that you get 130 or 170 channels, but so what?
Content is King, But Not at Any Cost
Both XM and Sirius have gone out and lured a lot of talent for a lot of money. Frankly, if the merger goes through, then the bidding war goes away. That means that the money won’t be that good. And since the audiences are lame, then the vanity-seeking talent will head back to terrestrial radio.
Terrestrial Radio Sucks, Sure… but Satellite Radio is Lame Too
The problem facing radio is that 99% of people who have access to radio have access to terrestrial radio and that sucks. Just because satellite radio is in theory a tad better does not mean that people will rush to get it next time they buy a car. When you buy a car, you have to pick and choose your options and while a satellite radio box and a monthly payment might not cost prohibitive, in today’s media landscape, there are far better bells and whistles to spend your money on (sunroof, etc.)
Irrational Exuberance
Investors are suckers. That’s what I think. Investors have bid up these assets despite the high levels of debt, massive, staggering losses and abysmal user subscription figures. $6B in losses for 14M people. Hmm… what does that remind me of?
Oh yes…
Remember Priceline.com? Pets.com?
The first day Priceline.com went public, its market cap was greater than the cumulative market cap of all of the players in the transportation industry (at least that’s what I read in John Cassidy’s Dot Con). The point is, that was crazy. At the time, the uncertainty of the world wide web led us to think that growth rates will be so high, and the market was so vast, that the mere upside was worth valuing so richly. We expected - somewhat sheepishly - for Pets.com to become larger than brick and mortar stores… did we forget the insanity of thinking that Walmart would be bought out by Amazon.com or that AOL.com would buy Time Warner. Oh, wait. That happened. What was that? Oh yeah, investors are suckers.
Distribition is not Price Elastic
The point is that much the same way that content is not worth any price, distribution is not worth any price either. Google today is worth $150B on $10B in sales because we assume that consumers will forever bid any thing on keywords no matter what the return is.
Guess what, yes, Google might one day be Worth More than MSFT by 2010 and could very easily be the World’s First Trillion Dollar Company, but there is a strong likelihood that over time, less consumers are willing to pay anything for any keyword. That’s right, if something does not make economic sense, there is nothing that can change that.
Niche product, did we mention that?
Which brings us back to point 1: satellite radio is something the big radio (or media) companies need to have as an offering. Satellite radio is not a standalone company. Trust me, the wrong decision is to merge these companies. The better decision is to fold XM into a (for example) News Corp. and a Sirius into a CBS (would that not be ironic). Doesn’t Rupert Murdoch own Direct TV, which is basically TV via satellite. Would turning off the video off those satellites and transmitting audio only not be a better way to go? Come on people, work with me… CBS owns Infinity Radio… just get them to buy the other one. Oh, I am aware: Clear Channel owns a chunk of XM Radio, so maybe they can buy XM.
I can probably think of more ideal fits if I actually spend any time on this, but apparently, the fellas running XM and Sirius seem to think that two wrong will make a right, and trust me, that ain’t right.
Monopoly, Advertising… Oil Industry
So now, with a Republican administration looking to further set America back in its last two years in office, the powers that be at XM and Sirius realize that they have a better shot of merging than they would in two years when Democrats will (barring, well, what Democrats tend to do, i.e. implode and self-destruct) take office. But guess what, a few years ago the oil industry was in shambles, and the powers that be allowed Exxon and Mobil to merge, thinking that a lack of a merger would make it impossible for either to “operate.”
The problem with satellite radio is that the companies spend 40-50% on advertising. The reason they spend that percentage on advertising is because, sit down Mr. Karmazin and “the other guy”, no one really wants your product.
Well, consumers actually need, consume pay for oil. Satellite radio. No, that ain’t happening. I have listened to Sirius once when I rented a car in SF and last night on a Jetblue flight I briefly listened to XM. I sincerely doubt ever being a paid client, as have 5,986,000,000 other human beings. Actually, there are almost 6.5B people, so the number of people who do not use, need or pay for satellite radio is 6,486,000,000 people… which, when you think about it, is the cumulative losses of these two loss-guzzling charities trying to pass as companies.
Added Later As Per Reader/Commentor Request: At the time of writing, I do not own any stock, derivatives etc. in either XM or Sirius. In fact, I do not own any stock or derivatives in any of the companies mentioned (News Corp., CBS, etc.), though I did briefly work in News Corp.’s FIM unit after they bought the company that bought my company. As a general rule, if not stated, I don’t own any of the companies I write about, if I do, I would mention.
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