On the brink: Sirius Satellite Radio struggles to show a profit
Jun 6th 2009 5:00PM
Updated Dec 4th 2009 1:57PM
In a classic case of "buy the rumor, sell the news," Sirius XM Radio (SIRI) has seen its stock fall 95 percent since Howard Stern's first satellite radio show. Stern, who reportedly received $500 million over 5 years to join Sirius in late 2005, helped boost subscribers when he joined. His presence hasn't helped the company boost its stock price.
And neither have car sales. With automakers Chrysler and General Motors (GM) mired in bankruptcy proceedings, Sirius finds itself drifting toward failure. Car sales in the U.S. fell 34 percent in April, according to industry research firm Autodata, and Sirius XM has been feeling the impact as fewer vehicles with satellite radios are being sold.
Sirius XM, which broadcasts football and baseball games, has lost more than $300 million in the past two quarters and has lost a net of 404,422 subscribers in the first three months of this year. Mel Karmazin, CEO at the New York-based company, said in its earnings press release on May 7 that "satellite radio is now a cash flow growth story." That story has yet to help Sirius XM equity shares, down 86 percent in the past 12 months.
Since adding Stern to attract customers, Sirius XM has spent loads of cash and issued declining stock to lure celebrities including Martha Stewart, Oprah Winfrey, Jimmy Buffett, Jamie Foxx, Barbara Walters, Willie Nelson, Bob Dylan, and Tom Petty to its airwaves. The lineup of stars has helped it to double its customer base, to 18.6 million. Yet sales have fallen, and Sirius toyed with bankruptcy earlier this year, only to be rescued by John Malone's Liberty Media (LCAPA), which agreed to buy a 40 percent stake in the pay-radio company in exchange for $530 million in loans.
The celebrities have yet to prove satellite radio can be a proven money-maker. "This marks a new beginning, which is an exciting point in my career,'' Stern said during his final show on CBS's (CBS) WXRK-FM in New York. Little did he know it was the beginning of a downward spiral for Sirius XM's shares, which could end up at zero.
"There's a lot less pressure,'' Stern said of his move to satellite radio, during that final show on conventional (and free) radio. Stern received $219 million on his first day on satellite radio -- Sirius had already signed up enough new customers, who wanted to hear Stern -- to trigger the payment under his contract. As it turns out, for those who owned Sirius stock when Stern cashed in on his first day, their best move would have been to cash out.
Anthony Massucci is a senior writer for DailyFinance. You may follow him on Twitter at hianthony.
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