Orbital Decay - Part One

Blowing other people's money and making it our problem

One of the most important lessons I learned in business school was one of the most simple: mergers never work. At least not for the reasons or in the ways business executives claim they will. Tonight The Curly R debuts a two part series on the disastrous Sirius-XM merger and its impact on the NFL and its fans.

Part One: Mismanagers In Space
Part Two: Whew, Looks Like the NFL Will Be Ok
Footnote: My Letter to the Federal Communications Commission
Follow up: The Liberty Media Bailout

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So how is that Sirius XM merger working out for you? I hope no Curly R readers had any stock. Technically it is still have, not had though with the company staring at a hostile takeover and preparing for bankruptcy as soon as Tuesday the stock is at best worthless and at worst going away.

I have both services, an XM SkyFi 2 and Sirius Sportster 2 in my car, my wife has XM in her car, I sponsor radios in California and Fredericksburg, I am a proponent of satellite radio, I get it.

Which is why I was opposed to the merger between two companies, because competition is good.

In 1997 when these two companies got their charters and secured their broadcast spectrum from the US government, they signed pledges never to merge. And yet like so many large businesses when the operating environment became uncomfortable for them they just decided to change it, and the legislators and regulators went along with it.

To listen to Hugh Panero and Mel Karmazin, the guys that ran XM and Sirius before the merger, it was exactly the ruthless pace of competition that forced them to join together and eliminate consumer choice.

Five hundred million dollars for Howard Stern, 220 million for the NFL, 650 million for major league baseball, PGA golf, NBA, NHL, Martha Stewart, Jimmy Buffett, the Grateful Dead, the list goes on, all the talent and exclusive access to programming, that is what drove up the cost of doing business as a satellite radio company, on top of, you know, maintaining a fleet of orbiting satellites.

Well I hate to break it to you Mel and Hugh but no one put a gun to your head and made you sign those deals. You sold a crapload of equity and loaded up on easy credit with the promise of success over the horizon, a steadily increasing annuitized revenue stream from users, that at some point you would get over the hump on expenses for talent, access and customer acquisition costs.

Didn't happen and does not look like it will.

But one thing that for sure is happening? Subscription rate increases. I got an email from XM last month telling me about an opportunity to lock in low low rates if I act now now now before my rate on additional radios goes from seven dollars a month to nine dollars a month. And to add injury to insult the internet radio streams will not be free any longer, I will have to shell out three dollars a month if I want to listen to either service over the internet, something I have enjoyed for four years.

When the companies announced their intent to merge two years ago Sirius stock was worth twelve dollars a share. A year ago it was four dollars. Today the combined company's stock is worth six cents a share.


Curly R's Orbital Decay continues tomorrow with part two, Whew Looks Like the NFL Will Be Ok.



Imaginary Sirius-XM combined logo from here.