[November 06, 2008] Sirius XM faces daunting challenges Tweet CHICAGO, Nov 06, 2008 (Chicago Tribune - McClatchy-Tribune News Service via COMTEX) -- It's hard to cite Sirius XM Radio Inc.'s most daunting challenge: Is it the $1 billion in debt payments, a bad economy or plummeting new car sales, the satellite radio company's biggest avenue for new customers? And what about the next big threat, free Internet-enabled audio choices? On Thursday, Sirius XM noted in a regulatory filing that sluggish auto sales "have negatively impacted subscriber growth" and that it is in discussions with lenders regarding new financing options. It said "such financing may not be achieved or, if achieved, may not be achieved on favorable terms." Just a few months after its merger was approved, Sirius XM Radio "faces an issue of survival," said James Goss, an analyst with Chicago's Barrington Research. "I'm trying to be realistic, but the question is do you believe they will survive?" He believes Sirius XM will survive, and he has an outperform rating on its shares. Other analysts have downgraded the stock. Sirius stock has lost 91 percent of its value in 2008, closing Thursday at 26 cents, unchanged from its opening price. Sirius XM did not make an executive available for this story, citing a quiet period prior to releasing earnings next week. But in an October BusinessWeek story, Chief Financial Officer David Frear said the company is "very confident" it would meet its debt obligations in 2009. When the merger between Sirius and XM was approved in July by federal regulators, the hope was that a single satellite company could thrive now that consumers didn't have to make a choice. But to close the deal, they took on additional debt at a high cost, Goss said. Also, the merged company agreed to several conditions from federal regulators, including new pricing and radios that could receive both Sirius and XM services. Those products have started to emerge over the last month, with more to come over the next year. The company's hope is that a new generation of products, prices and services can boost slowing sales. Subscribers can add a "best of" package from the channel line-up of Sirius or XM to their existing radios for $4 a month. This will bring Howard Stern's Sirius program, among other content, to XM users. Or Sirius users can add a package that includes Oprah's radio channel. But in an economy where consumers are closely examining their spending, paying $7 to $17 a month might be a tough sell for Sirius XM. Plus, the Internet and speedier networks from wireless carriers are providing a rich array of free content. "If you look at the other types of free options, like iPods or CDs, that has been there all along," Goss said. "But the choices have increased over the years and Internet radio, at some point, could pose a competitive threat. But it needs to get on the dash." Tom Taylor, a radio industry veteran who writes for Chicago trade publication Radio-Info.com, agrees that car-based Internet connections are the biggest threat to satellite radio. "When that comes along, the value proposition becomes very questionable," he said. Still, despite declining car sales - major automakers this week reported declines ranging from 23 percent to 45 percent - Goss said used cars could become a more viable source for Sirius XM. "More used cars are on the market these days that have an XM or Sirius radio that's ready to use," he said. In addition, he noted that new-car buyers are offered incentives to try the Sirius XM service - free trials, for example - to lure new listeners. Also, many car buyers can have the service tacked onto their car payments. A spokesman for Sirius noted that the company is looking at incentives to lure used-car buyers to the radio service. Sirius XM expects to have 19.1 million subscribers by the end of this year, and estimated it will have 20.6 million by the end of 2009. Previously, it said it would reach 19.5 million this year and 21.5 million in 2009. Goss said that "Sirius had been adding a couple of million subscribers a year" by itself prior to the merger. When the deal closed in July, the combined company had 18.6 million customers, so even Thursday's reduced forecast shows that it added a half-million customers in the second half of this year. And, the spokesman noted, Sirius XM has a churn rate of less than 2 percent for paying customers. --- (c) 2008, Chicago Tribune. Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/ Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. [ Back To TMCnet.com's Homepage ]