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Satellite Radio: Not Dead Yet

Only a month ago, satellite radio seemed to be on its deathbed. The merger late last year of Sirius and XM didn't improve the medium's prospects. The new Sirius XM was bleeding money almost as badly as the New York Times. Bankruptcy, and perhaps extinction, were just months away.

Well, give CEO Mel Karmazin credit. Sirius XM is not quite dead yet. In fact, he thinks there might be a way out of the current predicament.

First, Karmazin secured a $530 million cash infusion from Liberty Media, which also owns DirecTV. Now, he's setting his sights on iPhone and fending off Internet radio.

In an extensive interview with Fortune Magazine, his first since the Liberty deal last month, Karmazin laid out his battle plan:

Karmazin doesn't dismiss the threat posed by Internet radio. In fact, Sirius XM is about to join Pandora and AOL Radio in offering its own Apple (AAPL, Fortune 500) iPhone application, thereby allowing iPhone users to stream Sirius or XM via 3G wireless. Still, he's dubious that computer-generated song playlists can compete with Howard Stern or Bob Dylan.

"I'm starting at a premise that says radio is not just recorded music - radio is discovery of new music," he says. "Some people would like to be able to hear songs they haven't heard before and that are not on their iPod. Some want to listen to CNN or Howard Stern, and not just to music. That's why we have a laserlike focus on getting content - because we think that content is what wins."

Sirius stocks has seen an uptick since the Liberty deal, trading at roughly 40 cents a share, up from the depths of 6 cents.

Karmazin may have gotten a lifeline and a bit of breathing room, but he knows he doesn't have a lot of time to turn things around. Not in this economy. Not with Detroit's Big Three - satellite radio's best promotional tools - teetering on the brink. And in fact, some in the industry think that nothing will prevent satellite radio from going under.

In the same article, Martine Rothblatt, the founder of Sirius, says satellite radio was doomed by FCC bureaucracy that delayed its launch more than 10 years ago. In the meantime, terrestrial radio and Internet radio have had time to regroup and improve, respectively, to squeeze out satellite radio's potential advantage.

(Martin Rothblatt founded Sirius in 1990 and had a sex-change operation four years later and became Martine. Stern, the megastar of Sirius, has referred to her as the "Martine Luther Queen of radio". But we digress.)

"There has been a huge growth in terrestrial alternatives," says Rothblatt. "As we move from third-generation to fourth-generation cellular, there's going to be ever more bandwidth available to distribute content totally via terrestrial cellular infrastructure. And that will leave fewer and fewer unique market attributes to satellite radio. ... Technologies have their ideal times and places, and in my opinion the better time for satellite radio was 10 years ago."

Satellite Radio War Continues

Financially troubled Sirius-XM reached a deal with Liberty Media, parent company of DirecTV, on Tuesday night to stave off bankruptcy. On the surface, it looks like the satellite radio saga is over for now. But is it really?

Sirius-XM's troubles first became public in late December, when it was apparent that the company would not be able to deal with its mounting debt of over $3 billion. That, coupled with the impending collapse of the Big Three auto companies, made the future look rather bleak for satellite radio.

Sirius-XM chief Mel Karmazin rebuffed an offer from EchoStar CEO Charles Ergen in December. But by January, the situation became more desperate. Then emerged Ergen's rival John Malone, whose DirecTV is locked in a battle for satellite TV superiority with Ergen's Dish Network.

Malone's offer of a $530 million loan in exchange for 40% of the company saved the day for now - and Sirius-XM officials insisted that it was the best deal they got, better than anything Ergen had offered.

Malone said he won't be meddling with Sirius-XM's operations, content to allow it to run the way it is. But don't count out Ergen, though. He still owns a considerable amount of Sirius debt, so he's not out of the game by any means.

From the Wall Street Journal:

One way Mr. Ergen could try to scuttle the Liberty deal would be to acquire some of the $350 million in bank debt outstanding and then refuse to extend the maturity; Liberty might then back out of its deal. In that case, Sirius would likely have difficulty repaying Mr. Ergen for the December notes he holds. He could use the debt as leverage to make another attempt to seize control of the company.

Stay tuned.

Satellite Tug-of-War

Just a quick followup on the potential Sirius-XM bankruptcy filing.

Hoping to forestall the Chapter 11 filing, Sirius-XM has approached Liberty Media, parent of DirecTV, on a potential deal. DirecTV already has a relationship with the satellite radio company, carrying XM music on its channels. This puts DirecTV in competition with its satellite TV rival EchoStar, owner of the Dish Network.

A deal may stave off bankruptcy, and even liquidation, of the satellite radio entity. Fred Moran of the Stanford Group told the L.A. Times that it makes sense for the satellite TV companies to bid for Sirius-XM:

All of these companies are satellite-delivered media. If you can cross-market, cross-promote and intertwine services between satellite video and satellite audio, you could strengthen your competitive position.

Sirius-XM is trading at about 6 cents a share. EchoStar, which owns considerable amount of Sirius-XM's debt, is at about $15. DirecTV's stocks have held steady in the past year despite the plunging market, trading at about $23 a share.

Sirius XM Heading for Bankruptcy?

It looks like the credit market crisis has claimed yet another victim. Satellite radio, in its short existence managed to spend a lot of money but never made any, might not be around much longer.

The New York Times is reporting that Sirius XM Radio Inc., the entity formed when former competitors merged last year, is preparing to file for bankruptcy protection. It will not be able to pay a $175 million debt due at the end of February and may end up being absorbed by creditor EchoStar, owner of the satellite television Dish Network.

EchoStar's Charles Ergen made a bid to take over Sirius XM in late 2008, according to the Wall Street Journal, but was rebuffed. Now, with the company $3.25 billion in debt and credit drying up, the threat of a Chapter 11 filing might be Sirius XM's last chance to reach a settlement with EchoStar.

No matter what happens, one of the biggest losers may be Howard Stern, who took the leap into satellite radio with his record five-year, $500 million contract with Sirius in 2006. He probably won't be able to collect the remaining two years of his deal and his popularity has sagged considerably after he abandoned terrestrial radio.

Some technology proved to be ahead of its time. Some, like satellite radio, became obsolete before it even mattered.

The Demise of Satellite Radio?

A little more than a month ago, former satellite radio competitors Sirius and XM merged their services. It was hailed as the beginning of a new era.

Or is it the end?

Satellite radio, which emerged only in the beginnig of this decade, is quickly becoming technologically obsolete. In the new world of saturated wifi and broadband access, the very concept of satellite radio is being questioned. And economically, the news is worse.

The newly created Sirius XM Radio Inc. is trading at about 12 cents a share. The company is $1 billion in debt, which is due sometime in 2009. Its biggest patron, the automakers of Detroit who outfit new models with satellite radio, are on the verge of bankruptcy and face an uncertain future.

Just four years ago, Sirius splurged by paying Howard Stern a record five-year, $500 million contract. Stern, once a ubiquitous presence on the radio, has virtually vanished from the public consciousness. Rest assured, there won't be another payday nearly as lucrative at the end of this contract. He just might retire.

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Matt Collins, New York Times

Meanwhile, old-technology (or "terrestrial) radio has defied all odds by plugging along. In July, Rush Limbaugh signed a new eight-year contract worth $400 million with Clear Channel Communications. Limbaugh said he never considered moving his popular franchise from the traditional network:

With 600 affiliates, that's an unmatched platform that essentially has ubiquity.

Much more ubiquitous than the vanishing satellites.