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More twists and turns arise in Sirius XM's struggle with EchoStar

Things are going very badly for Sirius XM, the company created when Sirius Radio and XM Radio merged to form a single satellite radio provider.  With its stock in shambles, the company is also seeing its growth slow and its credit vanish.  The company also owes millions in payments to EchoStar, which bought some of its debt.

EchoStar chief executive Charles Ergen would love to seize control Sirius XM and add it to his fold.  However, Sirius XM chief executive Mel Karmazin is vigorously resisting the takeover.  He has retained bankruptcy lawyers to draft up a Chapter 11 filing as a way to escape his company's debt to EchoStar.  However, a filing would likely leave his own company in shambles, and could still lead to a takeover if a court ruled in EchoStar's favor.

As an alternative to such drastic measures, Sirius XM is pursuing a deal with EchoStar's rival DirecTV to try secure financing and escape the clutches of its previous creditor.  Mr. Karmazin is reported by the New York Times to be in preliminary talks with John C. Malone's company, Liberty Media, which owns a controlling interest in DirecTV.

A partnership with DirecTV would pair the nation's largest satellite TV provider with its largest satellite radio provider.  While such a partnership would be advantageous to DirecTV in a number of ways, a move to partner with Sirius XM could incite a bidding war with EchoStar.  Analysts say that EchoStar might come up on top in such a bidding war as it already controls much of Sirius XM's debt.  However, Mr. Ergen has lost a number of bidding wars over the years, including some to Mr. Malone.

Ultimately, Mr. Karmazin's moves might prove to be more of an effort to save his own job than to save the company.  A deal with Liberty would likely keep him as Chief Executive, while EchoStar would likely seek to replace him, given the pair's standoffish relationship.

Some analysts also believe that Sirius XM may simply be dangling the talks with DirecTV in front of EchoStar to secure a better deal, perhaps converting some of the debt to equity.

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Why bother?
By austinag on 2/12/2009 10:34:11 AM , Rating: 2
I'm not sure XM and Sirrus have proven they have a legitimate business model if they can't even survive with a gov't approved monopoly. Anyways, I like HD radio better.

RE: Why bother?
By acase on 2/12/2009 10:45:42 AM , Rating: 5
I have sirius and really love it, but they do make some dumb decisions. All they needed to do was cut all these stupid celebrity shows and channels they pay so much for (i.e. Oprah, Martha Stewart, Jamie Foxx, Ryan Seacrest, Howard Stern, etc. etc.) and go back to the reason people started subscribing which most of the stations still have, a constant, variety of music.

And it was just bad luck (and probably some bad foresight)that they depended on the American auto industry for so much of their profit.

RE: Why bother?
By chmilz on 2/12/2009 11:26:48 AM , Rating: 2
Starting to think that $500 million contract for Howard Stern's 24-hour infomercial channel didn't pay off...

Hopefully Sirius XM will stay afloat, it really does beat the pants off radio in my region. I've discovered dozens of great new artists with the service, stuff I wouldn't have bothered to discover on my own on the computer.

RE: Why bother?
By alifbaa on 2/12/2009 11:35:00 AM , Rating: 2
The problem is that they signed long term contracts with their celebrities. IMO, the strategy all along was that they would merge and declare bankruptcy to renegotiate the contracts to more reasonable terms.

Unfortunately, by the time the merger finalized, the economy had tanked and their stock price went from $5/share to its current $.08/share (up 30% today). At that price, SiriusXM is no longer able to emerge from bankruptcy as an independent company. Clearly, Echostar intends to either buy them or take them over and will succeed unless this DirecTV deal happens.

RE: Why bother?
By tenchymuyo2 on 2/12/2009 11:44:57 AM , Rating: 1
AMEN! The celebrity channels need to GO - as do the single artist channels. C'mon. Prove to me that mass amounts of people are really listening to the Elvis channel every day. I'm a Pink Floyd fan and I wouldn't want THAT channel to exist. Bring back ALLLLLLL the music channels that were removed in the mistaken merger. And finally get rid of Stern. It was more of a draw when he was on terrestrial radio because of the barriers he was breaking with regard to FCC rules. The fact that swearing is allowed on his shows now lessens his appeal. He never pulled in a significant amount of Sirius subscribers on his own anyway. People subscribed for the music.

RE: Why bother?
By callmeroy on 2/12/2009 12:27:15 PM , Rating: 2
It would be impossible for me to agree with you more. From day one that I knew Sirius existed I thought it was odd that so many celebs had their own channels along with the $500m Stern deal i thought to myself "How in the world are they going to pay those contracts?". I mean SiriusXM may state that they have millions of subscribers, but if you look at the whole picture they have very very few subscribers. Much less than they , obviously, needed to cover their bills.

I have Sirius btw -- but its Free....My car came with 1 year free, and they just never turned it off or something -- because I still get it, every channel 24/7/365 and in 2 months it'll be two years.

RE: Why bother?
By repatch on 2/12/2009 4:10:32 PM , Rating: 2
Umm, you're kidding right? Have you ever had a look at how Sirius' subscription numbers changed after they signed Howard?

Frankly, if Howard was booted off SiriusXM I'd probably drop the service, and I'm certain I wouldn't be alone.

RE: Why bother?
By tenchymuyo2 on 2/24/2009 6:32:28 AM , Rating: 2
Yeah, I saw them drop twice as fast too once their free radio deal was up. I was a stockholder (for a long year) and kept a very close eye on that. It was a joke, much like his fame on Sirius/XM today. Several thousand that got free radios he handed out dropped it. His inclusion to Sirius was a big money mistake. Even he was quoted as saying he was angry at his fans for not joining in the numbers he was expecting.

RE: Why bother?
By omnicronx on 2/12/2009 11:15:18 AM , Rating: 2
Anyways, I like HD radio better.
Wow, I've never heard of it (most likely because I am Canadian), but this is a great idea. This is the way it should be, if I want music without commericials, I bring my mp3 player, otherwise living in the city, the channels I get are more than enough.

Best part is 95% of satellite radio users cant take advantage of the higher sound quality, as most receivers convert the signal to analogue and then send the signal to your radio via FM. The end result is audio that is barely better in quality than over the air FM radio.

I realize a lot of sat radio users live in rural areas, and this makes sense, but if you live in the city I just don't see the point.

RE: Why bother?
By RamarC on 2/12/2009 11:41:50 AM , Rating: 2
Best part is 95% of satellite radio users cant take advantage of the higher sound quality, as most receivers convert the signal to analogue and then send the signal to your radio via FM. The end result is audio that is barely better in quality than over the air FM radio.

FM is only used by aftermarket add-ons (just like the lame ipod-fm transmitters). Cars with factory ready XM/Sirius stereos have a pure digital signal path and the quality is far better than FM -- at least as good as 128kbps mp3.

RE: Why bother?
By omnicronx on 2/12/2009 12:12:45 PM , Rating: 2
FM is only used by aftermarket add-ons (just like the lame ipod-fm transmitters). Cars with factory ready XM/Sirius stereos have a pure digital signal path and the quality is far better than FM -- at least as good as 128kbps mp3.
Thats where the 5% comes in, the vast majority of satellite radio users do not have the tuner integrated into their audio system. It's also leaps and bounds better than a 128kbps mp3, most systems should support PCM 44.1k at the very least, some support 48hz, DSD and dolby digital too.

RE: Why bother?
By repatch on 2/12/2009 4:13:52 PM , Rating: 2
FWIW, despite the label, HD radio does NOT stand for "High Definition", it stands for "Hybrid Digital".

In most cases HD radio sounds no better then FM, in many cases is sounds worse (I personally find digital artifacts alot more noticeable then analog ones).

HD radio is usually just a rebroadcast of what's on analog, the number of commercials is the same.

RE: Why bother?
By mmcdonalataocdotgov on 2/12/2009 11:42:16 AM , Rating: 2
HD is good, but too local. If you drive between cities all the time like I do, changing to the new market halfway through the drive is a drag. Locally it is good.

RE: Why bother?
By austinag on 2/12/2009 12:19:12 PM , Rating: 2
Valid point. If you are a long haul trucker, or regularly drive between cities through rural areas then XM/Sirrus is a godsend. My radio needs stem from an hour commute within one city, so I'd rather get the local stuff.

RE: Why bother?
By gregpet on 2/12/2009 1:56:40 PM , Rating: 2
They are not dependent on the American auto industry, they are dependetn on THE auto industry...

Anything to take a dig at the big 3!!!

RE: Why bother?
By omnicronx on 2/12/2009 3:01:00 PM , Rating: 2

Indeed.. although they are now standard in many Big 3 vehicles, especially Ford. Toyota only offers it standard or dealer installed on two models.

RE: Why bother?
By agent2099 on 2/12/2009 5:15:00 PM , Rating: 2
The government should have approved the merger sooner. Instead they allowed lobbyists to delay the merger while the companies rapidly lost money competing against each other and spending on redundant assets.

It's A Bit Odd I say
By DtTall on 2/12/2009 10:01:22 AM , Rating: 2
I think it is odd that Sirius XM had to jump through all sorts of hoops to get the merger approved. All this fanfare about a monopoly when they are hardly able to make it. How would they be doing separate?

That said, it is even more odd that it took so much time for that to happen but being bought out by another company that will increase EchoStar or DirecTV's market control doesn't even get a peep from the regulation side.


By vapore0n on 2/12/09, Rating: 0
RE: dejavu?
By omnicronx on 2/12/2009 11:01:49 AM , Rating: 2
You couldnt be more wrong, this will only drive up the price they will receive regardless of who wins out. The only part you are correct about is the stubborn CEO, whose company stock has fallen from around 100 million to 2 million. Sirius XM will not necessarily benefit (but I don't see how it can hurt them either), but the CEO will, even if echoStar wins out.

I have had XM for a long time...
By Motoman on 2/12/2009 12:45:35 PM , Rating: 2 my truck, which we use for long-distrance travelling to motorcycle races and horse events. XM is great for that, because when you're tooling across the middle of, say, Montana or Utah, where there isn't a radio station for probably hundreds of miles, you get good radio stuff. We got a free year of it in our new TrailBlazer we bought 1.5 years ago, but let it run out and didn't renew it, since that vehicle realistically doesn't leave the local metro.

We also use DirecTV - living rather in the boonies as we do, we can't get cable. Personally, I believe I would prefer cable...satellite TV does tend to leave you during bad weather, which is the #1 time that you'd like to be indoors and doing something like watching TV. Not real pleased with their service either.

Anyway, I can't be all that surprised about the merger talk - granted that XM channels have been in DirecTV for some time now. And it makes sense I think from the standpoint that it's all a satellite-driven business, so their infrastructure and technology all has to be pretty much the same.

I personally, though, echo sentiments from others about the "celebrity" channels and such. I have no desire to listen to Howard Stern (or anyone else vis-a-vis their celebrity status)...certainly not enough for him to have his own channel, and definitely not enough such that it impacts the price I pay for the service. I want radio service so that I can listen to music...and on *very* rare occasions, a sports broadcast. That's it. Everything else on XM is of no value to me at all - including things like weather and traffic updates, which I get from my phone (which happens to do turn-by-turn GPS navigation too).

So I don't want XM to go away...I'm pretty ambivalent about them merging with DirecTV, and I am absolutely against them spending money (and then charging me money) for celebrity broadcasters and/or extraneous "services" that I never use.

"There's no chance that the iPhone is going to get any significant market share. No chance." -- Microsoft CEO Steve Ballmer
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