New Sirius Radio “planning acquisitions”

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Sirius Radio “planning acquisitions”

18-11-2009

Sirius Satellite Radio CEO Mel Karmazin made an appearance on Fox News (on the Neil Cavuto show) and chatted about the undoubted progress Sirius is now making following on from its near-death brush with bankruptcy.

Sirius acquired rival XM Satellite Radio back in July 2008 and the merger created a huge operation, now with some 18m subs, but the challenge - and the debt burden - almost brought Sirius to its knees. John Malone stepped in and bailed the business out to the tune of some $530m, in return for a 40% stake in the operation. During Cavuto's segment it was stated that not only is Sirius losing less money than before, it is also reversing the loss in subscribers. "More car sales generally means more [pay] radio sales," said Cavuto. Karmazin predicted that next year would see an improvement of some 10-12% over earlier expectations in terms of new car sales in the USA, and further helping Sirius' business model to work.

This week's headlines focused on Karmazin telling Cavuto that he had no intention of quitting the satellite radio business despite rumours linking him to the Comcast/NBC deal. He said he had just renewed his Sirius contract, and that he "loved radio". He stressed that the sort of cash paid to on-air talent such as Howard Stern was fair value. "Good content costs a lot of money. After paying [on-air talent], and interest, and all our other expenses we will be generating free cashflow next year," he said. "Free cashflow creates wealth, and enables us to make acquisitions, buy back stock, and pay down debt."

Cavuto, unfortunately, didn't ask him what shape those acquisitions might take. We can speculate, or to use the non-journalism phrase, guess! And our non-scientific speculation revolves around the role John Malone's Liberty Global has taken in Sirius (a potential ownership stake of 40%) and Liberty's role in international pay-radio operator Worldspace.

Worldspace operates the Afristar (a beam of which covers Europe) and AsiaStar satellites. Liberty Global is now holding all of Worldspace's debt obligations, and is likely in January to be confirmed as the official buyer of Worldspace. The question is whether Sirius would want to buy a revitalised Worldspace international operation, and ‘export' its services outside the USA. It already has a joint-venture operation in Canada.

Liberty Media, on Nov 12, has also said that it would spin-off its 40% stake in Sirius "at some stage," according to CEO Greg Maffei. The speculation is that Liberty's 40% stake in Sirius could form the basis of a new Liberty-backed tracker stock, perhaps with an international flavour.

On the potential revenue side it is worth remembering that Liberty owns a wide portfolio of European cable stocks, all of which might prove to be fertile ground as far as selling audio services to. Most of these operations (and may others that are not related to Malone) already take audio services from Music Choice Europe. Music Choice itself is backed by Comcast, Time-Warner, Cox, EMI Music, Microsoft, Motorola and Sony.

Given that Liberty understands international TV our guess is that Dr Malone might also fancy an international radio play. Certainly the international audience and revenue for pay-radio is very different in Europe to that in North America, but if Ondas Media (and others) think there's a market in Europe for pay-radio then why shouldn't Liberty dip its toe into the water. After all, come January it will own a delivery mechanism.

Regards,

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