Sirius-XM: ‘Not shooting straight’
The Daily Beast, Tina Brown’s influential all-news website, yesterday bit the ankles of Sirius-XM, and its CEO Mel Karmazin alleging that Sirius-XM is no longer “shooting straight” as a company. The piece argues that Sirius-XM “has been counting millions of ‘subscribers’ who never pay a penny out of their own pockets for the service.”
A piece by Daily Beast regular contributor Alan Deutschman suggests that General Motors’ bankruptcy is “claiming another victim” in the shape of Sirius-XM, saying that the pay-radio broadcaster will be an “unintended casualty” because Sirius-XM “relies on new cars being sold equipped with satellite radio”.
Referring to Mr Karmazin, The Daily Beast said: “The embattled mogul, who once enjoyed a worshipful following among Wall Street investors, watched Sirius’s stock price tank by more than 30% recently. The sell-off came after the company said that its number of subscribers fell by 400,000, from 19m to 18.6m, in the first three months of this year. Never before had the company lost subscribers from quarter to quarter, and investors reacted with panic.”
The article continues: “Karmazin is also getting his inevitable comeuppance for a longtime practice of hyping his company’s numbers. In a dubious ploy (albeit transparently dubious, and completely lawful), Sirius has been counting millions of “subscribers” who never pay a penny out of their own pockets for the service. These customers get it free for six months to 18 months in promotional trials that are paid for by automakers such as Chrysler, which install the satellite-radio hardware in new cars. Fewer cars sold, fewer trial subscribers.”
Alan Deutschman argues: “The hype factor dates back to before Sirius merged with rival XM, when they were separate companies competing ferociously to be the No. 1 in their emerging business. ‘There was… a time when the focus was on adding subscribers at any cost,’ Karmazin himself said recently in a conference call with securities analysts.”
“The ‘subscriber’ decrease was entirely predictable by anyone who has been paying attention to this industry, so it’s curious that investors responded as if they were shocked. The more telling statistic: the number of customers who actually pay for Sirius XM’s service themselves, which fell by around 100,000, from 15.5m to 15.4m, which isn’t that horrible in light of the awful state of the economy as well as Sirius’s price increases,” says Deutschman.
On a more positive slant, The Daily Beast praises Karmazin as a “smart, shrewd, and [as] tenacious as just about any CEO anywhere, [and] can figure out a long-term strategy for making the satellite-radio business succeed. Americans are accustomed to getting radio for free, but Sirius XM asks them to pay up even though it runs commercials on its music channels. And what are the prospects for Sirius as new cars begin to enable us to plug in our iPhones and connect wirelessly to the Internet and to cool services such as Pandora, which lets us control and customize the programming that we personally desire? Satellite radio may wind up being an interim technology for the short time between the long ascendancy of old-fashioned broadcast radio and the new era of Internet on the run. Salvaging its future might be beyond even the talents of a legend like Mel Karmazin.”