By Sarah Lacy
Liberty Media threw Sirius XM a lifeline with an 11th hour $530 million loan. If Sirius’s beleaguered balance sheet didn’t tell you everything you’d need to know about how the negotiations went, the terms would. The initial loan of $280 million comes at a steep 15% interest rate, and Liberty will get 40% of the satellite radio company in the end. Liberty Media will also get two board seats, expected to be filled by Liberty chairman John Malone and chief executive Greg Maffei, who techies may remember from his short, ill-fated stint at Oracle.
In what may be the most disingenuous quote in a press release ever Maffei said, “We have been impressed with the company, its operations and management team.” Really? Because I see a company that concocted an unsustainable business model where people pay less than a dollar a day for content, while it pays out $100 million-a-year contracts to celebrity talent. I see a company growing its revenues in double digits that can’t even pay the minimums on its debt. I see a company that was too wrapped up in the ego of winning than proving a business model. And perhaps most dire, a company way too dependent on the auto industry for generating new subscribers.
All that said, it was an advantageous deal for both parties. My criticisms aside, satellite radio can be a viable market, it’s just not as huge as its boosters thought five years ago. Once the debt and sky-high operating costs can be stripped out of the company, there’s arguably a nice business there for Liberty. Even one that might one day be spun off to another buyer. And even considering the waste, Liberty Media is essentially getting billions of dollars that went into building and evangelizing satellite radio for a bargain basement price. And Karmazin? Well he gets to keep his job one more day, which is more than 300,000 other people in tech can say.