Phil Anthropy

A Bankruptcy Filing, Mel? Surely You Can’t Be Sirius…

Mel will end up rich either way. Unlike the shareholders.

Could It Finally Be Time to Buy Sirius XM Stock?

As someone who bought much higher and is holding for the long run, because not much left to lose, my inclination if I had bought at the bottom is to sell into strength. If the debt is paid somehow, the stock will continue to rise over the long haul, and one can buy back in. If this is a false alarm before BK, then it's a possible bull trap, at least for the shareholders. Also, there could be massive dilution before a reverse split.

The problem is just undercapitalization and overspending on big names, not the product itself, in my view. I had a rental car (a Hyundai Sonata, and their XM and speakers are awesome) that made me a believer in XM, particularly The Village station, which was crystal clear and the choices and commentating were superb. So I think if the company survives financially, in the long run its monopoly will be successful, but DYODD.

Hazlett Report Examines Sirius-XM Merger

The Hazlett paper supporting the SIRI - XMSR merger is propaganda at its finest, as is the prose from other sources opposing the merger. If the welfare of the consumer were paramount, as the paper says it should be, the government would regulate or even nationalize satellite radio, since companies are in business to benefit shareholders, not consumers, particularly in a monopoly.

The paper says there is competition between satellite radio and terrestrial radio. That is a complex topic, which belies the glib answers the paper gives. At present, there is competition between free radio with annoying ads and paid satellite radio without them. Indeed, the market price of satellite radio is a measure of how much annoyance from ads a consumer will tolerate before paying for solace from them. Satellite radio also has the virtue of more available channels in locales with few radio stations. For the moment, the main choice is between ads and subscription fees. However, this may not be true in the future.

For instance, suppose satellite radio gains economies of scale, lowers subscription prices to a nominal level and captures market share. The company could then decide to allow a limited amount of advertising, not enough to dissuade subscribers. Perhaps subscription prices could be lower for people who bought a package of non-premium channels with occasional advertising. That advertising would be heard by millions of listeners, but could be sold at relatively low prices to advertisers. While it would be a small value added for the satellite radio company, it could enormously harm the dozens, perhaps hundreds, of local radio stations who no longer carried that one ad to the same number of listeners.

Once entrenched, with nominal subscription fees and economies of scale, a satellite radio monopoly could limit channels and content, to bolster the bottom line for shareholders. That wouldn't seem to benefit consumers.

In short, it is much better, in my view, if both SIRI and XMSR continue to fight it out. If it takes them another few years to start generating positive cash flows, what's the problem?

The real problem has two forms: one of the two companies goes bankrupt, or both do. If one company goes bankrupt, then the "merger" consists of the winner buying the loser's equipment and subscribers for pennies on the dollar (similar to when small airline goes bust), assuming there's no government bailout. If both go bankrupt, then the terrestrial radio folks win, and consumers lose out. But from what I understand, both SIRI and XMSR are not too far from profitability. Although that could be just hype from the boardrooms, if it is true, then I do not support a merger.

The merger would probably result in lower subscription prices (after a period of merger cost write-downs), which would attract more listeners, which would harm terrestrial radio. Satellite radio is superior to terrestrial, and each subscriber to a low-cost service is someone who will probably not go back. Terrestrial radio stations cannot easily limit their advertising, because otherwise they can't pay the bills, so better content is the only way to attract listeners. But satellite radio will already have broad, excellent content available through the multiplicity of channels. Only after terrestrial radio has begun to erode in content and lose market share will the satellite radio company start to increase prices to a relatively captive audience. At that point, years from now, will we really want one monopolistic "big brother" controlling much of our radio media? It's something to think about.

With two companies in the satellite radio business, at least we have a semblance of competition, although we've seen that an oligopoly in the oil business doesn't do much to keep gasoline prices lower. But, unless we have a regulated utility (which I am not opposed to), a duopoly is somewhat better than a monopoly. There is nothing wrong with a little redundancy when companies compete. It tends to make the market more efficient.

Disclosure: I am long SIRI calls.