Cox Radio CEO on Fading Satellite Momentum: It's About Time

Includes: CXR, SIRI
by: Evelyn Rubin

Robert Neil, Cox Radio's CEO, (CXR), has an "I told you so" moment in today's conference call with investors:

Mark Wienkes - Goldman Sachs

Good morning. The momentum across satellite radio is really seeming to fade lately, wondering what your current thoughts are on that business. Any comment on the Google/dMark deal announced this morning? Or have you guys had discussions, I'm sure with Google and is there any chance that you would contribute inventory to that system?

Robert Neil, Cox Radio CEO

On satellite radio, I guess I would say it's about time. Over a year ago, I think I said those guys were going to get theirs in due course, and they have. Because there's some major problems with their business model, those major problems are starting to be exposed. I find it at least humorous that a year ago they were saying that they were going to be free cash flow positive in 2006, earlier this year they thought it might be 2007, and now as every quarter goes by they're losing $100 million or $150 million more than they were the previous year. And I didn't see any headlines in the trade press today about when we would expect Sirius (NASDAQ:SIRI) to be free cash flow positive.

So, again, I think it's just overdue. If people really look at that business carefully, and look at the fundamentals of it, they're going to see it's a very difficult prospect at best. The prospects of those companies delivering any large amounts of cash any time soon, just aren't very good.

I still find it mind-boggling that they are allowed to count cars sitting in car lots unsold as subscribers. If I could count every radio on the shelf that is unsold as a listener, I could probably have a field day. So again, why Wall Street lets them get away with that, I really don't know. But that's someone else's business, not mine. Like I said, overdue I think.

Mark Wienkes - Goldman Sachs

The fundamental problem you are saying with the business model, is it subscription pricing, or do you think it's just that model doesn't work, or you're saying that the churn will eventually catch up?

Robert Neil, Cox Radio CEO

I just don't think it's a real business. I just don't think they offer something that people are willing to pay for. Sure, there will be some people that are willing to pay for it, but I don't think enough people are willing to pay for it, to make it a large generator of cash. When last I looked, when you strip everything off, that's what business is all about, generating more and more cash.

So, is there a need for their product? I really question whether or not there is. We do not plan to contribute any inventory to the dMark system. We believe that we're the better sellers of our inventory rather than someone else. With our lower commercial load, we don't tend to have a lot of excess inventory to spread out to someone else to sell anyhow.