Sirius XM May File for Bankruptcy Protection, Subscribers Worry

by Jordan Yerman | February 11, 2009 at 10:52 am

1689 views | 20 Recommendations | 9 comments

Sirius XM Satellite Radio, the lone superpower in the satellite radio biz, is in danger of bankruptcy. With 18.9 million subscribers and nearly 140 channels the prospect of the company going under has far reaching implications.

What will bankruptcy mean for subscribers? What will it mean for the channels? And what about all that Sirius talk radio talent, will they lose their jobs?

Suddenly hiring Howard Stern for such a massive price doesn't seem quite so sound, but, if Sirius' subscription stats are correct, they should be bringing in some serious cash.

Sirius XM has been working with lawyers to prepare a possible bankruptcy filing, the New York Times said yesterday, citing unidentified people close to the company. EchoStar Corp., the satellite-TV group run by Charles Ergen, has been buying Sirius XM’s debt after the company rejected its unsolicited bid in December, according to a person familiar with the situation.

While shareholders get wiped out when a company files for bankruptcy, debtholders typically sweat out a long and often complicated reorganization and are forced to accept pennies on the dollar in debt repayment.

Charles Ergen, who controls EchoStar as well as Dish network, purchased Sirius XM's debt , which matures next week. Meanwhile, Sirius XM has rebuffed buyout attempts, but their high ground seems to have eroded.

It remains to be seen what Echostar’s (Nasdaq: SATS) debt-acquiring stunt will ultimately accomplish. With capital-raising sources dwindling for Sirius, it's left with little choice but to negotiate with Ergen. It can also naturally file for Chapter 11 bankruptcy protection, but that would be a bigger betrayal of its fiduciary responsibility to its shareholders.

Sirius XM's main source of revenue comes from subscription fees, including the prepaid subscriptions paid by auto manufacturers (Those free 6-months of satellite radio you get when purchasing a new car is actually paid by the auto manufacturer).

Okay, but what about the music (and talk programs)? What happens if Sirius just fails? Chances are that the company itself would get restructured but its work would go on: i.e. we would still hear the music over those little sat-radio boxes, but all the shareholders would get is a splitting headache.

There is speculation that the radio shows will go on even if the reigns of the parent company change hands. Sirius is near profitability and these financial woes are likely nothing more than a bump in the road. Somebody will want to make the money Sirius is on the verge of earning.

A leaner Sirius could be a thing of beauty. The company closed the third quarter with 18.9 million subscribers. It has been a financial disaster up to this point. The combined company has amassed $9.5 billion in accumulated deficit. However, it was already looking to turn the corner after completing last year's merger. Back in November, Sirius was projecting to break even, based on adjusted free cash flow, in 2009. A svelte Sirius could really make things interesting.

The only direct announcement from the company itself is:

SIRIUS XM Radio (Nasdaq: SIRI) announced today that Tom Petty's critically-acclaimed Thursday evening show on Deep Tracks, Tom Petty's Buried Treasure, will now also be broadcast each Sunday evening for an uninterrupted four hours on Deep Tracks SIRIUS channel 16 and XM channel 40 beginning Sunday, February 15.

C'mon, Sirius... Don't Do Me Like That.

Thanks, Tina Kells, for compiling these sources.

0 See all footage | View Slideshow

Share: email story | add to any | | facebook | stumbleupon

recommend This comment thread is now closed

Robert Sutherland

at 12:10 on February 11th, 2009

Maybe if they didn't toss all that money at Stern they would be fine.

Charles W. Merritt (not verified)

at 13:44 on February 11th, 2009

I DO NOT WANT U TO USE THE PHOTOS I HAVE UP ON FLICKR. I DO NOT GIVE U MY PERMISSION . I do NOT know whe ther U legally actually NEED my permission of NOT, since Flickr is ALL in the public domain, but if U do take getting a persons permission SERIOUS; U do not have MY permission to use my photos and do not ask me in the future for any permission ! Thank U for asking, but again I do NOT know the legal ramifications.

Sincerely

Charles

Rachel Nixon

at 16:34 on February 11th, 2009

Thanks for commenting. Your photos have not been used on this story and we wouldn't use them without your permission.

nicfulton

at 15:03 on February 11th, 2009

I think the story here is what's going to happen to Howard Stern. He might be the biggest loser, but perhaps he'll become the biggest financial loser too!

grilled cheese

at 19:53 on February 11th, 2009

I love Sirius! I don't know what I would do without it!

Please don't make me go back to local radio with commercials! GAH!

ali baba (not verified)

at 12:52 on February 16th, 2009

why sign stern for so much, who else was offering him a contract? classic bidding against yourself and getting burned. stupid judgement by management.

ameren1234 (not verified)

at 14:39 on February 16th, 2009

Stern vs. 140 other channels........... It's a no brainer. Stern must go. He's got enough money for sure. Why doesn't he offer to release them from their contract?

PB369 (not verified)

at 04:41 on February 19th, 2009

YA'LL KEEP KNOCKING STERN, BUT YOU FAIL TO UNDERSTAND THAT HE BROUGHT AN ESTIMATED 4 MILLION SUBSCRIBERS WITH HIM. NOT SURE HOW MUCH 12.95 x 4 MILLION IS. BUT ITS PRETTY CLOSE TO 100 MILLION. JUST COOL IT FOR A MINUTE AND IT WILL MORE THAN LIKELY TURN OUT FINE FOR EVERYONE......YES, EVEN STERN (-:

Servicemgr GUY (not verified)

at 07:31 on February 19th, 2009

This mis managed company going down would not suprise me ... lousy customer service, false promises. My so called 1 year of service lasted 5 months and now they want more money ! - good luck, maybe a change in ownership would be a good thing.