Sirius XM Radio Takes a Step in the Right Direction

satelliteThe change in leadership of Sirius XM Radio (SIRI) indicates that the satellite-radio provider needs a new approach to return to profitability. In an article published by TheStreet.com, Jonathan Heller writes that while Sirius XM(SIRI Quote) has shown improvement in the top line and has generated operating earnings the past two quarters, the fact remains that this company is swimming in debt.

Gary Parsons, founder of XM Satellite Radio, and its chairman until the 2008 merger with Sirius, has resigned as chairman and director of Sirius XM. According to a statement covered by Joseph Woelfel, Parsons is reported to have said, “While it has been a privilege to serve Sirius XM as chairman and to have guided the company successfully through the merger of Sirius and XM, I believe now is the right time to step aside.” Parsons will be replaced by independent director Eddy Hartenstein, publisher and CEO of the Los Angeles Times. In order to steer Sirius XM into a positive future, Hartenstein needs to take necessary action.

StockPreacher reports that the company is engaged in broadcasting in the United States, its music, sports, news, talk, entertainment, traffic and weather channels for a subscription fee through its satellite radio systems, the SIRIUS system and the XM system. It has two main subsidiaries, XM Satellite Radio Holdings Inc. and Satellite CD Radio Inc, both of which are entirely owned. As of June 30, 2009, Sirius XM had 18,413,435 subscribers, a decrease of 163,395 from the year before. This was due mostly to fewer gross paid promotional trial additions from a decline in North American auto sales, offset by an increase in self pay subscribers. A new satellite, known as SIRIUS FM-5 and manufactured by Space Systems/Loral, was recently placed into service, providing improved signal penetration and reception to millions of subscribers throughout North America.

In order for Sirius XM to survive, it needs to increase its subscriber and revenue base, while paying off debt and lowering its operating costs. It also faces certain challenges:

(1) The decision of whether or not to renew its contract with Howard Stern, host of The Howard Stern Show, an American talk show broadcasted on Sirius XM since January 2006.

(2) The possibility of having to upgrade its technological infrastructure, leading to higher satellite and transmission expenses.

(3) The presence of alternative technologies, such as podcasting, automobile Wi-Fi, and Bluetooth-enabled MP3. These technologies may replace the demand for satellite radio.

(4) High levels of sunspot activity, impacting satellite, GPS, and cell phone reception.
In the article, “What Sirius’ Earnings Really Tell Us” it is written that the company expects 2010 revenue growth in the mid- to high single digits and growth in free cash flow compared with 2009.

Disclosure: No positions in the companies mentioned.

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Sources

1.) Jonathan Heller, Sirius XM: Radio Ga Ga

2.) Joseph Woelfel, Sirius Chairman Parsons Resigns

3.) StockPreacher, Trading Outlook for Sirius XM Radio Inc.

4.) Scott Rothbort, What Sirius’ Earnings Really Tell UsStocksTechnologySIRITSCM