Future of Public Radio - More on Sirius

I am increasingly convinced that the defining issue that drives the real New Media is participation or Many to Many.

If I am right, then all strategies that rely on One to Many are flawed - so for me HD is irrelevant and satellite is doomed.

They drive too much cost in both programming and in acquisition.

Here is the latest on Sirius via Mark Ramsay - Robert Walberg on MSN - That shows what I mean - Snip

Trend in Sirius' favor

Sirius now expects to end the year with about 6.3 million subscribers, up from its previous estimate of 6.2 million. That will still leave it a couple million behind XM, but the trend over the last year is working in Sirius’ favor. In a couple of years, Sirius may actually achieve its goal of becoming number one.

Unfortunately, the price of that goal is so high that the company continues to bleed red. For those of us who persisted to the meat of the earnings report, we learned that the company’s net loss grew by 34%, despite posting more revenue and subscribers than expected.

The company also tried to diffuse the growth in expenses by not listing the percentage change, as if we were too stupid or too lazy to do the math. Whereas management was more than happy to point out the 64% jump in subscribers and the 187% rise in sales, it didn’t want you to see that sales and marketing expenses jumped 65%, or that satellite and transmission expenses rose 164%. More alarming, programming and content expenses surged 235%. Overpaying for personalities and content actually does have an impact on the bottom line, even if you try to bury it in your report.

Not a viable business

Until management figures out a way to get subscribers without having to pay exorbitant sums to people like Howard Stern or to organizations like the NFL, Sirius will continue to deliver mixed results at earnings time. You simply can’t have average monthly subscriber revenues coming in at about the same figure as subscriber acquisition costs and still have a profitable, viable long-term business.

On the plus side, subscriber costs are coming down and average revenue per user is rising. Management needs to focus on widening the spread considerably if it hopes to meet its stated long-term goals of $3 billion in revenue and $1 billion in free cash flow by 2010. It needs to end the costly programming/personalities race with XM. Otherwise, there’s no way the company will hit its cash flow targets.

Shares see sharp drop

Just look at the company’s guidance for fiscal 2006, in which it now expects to be cash flow negative to the tune of $500 million, worse than an earlier projection of $480 million. Promising to be cash flow positive is one thing, delivering the goods is quite another.

Since I wrote my first report on Sirius in which I questioned management’s integrity, the sustainability of the company’s business model and the insane valuation of the stock, Sirius shares have declined sharply -- from just north of $7 per share to under $4. The stock has bounced back a bit in recent weeks, and at today’s price is reasonably valued considering its long-term promise and extremely devoted fan/investor base.

Speculators might want to nibble in hopes of a renewed rally ahead of the NASCAR buzz, but until the company gains control of expenses and until the average subscription costs falls below $100, most investors should continue to take a pass. At 18x trailing sales the stock is still richly valued, and with over $1 billion in debt the balance sheet is still too leveraged.