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Analysts Raise Doubts Over Sirius XM’s Super Bowl Push, Hikes Rates

By | January 22, 2009
      [Satellite News 01-22-09]  Despite the force of Sirius XM Radio’s push to capitalize on the most popular U.S. television event of the year, the NFL Super Bowl, some market analysts are calling the move “desperate” — coming at a time when the satellite radio provider, buried in debt and paralyzed by expensive talent contracts, needs any boost it can get.
          Sirius XM announced Jan. 22 that it would be offering a comprehensive Super Bowl coverage package that will involve 13 individual broadcasts in 10 different languages. Both Sirius and XM customers with the "Best of Sirius" package will have access to the Feb. 1 coverage, the company said.
          “The plethora of offerings and the enhanced quality of the technology haven’t been enough to raise the profile very high of satellite radio in general and Sirius XM in particular,” said market analyst Jon Friedman.
          While Sirius XM has been vocal about new revenue-generating ideas, it has been quiet on what changes it will make to its existing business model, but also on Jan. 22, Sirius XM said it will raise rates on its service beginning March 1.
          According to Sirius XM customer service, the company’s online streaming service, previously free with subscription, will cost $2.99 per month. Additional radio units will cost Sirius XM customers $2 more per month, to $8.99. The company hopes to offset the price hikes by raising its feed quality to 128k and said it was not altering base subscription rates, which would violate the terms of a deal it made with the U.S. Federal Communications Commission (FCC) in order to establish its post-merger entity.
          The rate hikes may help with the company’s financial woes. The company faces a hefty bill in 2009 — $1.1 billion in loan repayments, including $300 million in convertible bonds due February.
          Ironically, expensive sports programming contracts such as the coverage of the Super Bowl are one of the main reasons some analysts think the company is in fiscal suffering. Industry analyst Tim Farrar said that Sirius XM programs and on-air personalities would have to decide whether or not they would compromise on their expensive contracts to help the company through its current economic difficulties.
          In November, Sirius XM said it was in discussions with several financial institutions regarding financing to replace its 2.5 percent convertible notes due 2009. Sirius XM even lowered its year-end subscriber expectations from 19.5 million to 19.1 million citing current economic conditions and a dramatic slowdown in subscriber additions through automotive channels.
          Despite its own gloomy outlook, the company reported a strong 2008 third quarter with pro forma revenue increases of 16 percent from the same quarter in 2007, subscriber increases of 17 percent and a 64 percent improvement in the pro forma adjusted loss from operation at $37 million.
          "We have provided new long term financial and operating projections based upon slower auto production and greater cost savings and we now anticipate positive free cash flow of $1 billion in 2012,” Mel Karmazin, CEO of Sirius, said in a statement.
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