[opendtv] Andy Kessler: Advice for Sirius
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March 8, 2005
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Satellite Radio Gets Sirius
By ANDY KESSLER
March 8, 2005; Page B2
What do you call a media company with a million subscribers and $500 million
in annual losses? A great start. Sirius Satellite Radio has set Wall Street
on fire, commanding a $7.4 billion value by following in the greasy path set
out long ago by the cable industry: Grow first and ask questions later.
Now comes the hard part for former Viacom president now Sirius CEO Mel
Karmazin, making this thing actually work. Competitor XM Satellite Radio is
worth
slightly less yet has 3.2 million subscribers. This isn't going to be easy.
Nonetheless, here is my seven-step plan to media moguldom:â?¢ Content.
Sometimes you get lucky. Harassed by the FCC over unwritten additions to the
seven
dirty word list, the "King of All Media" Howard Stern was ready to escape the
public airwaves. A very Sirius $500 million and an encrypted signal was all it
really took to shake him (and Mel) out of Viacom's control. I've been
listening to Howard since his afternoon drive time at WNBC. Like most of his
fans,
I'd follow him anywhere. Even still, signing up a few million Howard
listeners probably only gets you to break-even and not to the mass audience
needed.
Sirius needs a lot more. If you want to be like HBO, start ramping up your own
content, and fast.
â?¢ Distribution. A mass audience, even a paying one, is a chicken-and-egg
problem. Even though your satellite signal reaches to every nook and cranny,
you
still have to get new radio devices in the hands of listeners (one in three
is currently stuck in traffic). XM has signed up GM and Toyota, and Sirius
has Ford. Give automakers free ads, their own channels and make sure that
every
car sold is not just satellite-radio enabled, but standard equipped. If I
were Sirius, I would dangle another $500 million to break any XM contract. (If
this doesn't work, give the $500 million to XM in exchange for half their
station slots. Do we really need two noncompatible radios so early into this
market?)
â?¢ The Lock. Once you've got that mass audience -- wait, check that, do this
now -- find some friendly senators to file the 21st Century Satellite Freedom
Act that, of course, freezes everything where it is today. Every successful
media company is based on some restriction of trade -- TV was a mandated
oligopoly, cable has local franchise rights, movies control theaters, music
controls retailers, etc. Then go back to step one and instead of paying for
content, extort it. This is what cable does today: "You want carriage? Sure,
just
give me 50% of your company." Brilliant.
â?¢ Technology. Radio is as old as Guglielmo Marconi, who crackled the
airwaves in 1895. For goodness sake, change your name to Sirius Media
Networks. More
than TV, radio is a local business -- and a $21 billion business at that.
Put a GPS device in every radio and pipe local ads to listeners. Stick a disk
drive in your radios too, and turn them into audio Tivo machines. That's what
consumers really want. Get Apple to do it for you, call it iRadio.
â?¢ Pricing. To be king, you must apply the secret to prices: Raise them
whenever you get a chance -- Friday afternoons, during major holidays,
wartime,
while the Super Bowl is playing... raise them early and often. XM recently
changed their pricing by eliminating a basic tier, forcing all users to
premium
pricing. That a boy.
â?¢ Wall Street. They love you now, but they won't forever. You need a high
stock price to pay for all this stuff, so positioning is key. Forget earnings
(I see you already have) or PE or EBITDA or ARPU or even price per subscriber.
Your current valuation assumes some five million subscribers you may never
have. Cable finessed this with a concept called Homes Passed, assuming they
would eventually get them as subs. If every car has your radio, get Wall
Street
to value you on Autos Attached or some other silly metric. They'll fall for
it.
â?¢ Sell. OK, you know and I know that this isn't really going to work.
Cellular networks are close to offering radio quality audio to a billion
customers
world-wide. Internet infrastructure coupled with new technologies like WiMax
may mean streaming audio into cars and cafés. Satellite is so last century.
Fortunately, Viacom will eventually pay almost anything to get Howard Stern
and Mel Karmazin back. When the checkbook comes out, pretend to be offended
and
then hit the bid.
Mr. Kessler is the author, most recently, of "Running Money"
(HarperBusiness, 2004). URL for this article:
_http://online.wsj.com/article/0,,SB111024239670372956,00.html_
(http://online.wsj.com/article/0,,SB111024239670372956,00.html)
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