Sirius XM teetering on the brink of irrelevancy
Whether it means to or not, Sirius XM exudes terrestrial radio culture. That's why, as its CEO says, the stock "sucks."
By Rocco Pendola
As Jerry told George on a classic episode of Seinfeld:
You know you really need some help. A regular psychiatrist couldn't even help you. You need to go to like Vienna or something ... You need to get involved at the University level. Like where Freud studied and have all those people looking at you and checking up on you. That's the kind of help you need. Not the once a week for eighty bucks. No. You need a team. A team of psychiatrists working round the clock thinking about you, having conferences, observing you, like the way they did with the Elephant Man. That's what I'm talking about because that's the only way you're going to get better.
Sirius XM (SIRI) permabulls have become the George Costanzas of the stock market.
As SIRI continues to get hammered (down about 16.5% over the last three months), a stubborn gaggle of people who claim to be long the stock continue to not only defend it, but present the future as some sort of alternative reality.
The latest "positive" to come from a marketing "machine" powered by hamsters running in place does little more than fuel false optimism for suffering shareholders who could very well end up owning a penny stock again if the power struggle between Sirius XM and Liberty Media (LMCA) fails to resolve.
On Wednesday, Sirius XM announced that it would make its service available on Google (GOOG) TV. This would be excellent news if it wasn't a prime example of an effectively irrelevant company putting the cart before the horse.
The second iteration of Google TV may or may not shift the device from abject failure to moderate success. It certainly will never attain Microsoft (MSFT) Xbox status any time soon. But that's neither here nor there.
Like Apple (AAPL) TV and Roku, Google TV is just another streaming set-top box. You cannot fault Sirius XM for becoming a part of it or any of the others. You can, however, take the company to task for not understanding the competitive marketplace and, in turn, coming to Goggle TV and the mobile world woefully unprepared for battle.
Sirius XM and its shareholders -- at least the ones who troll Internet message boards -- appear satisfied with the status quo. They hear their CEO Mel Karmazin open every quarterly conference call the same way. For all intents and purposes, he reads the same script, just replacing the numbers that detail updated subscriber growth, free cash flow and other quantitative metrics.
Mel can run a business as efficiently as any other radio guy with a business degree. He puts up the numbers, quarter after quarter, to prove it. As a result, SIRI permabulls assume that stock price appreciation should follow.
That's where they make a fatal error, and proceed to throw temper tantrums when somebody attempts to point out why.
I guess I take the obvious for granted. Investors, particularly in highly competitive and dynamic spaces such as new media, do not buy stocks and, ultimately, drive stock prices higher on the basis of the things Karmazin is good at.
As Sirius XM proves, it can put up all of the free cash flow in the world and keep a tidy, modestly growing subscriber base happy, but the stock doesn't follow. In fact, as Mel said himself, the stock "sucks."
We know that. All you've got to do is max out the chart for proof. SIRI longs express outrage because of their sucky stock. They blame every external force they can think of, from me to TheStreet's Richard Saintvilus or Jim Cramer. They direct their angst in any extreme direction they can dream up, yet the most ardent longs refuse to ask Karmazin to look in the mirror. He certainly doesn't seem prepared to do it himself anytime soon.
Investors bid up stocks on the basis of what they see for the future. That's why they'll value Amazon.com (AMZN) at 182 times earnings. They realize that Jeff Bezos not only has a firm grasp on the future of several industries, he visions and shapes those futures.
He doesn't run Amazon.com like a chain of brick-and-mortar retail outlets. That's because it's not a chain of brick-and-mortar retail outlets. Increasingly, Amazon does not even really compete much with brick-and-mortar retail chains. That aside, investors tend to view it as something other than a retail company; it's tech, it's Internet, it's new media.
Bezos pulls off more than good branding, excellent imaging or a sneaky marketing ploy. Instead, he has built what is now a wholly entrenched innovative and progressive start-up culture at Amazon.com.
I talk to people almost daily who tell me that the culture Karmazin has created at Sirius XM exudes the terrestrial radio atmosphere that inspired satellite radio. Mel might as well be running a cluster of New York City AM/FMs because that's, effectively, what Sirius XM is.
Grab a free trial. They offer one. If you're under 50, odds are it just won't make the connection. If you're familiar with traditional radio, you'll feel as if you're listening to it or something worse. Simply put, the product does not translate to something that sounds even remotely hip and relevant, be it Google TV or mobile devices such as smartphones and tablets.
Sirius XM and its supporters tell us that they're everywhere Pandora (P) and other younger-skewing companies are. They have an app. It's on smartphones. It's on tablets. Now, it's on Google TV.
Terrestrial radio is there as well. That's an industry that generates $14 billion in advertising revenue every year -- but find me a major, pure-play radio company worth investing in. You can't do it. Their stocks suck as well. But why? For the same reason that Sirius XM's stock sucks.
You cannot slap lipstick on a tired, stale and soulless product. You cannot imitate what pioneers such as Pandora do and expect people, particularly young people, to adopt, let alone pay for what amounts to a cheap imitation.
To survive over the long haul in the space Sirius XM competes in, you need a start-up culture. You need the foresight (and the guts) to sacrifice the near-term to ensure you seize at least a share of new media's long-term opportunity.
That's where terrestrial radio failed. It stuck to its model. It expected continued success by habitual default. It refused to change. It refused to shake up its establishment and hire new, young blood.
Today, you will not find an argument when you speak of terrestrial radio as an increasingly irrelevant artifact of history, even though it can claim a multi-billion dollar business. It can only stay alive by becoming something other than what it is.
SIRI loyalist longs cannot see the writing on the wall. Mel Karmazin refuses to look in the mirror. He will not give up control. It's a recipe for irrelevancy, if not unmitigated disaster. Only Liberty Media or a team of psychiatrists working round the clock can save them.
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