Sirius XM is days away from hiding behind Chapter 11 bankruptcy protection to stall its $1 billion in debt payments due in the year ahead -- and keep Echostar (the TV people) from making a hostile takeover.
Well, wipe that smirk off your face -- terrestrial radio is next.
As I've been warning, the unthinkable is about to happen because radio CEOs have run their companies into the ground.
Just yesterday, Clear Channel drew down a mere $1.6 billion dollars from a previously arranged $2 billion line of credit.
Whoa!
Lee Capital Partners and Bain Media (CC Media Holdings) reported $1.7 billion in third quarter revenue ending September -- down 4% from the same period the previous year.
Obviously, the disease is worse than they thought if they are tapping their corporate ATM machine for the additional stopgap operating funds.
You satellite people, stop reveling in terrestrial radio's problems -- both of you are going bye-bye.
Take Sirius XM.
Mel was right when he told regulators that the merger of Sirius with XM was crucial to their survival. Now, they can both go bankrupt together.
Satellite radio is a miserable business.
Never made a profit. Has huge technology costs that never go away -- launching a satellite isn't cheap. They boxed themselves into a corner when in their infinite wisdom they thought their mission was commercial-free radio when in reality their mission should have been to invent the next iteration of radio content different from terrestrial formats.
Mission not accomplished.
And they got stuck without a way to monetize their huge expenses. In fact, the best case scenario for satellite radio if they had accepted commercials on their many music stations was to imitate network radio which as you know is lower than the gutter right now.
Technology, say hello to bad management. They forgot the innovation part -- so satellite radio was an also-ran before the Internet and cell phone even came along.
The next bankruptcies will be from terrestrial radio companies -- I've been warning about this for a while now. Their time has come.
You can't be the biggest radio consolidator -- with the best properties -- with local business off in some markets as much as 40 percent or more and think you've got a growth business.
And that's just the big kahuna -- Clear Channel, Lee & Bain -- whatever you call it.
Then there's Fagreed Suleman.
He's a bean counter who continues to cut costs but doesn't have a clue as to what he needs to do to make a real company out of Citadel. You see, it wasn't supposed to be this way. Teddy Forstmann and his pals were supposed to buy up stations, run them until the next wave of deregulation came, grow the group and then sell for a profit.
Hell, would you have ever picked Fagreed out of a lineup to run even one station? Of course, you wouldn't. Only an opportunulator (I just made that word up) would line up his ducks in a row ready for a killing.
Then there's Cumulus CEO Tricky Lew Dickey, another one born into the industry he's helping to kill, is going to see Jesus pretty soon (I mean this with all due respect) as he runs out of shell tricks to borrow from Peter to pay Paul. His company, too, faces loan covenant defaults.
As I said in an earlier piece, the banks don't want these loser assets back. Radio has been fatally wounded -- not by the Internet or mobile phones -- but by the ignorance and greed of their own CEOs. That's the only thing keeping radio CEOs hanging on -- nobody wants them.
Some consolidators are taking extreme compensation, bonuses and perks and they should probably be prosecuted for mismanaging corporate money. Their boards of directors are cozy and not independent so don't look there. And their shareholders have taken so many haircuts they look like Kojak.
And at the same time they are shamelessly cutting jobs, hurting the people who made them rich and disregarding their fiduciary responsibilities as holders of the public trust (licensees of the stations).
Sirius XM went first because their huge debt comes due first.
Terrestrial radio will follow.
Their situation reminds me of an advertiser I used to voice commercials for back in Philly -- "Cye Harold, a men's clothier at 54th and City Line Avenue, Philadelphia open 10 am until 5 the next morning says you bring it, we ring it -- our till is nil and needs a fill".
Plainly put -- there's no money left in the consolidated radio till.
The radio business won't be down 4% or even 10% this year. It is heading for 25 or 30% or worse. Even the CEO butchers who have slashed employees at will to cut costs can't fire enough people to balance out a bad business.
Look, this may be a recession but some businesses do better than others in poor economies.
Wal-Mart usually thrives. Home Depot takes a dive.
Neiman Marcus off 35% at Christmas. Nordstrom only 6%.
Radio is getting its comeuppance.
The little engine that would became the little engine that never could (operate).
In hockey, we'd call it getting caught in a line change. Too many men on the ice.
Thin ice.
So, look ahead and see what's on tap and you'll know the future before they will.
Sirius XM will have a big flap over the last year of Howard Stern's $500 million contract. Hey, Stern built Sirius -- not sports, not the 50's channel -- Stern. So, under bankruptcy protection they'll probably find a way to drive Howard Stern off the bird.
I'd like to say satellite radio is still a good business, but it isn't. There is an alleged -- I said alleged -- subscriber count of 20 million. If there is, they are all pissed off. I'll write later about how the XM-ization of Sirius has just about done in the programming. Don't expect subscribers to keep paying in a recession for that which is not much better than terrestrial radio.
Terrestrial radio is saying its final farewell.
If you're still sane (and it's hard to remain so with what's been happening in this industry for the past six months), you realize that you can't loot your stations, fire your talent, substitute generic programming to save money and fire your sales staffs when you actually need more sales and in your heart of hearts feel radio is going to survive.
The big elephant in the room is the next generation -- or lack of it thereof -- as a viable radio audience. There can be no growth industry built around only available older listeners, sorry. You need the new blood (80 million strong and now coming of age) that radio always used to get. That won't happen now.
The only hope for radio is that it becomes a content provider for the mobile space and Internet. But they know exactly zero about new media. Why would they need to -- they were just in it to sell out at a profit, remember?
I have a way radio and even satellite radio can survive but it is very radical -- change the role of owners and operators. I don't think anyone is interested in that right now, but one thing is for sure -- there won't be any turnaround coming for a business that missed the train to the future and doesn't have the carfare to get back on.
The record industry fought with satellite companies over royalties before it became a real business.
The radio industry fretted that national satellite radio would kill local stations and it turned out radio CEOs are the ones who killed local stations (for national Repeater Radio).
Terrestrial and satellite radio thought they had a monopoly on away from home (or car radio) listening, but some automakers including Nissan are now making radios optional equipment to help make their vehicles affordable. And the high-end brands are offering entertainment centers -- that happen to have a radio -- along with a lot of media competition built in.
The single biggest mistake radio ever made was to consolidate.
The second biggest was to forget that local personality radio was the reason for the mediums appeal.
And radio was never meant to be a Wall Street investment as the group owners and banks are now finding out.
Save as many lives and careers as you can and get off the sinking ship that has run into an iceberg, of which we have seen only the tip.
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