Credit crisis reaches outer space

Michael Hedges October 19, 2008

As the financial world restructures with public guarantees media providers scramble for their own. It will be two steps backward as people with the money tidy up their accounts. Write offs in the tech sector may bring the digital dreams back to earth.

Satellite provider WorldSpace filed for bankruptcy protection in an American court (October 17). The company has over $2 billion in debts, according to the filing dispassionately reported by the Wall Street Journal.  WorldSpace will continue operating as debtor-in-possession as it looks for a buyer for its $300 million in assets including two satellites already in space and another on the ground. WorldSpace needs cash to make note payments.

Sirius XM Radio also needs cash. Last week staff lay-offs began in earnest, mostly from the XM side. In July Sirius and XM finally merged after a prolonged regulatory investigation. Top talent, mostly from the XM side, began vacating months earlier. CEO Mel Karmizan had been CEO of Sirius and famously stumped up $500 million for the services of infamous shock-jock Howard Stern.

Reuters reported (October 17) that Sirius XM is “considering” a reverse stock split to keep the share price from drifting further off the horizon risking NASDAQ exchange delisting. Once delisted companies face long odds and pawn broker interest rates for future financing. In August Mel said a reverse stock split wasn’t under consideration. Things change. Mel needs to make a $300 million note payment in February.

Delivering media services by satellite will continue to be a high performer. Radio will be part of that. And it will be part of the growing subscription media segment.

Ondas Media announced (October 13) it had reached an agreement with automaker BMW for factory installed satellite radio receivers. Ondas Media plans to launch, literally and figuratively, in 2011. Karmazin and XM predecessor Hugh Panero lined up similar deals with carmakers for factory installed receivers in North America. 

For car salesmen this is the proverbial win-win deal. Potential car buyer to salesman: “What kind of radio can I have?” Salesman to potential car buyer: “What kind do you want?” For the manufacturers it’s just a chip somewhere in the dashboard. For satellite radio providers it’s a locked-in customer…until the free subscription runs dry.

Mel Karmazin is a convert to subscription media. And he has kept to that story for most of the four years he’s been running Sirius. His contract expires next year.

But, oh, how I remember Mel saying, “I just love to sell advertising” (expletives deleted).