BET ON MEL



Yesterday’s drop of 12% for Sirius stock and a 17% drop for XM’s stock follows a long standing FCC approval process that has yet to be resolved. The drop was sparked by the Goldman Sachs Group, downgrading both companies’ price targets to $1.75 for Sirius and $6.50 for XM. Further exacerbating the damage, Goldman Sachs suggested a poor outlook for satellite radio pointing to a competitive landscape.

That the merger approval will occur is highly likely and is reflected in the current stock price of both concerns. Nonetheless, final approval will almost certainly give both stocks a much needed lift.

As for the “competition” that Goldman Sachs believes will weigh heavily on the fortunes of the merged entity (viewed as the “new” 3G iPhone technologies and the increase in MP3 players) . . . . bunk!

While the younger demographics embrace and fuel the growth of audio and streaming video players, don’t bet the farm that XM-Sirius will not converge to expand its reach into this lucrative, first adapter market. It has already captured a significant share of the automotive market . . . .a more mature market that the younger group will eventually move into and a market that seamlessly incorporates its product and program offerings into the automobile at the manufacturing level. MP3 “add-ons” are still add-ons and the future receivers of the satellite companies will incorporate record and play-back technologies into their products (much like today’s DVD (TIVO) recorders).

Goldman Sachs and its analysts need to bet on long-term visions and stop reacting to misplaced short-term observations before attempting to play ping pong with “sirius” investor market positions.

They also likely did not consider the impact that Mel Karmazin, CEO of Sirius and a force to be reckoned with, will have on the future of these companies.

3 comments:

Geoff said...

I wouldn't bet on sattelite radio. Once HD Radio finally takes off, there will be a jump in the amount of free content available (more channels in the same bandwidth) from the existing broadcasters. Plus, with HD, FM jumps to CD quality sound and AM jumps to FM quality.

My car came with 6 month's free Sirius service. I hardly used it. When I have 7,000 songs on my Ipod that I can listen to in my car, why would I pay a subscription fee to listen to somebody else's playlist? The few times I did use the service was to listen to NFL broadcasts. The sound quality was terrible; I think from too much audio compression. There are also issues with dead spots where the signal drops.

Paul Benjou said...

Geoff ....
I'll take that bet! One year from today, let's revisit. One will buy the other dinner.

I too have Sirius in my car and would not be without it. I never listen to local stations any longer.

BTW, I do not hold a stock position in either company.

Anonymous said...

These companies are dinosaurs already. HD Radio is going to compete, but if people ever wake up to Internet radio, through devices like the Squeezebox and Airtunes, it's totally over. The variety of stations on the internet dwarfs both satellite companies combined, with narrowcasting ruling all. I suppose they can get behind celebrity stations like Stern and Oprah, but media democracy suggests that even their days are dwindling.