But their problem is two-fold:

1. Too much debt – but as you point out they could always go bankrupt and get a debt reset, thereby capitalizing on possible future revenues unencumbered by their current debt. But that does not necessarily make them viable because:

2. Competition from alternative formats – it is unclear that they will continue to have subscribers and a revenue base in the face of competition from HD Radio, Internet streaming, IPods, decreasing sales of autos etc.

My guess is that much of their subscriber base is comprised of those who have purchased new cars with the free “trial” subscription. In order to keep those subscription numbers up, they need churn – new car sales need to offset losses in subscribers who do not renew after trial runs out. Well, car sales have fallen off a cliff. So it’s not at all clear that their subscription rate will grow (or even remain static). It’s no surprise to me therefore that Sirius XM has been reticent to release subscriber numbers recently.

Right. So if the marginal cost of producing a hour of programming is low (excepting Howard Stern), how are they losing money? I mean most of the programming is simply organizing play lists on a computer.

I think Sirius has about 10 million subscribers. The basic subscription rate is $13 a month. $130 million a month in revenue is a lot of money in the context of just putting play lists together and paying for some talk show access.

If actually operating the satellite constellation is the major cost driver, then the concept just won’t work. However if it’s debt service for launching and emplacing the equipment that is the cost driver then Sirius would be a cash cow when the debt is repaid.

So if there is a big debt load, no one will buy Sirius now. Especially if you toss the Stern contract on top of that. Better to let Sirius clear the books either through bankruptcy or by limping along cash crippled and then go after the future revenues. Maybe make a play 12 months before the final debt tranche when the balance sheet still stinks and the market is still wary.

I read somewhere that XM had two Boeing satellites and Sirius had three Loral satellites. That might not be exact, but that is what I remember reading. The question then becomes what to do with the superfluous satellites.

You’re right that they probably don’t need all that physical equipment anymore, and I don’t know the market for satellites very well, so I cannot assess whether they have value outside their current use. But even if they cannot be sold; they are sunk costs in the economic sense. The huge up front, one-time costs have largely already been spent. If that is the case, there is little savings outside of the additional operation and maintenance costs of the constellation that they have chosen to abandon.

Thanks for your reply. My thinking is not only the high placement cost of the satellites but the unique fact that they may have no salvage value if they can’t be sold for another application, e.g. Iridium.

So in other words, even if Sirius/XM abandons a number of satellites, it’s not like selling a terrestrial property and getting at least something for it. That money is just gone…

Would definitely be interesting to get some color into those costs…

But how much of the Sirius/XM problem is really paying for and maintaining 2 separate satellite constellations versus everything else? If the cost of hardware plus debt to finance its placement as well as system operating costs swamp savings from (cheap) programming and combining HR, they go broke.

So simple arithmetic. Does the savings potential dominate the cost drivers of the enormous expensive systems themselves?

P.S. DJ’s are a dime a dozen. Howard Stern is the only programming cost that probably gives them heartburn