I’m starting a new feature for all the goons out there who wax rhapsodic about capitalism. The “dumb capitalism” feature will highlight the sheer idiocy of American business, highlighting examples of how ‘competition’ in the marketplace and greed combine to destroy all good things that our economic system touches. As I always say, everything American capitalism touches, it eventually turns to shit - from automobiles to newspapers to baseball cards.
Today’s first example - Satellite Radio (Fortune).
In the beginning - the market saw satellite radio and said it was a good thing. It certainly seemed that way, but let’s remember that satellite radio grew out of an enormous disgust with what ‘free market American capitalism’ had done to terrestrial radio - simply destroyed it.
From tight 200 song playlists to endless blocks of annoying commercials (when I was in radio I used to joke “and here comes ten in row - ten commercials!!) featuring screaming car salesmen and other assorted hucksters, to the only talk radio being fascist talk radio, many people had gotten tired of the absolute shit offered up on commercial radio and I was one of them.
But could two satellite radio providers offer decent programming and exist in the same environment?
Of course, in our system which trends everything toward monopoly, the answer was no.
Good old competition among idiots took over highlighted by Sirius’s suicide inducing payment of Howard Stern:
The $500 million deal that Sirius struck with Stern in 2004 is a good example of the bidding war that eventually forced Sirius and XM in each other’s arms.
Stern was already in talks to go to XM when Sirius swept in with its ridiculously large bid. Sirius - the smaller of the two satellite broadcasters with less than a million subscribers - saw Stern as the marquee name that would more than double its audience, and lure advertisers. XM, with 2 million subscribers, had reached the same conclusion, which is why Sirius had to pay big to land Stern.
Similar battles played about for other top draws. Sirius, for instance, is paying the National Football League $220 million for an exclusive seven-year deal and Nascar $107.5 million for a five-year contract. XM is shelling out $650 million for its exclusive 11-year Major League Baseball pact.
In all, total programming costs, the biggest single expense for the two companies, came to $475.4 million last year, or 23% of total revenue.
Was it worth it to get Stern? Absolutely not, of course not.
Neither was it worth what both companies paid for all of that sports programming.
But hey, these are Harvard MBA geniuses running the show, right? Of course they know better.
They thought. Heh, I always love that. They thought people would just flock to Sirius for Stern, already a one trick pony whose time has come and gone. Rather than develop new and exciting talent, Sirius execs believed that, like the pied piper, they would lure subscriptions and ad revenue by waving around Howard Stern.
It was suicide from the beginning and now, with both services merging their massive debts together to form - a bigger company with massive debt and cash flow problems.
With the economy in a tailspin, if Sirius-XM wants to hasten their slide into bankruptcy, they could go ahead and raise the subscription prices. That oughta do it.
I’d hate to drop them, but I would.
From the Fortune article:
Satellite radio subscriber growth is flat, the likely victim of a slowing U.S. economy and waning interest in the once-novel medium. Meanwhile cash is running dry. Last month, citing heavy debt costs, a tightening credit market and sluggish car sales, Goldman Sachs analyst Mark Wienkes slashed his stock price targets for the two companies, raising the prospects that there may be a financial black hole ahead for the combined company.
If so, analysts expect Sirius-XM to take a hard look at programming costs, either by waiting until existing contracts expire or using the onset of a financial crisis to force everyone to the bargaining table sooner. The combined company’s market dominance, analysts say, will give it the necessary leverage to cut programming costs by as much as 30%.
It really doesn’t matter what Stern will and will not go for. The stock he owns has probably (or certainly will) tank in price and with what he’s already guaranteed under his contract, he could quit now and never have to work another day in his life or several lifetimes.
As for sports, with most of what is offered on TV put out for free, the market for people in transit catching the game or race was too minuscule to make the millions spent worth the effort. I could have told them that, but I don’t have a Harvard MBA so who would listen to me?
And I’m sure the NFL will cut it’s asking price for rights in half, say, so Sirius-XM can survive. Right.
The business model of both companies SHOULD have been bedrock core - the music. It was the reason the vast majority of people went to commercial radio - not to hear NASCAR or the Browns in their car - but to hear a great selection of music uninterrupted by commercials. And they were willing to pay for it.
Part of the other problem that Sirius has, in my opinion, is they started acting like terrestrial radio. I can’t say how many subscribers they lost but they have annoyed me with their own versions of revolving playlists on pretty much every music channel. What people who paid for the service wanted was VARIETY NOT to hear the same Sinatra song played every 12-24 hours on the Siriusly Sinatra channel or the same Van Halen song played every 12-24 hours for a month or so on the Classic Rewind channel.
Even with commercial hits there are SO MANY thousands of songs to choose from that I do not understand the notion of satellite radio having to group them in playlists. Are we that stupid as a people that we must be fed our music in digestible blocks AND pay for it?
Good Goddess, I even hear the same music being repeated day after day, week after week on Sirius Pops.
If this keeps up, satellite radio will die and deservedly so, from it’s own stupidity, based on the way we conduct business in the good old US of A.

