Após quarto maior ganho de sempre, Martifer afunda 15% com a OPA

[Alfred E. Neuman]

XM to announce 11-year MLB deal
Satellite radio firm will air games in $650 million deal

By David B. Wilkerson, CBS.MarketWatch.com

Last Update: 7:42 PM ET Oct. 19, 2004


SAN FRANCISCO (CBS.MW) -- XM Satellite Radio will unveil Wednesday an 11-year deal to air Major League Baseball games, under a deal valued at about $650 million in cash, according to a person familiar with the situation.

XM Chairman Hugh Panero and MLB Commissioner Bud Selig will hold a press conference at MLB's headquarters in New York City at 10 a.m. Eastern Wednesday to make the announcement. Selig will make his presence known by phone.

XM's service currently offers more than 130 channels of digital radio programming for $9.95 per month, covering every major music format, as well as news, sports and talk. It's available as a factory-installed option on many General Motors, Honda and Acura models, Avis rental cars and other vehicles. XM-equipped satellite receivers are also available for home use.

The agreement is a further sign of XM's effort to maintain its market lead over rival Sirius Satellite Radio (SIRI: news, chart, profile), which recently signed shock jock Howard Stern to a long-term deal that will begin in 2006, and late last year added NFL games to its lineup.

Sirius said Tuesday that it has passed the 700,000 subscriber mark, thanks to the acquisition of 69,000 new customers in September -- a surge that partly coincided with the buzz leading up to the Stern announcement.

XM has more than 2.5 million subscribers.

Last week, XM rolled out a premium service for online subscribers. The company also recently signed Bob Edwards, the longtime host of NPR's "Morning Edition" until last May.

XM shares (XMSR: news, chart, profile) fell 22 cents to close at $29.05 on Tuesday.

[Alfred E. Neuman]

Is Sirius a Rule Breaker?

By Rick Aristotle Munarriz (TMF Edible)
October 15, 2004

It's like nails on a chalkboard. It's like housing a headache before jumping on a jackhammer. Wondering if lowly Sirius Satellite Radio (Nasdaq: SIRI) is about to change the world hurts. Wondering if a company with horrific income statements and a knack for minting shares as if Lucy and Ethel were at a bonbon factory can still have room to appreciate may very well irritate. However, there is something special happening at Sirius these days. And, yes, I am serious.

I'm going to start with the laundry list of knocks against the company. I have to because that's just the way demons are exorcised. Our new ultimate growth Rule Breakers newsletter -- one that I'm really excited to be a part of -- is all about tapping into companies that are going against the grain of conventional wisdom in order to become the next great growth stock. Is Sirius a Rule Breaker? You didn't think I'd leak my opinion this early in the article, did you? Let's get back to the ugly.

Siriusly bad

Rule Breakers are forward-looking visionaries, yet it's hard to resist the temptation to slam on the brakes and notice how dusty this company's rear-view mirror seems. The company lost $313 million on a puny $12.9 million in revenue last year. Three years ago, the company had 55 million shares outstanding. A guppy breeding experiment gone horribly wrong, the liberal issuance of new certificates in the form of recapitalization plans, joyrides in convertible debt without wearing a seat belt, option grants, and secondary offerings now leave the company with over 1.2 billion shares outstanding -- and counting.

You want sad? If Sirius had been able to achieve today's market cap on just those 55 million shares, the stock price would be hugging $80. In other words, this is a company in which its shareholders have been denied some serious gains because the company's transfer agent -- apparently -- is Kinko's. It's ridiculous, really.

Then we have rival XM Satellite Radio (Nasdaq: XMSR). While Sirius topped the 600,000-subscriber mark last month, XM closed out September with 2.5 million subscribers. XM had the benefit of being the first to hit the market. While that meant that XM also had to navigate uncharted waters in retail distribution and educate the market, that's cotton-candy fluff compared to coming out as a "me too" product while justifying a higher subscription price.

And while each company has now had a couple of years in the marketplace to prove its mettle, the gap between XM and Sirius continues to grow. Just weeks after Sirius announced that August was a record month for the company with 64,000 new listeners, XM revealed that it had gained 415,000 new net subscribers during the months of July, August, and September.

So if you've made it this far and you're figuring that there is no shade of lipstick that will make you take this pig to the prom, allow me the opportunity to introduce you to the other white meat.

Siriusly good

XM, a company that has always seemed to err on the side of being overly conservative, expects to land 10 million paying subscribers by 2010. Keep in mind that it made this estimate earlier this year when it expected to close out 2004 with only 2.4 million subscribers (it is now targeting a tally of 3.1 million by the end of the year).

While it's easy to see Sirius with just a quarter of XM's current subscribers and extrapolate that to mean that Sirius will be good for just 2.5 million subscribers in six years, you're smarter than that. You know that XM was only tacking on three times as many new subscribers earlier this year as Sirius, and this past quarter the ratio was probably closer to 2 to 1. So are you willing to bump up the Sirius population come 2010 to 5 million now?

If so, I think you're still aiming too low.

A lot has been made of each company's deals with the leading automakers. Sirius has Ford (NYSE: F), DaimlerChrysler (NYSE: DCX), and BMW, while XM has General Motors (NYSE: GM). Because the only time that a lot of us listen to the radio is when we're in our cars, having a large fleet of new model rides with factory-installed satellite receivers is obviously good for business. Sirius also has firm handshakes in the boat and RV markets, which, again, make for what has traditionally been the ideal audience.

Stack up the lucrative deals with the original equipment manufacturers (OEMs) and you get a sense that in time XM and Sirius will be on much more equal footing. But the one thing that few are considering is that satellite radio is not your parents' transistor radio.

If you're the type who only listens to the radio when you're commuting about, why aren't you a fan of radio in the home or when you're out at a park or the beach? Is it because the selection is too thin? Is it because the commercials are too distracting? Is it because the audio quality is suspect? Is it because you crave something more edgy than the castrated drivel that the FCC allows?

With more than 120 channels, and more than half of those devoted to commercial-free digital music in just about every possible niche, something tells me that XM and Sirius are about to "expand the band" when it comes to widening the radio listening experience. With greater freedom on the programming side, it's going to become even more likely that you will sometimes find a time when satellite radio is offering something more compelling to stream at home than what's emanating from your television set.

This means that, while the carmakers will always be important, it will be the portable plug-and-play receivers that snap on to home stereo systems, boom boxes, and cars that truly revolutionize the medium. With that emphasis on the aftermarket and the tens of thousands of retailers that are now selling satellite radio systems, it boils down to a matter of choice.

XM or Sirius?

A year ago, it was easy to see why Sirius was doing so poorly. With monthly subscription plans priced 30% higher than XM, what were the advantages of going with Sirius? It could have been commercial-free music, only XM eventually followed suit. No, it would ultimately boil down to the content.

While XM has served itself well by lining up the likes of National Public Radio's Bob Edwards and the notorious Opie & Anthony morning show, Sirius has been more notable in landing exclusive streamed properties.

While I may have felt that Sirius was overpaying when it agreed to pay the NFL $188 million in cash and $32 million in stock for the rights to broadcast football games over the next seven years, I understood the significance of making sure that XM didn't walk away with this deal instead. Still, it was expensive. The displaced fan without DirecTV (NYSE: DTV) who would value this service -- because the vast majority of those rooting for the local team would have free alternatives -- was too small of a market. The Sunday afternoon commuter was an even smaller market.

Having John Madden and Tom Brady cut a hilarious ad about Sirius being Brady's new favorite receiver was great, but would landing the NFL, the NHL, and other sports programming alliances be enough? Sirius needed something big to set itself apart during the peak weekday morning period. It got just that in the self-anointed King of All Media.

Securing Howard Stern and his radio antics come 2006 would give Sirius the match to ignite not only the migration from free radio to satellite radio, but just as importantly, to finally justify opting for Sirius over XM. Obviously all of the more than 10 million daily Stern listeners in the four-dozen syndicated markets where he flat-out dominates aren't going to give the heave-ho to free radio. Yet many will.

There is plenty of syndicated overlap in the XM and Sirius offerings. That is why it is exclusive things like the NFL and Stern that truly set Sirius apart and will make the service the more compelling choice for that key target audience. Things standing as they are right now, I can't see XM signing up more new subscribers than Sirius by this time next year.

The spirit of satellite radio

So is XM and its $6 billion market cap vulnerable if Sirius and its $4.5 billion market cap close the gap? I don't like to see it that way. If anything, I think the market misunderstands the upside potential here.

DirecTV and DISH Network parent EchoStar (Nasdaq: DISH) combine for a $40 billion market cap and they have real competition in digital cable. It's just XM and Sirius carving up this sky-high pie.

I don't think even Sirius realizes what it's got. In announcing Stern's signing, the company noted in its press release that it would only take a million new subscribers to help offset the cost of the new deal. That was as if some magic equation of a million folks paying $12.95 or less a month for Sirius would justify the $100 million annual tab.

It doesn't. It can be a lot better than that. DirecTV produced just over $10 billion in revenue last year on 12.6 million subscribers. While that loosely implies that the average DirecTV subscriber is paying roughly $800 a year -- an unrealistic sum in satellite radio -- let's not shackle satellite radio providers to $9.99- and $12.95-a-month subscribers.

XM already has two premium channels. An extra $1.99 a month will buy you Opie & Anthony, while another $2.99 a month will stream Playboy (NYSE: PLA) audio content your way. Part of the Stern deal involves the developing of two premium channels to go along with the basic show channel. Satellite radio will grow just as cable companies did with premium movie channels and pay-per-view.

XM is now charging users to stream its content online, without the aid of a satellite receiver. Sirius has a similar free service, and if it works for XM, why assume that Sirius won't be able to erect virtual tollbooths online? Both companies don't advertise on their music channels, but how far away are we from giving the listener the ability to instantly purchase the music being heard -- with XM and Sirius collecting a piece of the action? How far are we from the lucrative product placements, sponsorships, and wireless messaging polls that have given new revenue streams to televised broadcasts?

There is so much to milk here, and the first 10 or 20 million to migrate to satellite radio will also be financially able to succumb to the milking. So how can Sirius assume that just a million subscribers will offset the costs? Does that imply that its earlier comment of needing 2 million subscribers to turn cash flow positive is now 3 million subscribers?

Yes, but ultimately no. No because those users will in all likelihood be paying more and their very presence will be worth substantially more to Sirius. So getting back to the original question posed -- is Sirius a worthy candidate for our promising new Rule Breakers newsletter? In my opinion, absolutely. And what makes this particularly intriguing is that even the company doesn't realize it yet.


Longtime Fool contributor Rick Munarriz thinks that XM and Sirius will defy the cynics over the coming years and only hopes that they learn to treat their income statements and balance sheets a little better. He does not own shares in any of the companies mentioned in this story. The Fool is investors writing for investors.