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February 12th, 2009

Woes at Sirius XM Suggest a Bad Business Model

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In what seems to be a do-or-die situation for Sirius XM, the satellite radio company has approached three companies in an effort to avoid filing for Chapter 11. Sirius XM is facing mounting debt brought on by an exorbitant payroll, and a business model that hit a serious snag as soon as things began to fall apart in Detroit. With shares hovering near $0.06, time is running out for the satellite radio provider.

With such popular attractions like The Howard Stern Show, radio programs hosted by legendary music personalities, and nation-wide sports packages, what has led to the downfall of this promising industry?

In two words: auto sales. With little land-based operations, satellite radio concentrated their services to the audience that made the most sense: drivers. Unfortunately the avenues to grow their industry are quite limited. To take full advantage of that demographic, Sirius XM teamed up exclusively with automakers — including their radio capabilities in many models of new cars.

Their business model soon crumbled when auto sales hit record lows. As the auto industry continues to slump, so does satellite radio.

Sirius XM CEO Mel Karmazin defended his business model back in November saying “It is not like we’re doing something wrong.”

It’s not that Karmazin’s business model is wrong, it’s just flawed.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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