Monday, September 5, 2011

Sirius XM Radio - 0.5%

At this point, the percentages and holdings I own have changed quite a bit since I started. For example, Mitek has catapulted to second place due to its meteoric rise and passed Walter Energy as my secodn largest holding due to Walter's recent loss.  I also divested a bit of Red Hat (at $45) after seeing how much it weighted my portfolio.  I've sold Continucare and bought Gold mining companies, Northgate Mining (NXG), Brigate Gold (BRD) and Crocodile Mining (an over-the-counter, high risk high reward stock).  I've unsuccessfully piggybacked of the Aurex fund with Rubicon Technologies, and bought James River Coal Company right before it was downgraded.  Now, it's time to look at one of my worst buys of all time, Sirius XM radio.

When I bought Sirius XM, they were Sirius and XM separately.  I believed that Satellite radio would be as common as cable TV so I first loaded up on Sirius because it was "cheaper".  However I learned that because there were actually more available shares of Sirius, XM radio was actually cheaper, so, also to hedge my bets, I loaded up on XM.  I watched as both companies bled money competing with each other, prayed for the merger that eventually happened, watched it almost get delisted as it traded lower than $1 for awhile, and watched it return from the dead to pass $2.00.  Now, Sirius XM has a special role in my portfolio: every time I make money from selling some stock, I unload some Sirius to balance the capital tax gains with capital losses.  Needles to say, as much I and my family enjoy their product (especially Running with MJD for me, the Lithium channel for my wife), I don't think that satellite radio will be as common as cable TV.

Sirius XM radio is of course the culmination of a merger between Sirius Satellite radio and XM satellite radio,  Sirius radio was launched in 2002, although founded in 1990 as Satellite Cd Radio Inc. In 1999 the name was changed to Sirius.  As the pioneer in satellite radio, almost all of the early days consisted of simply building the infrastructure, including petitioning the FCC to allow them to broadcast (free of their regulations) and launching their sattelites (3 of them) and building their network.   The launching of Sirius radio was truly a remarkable acheivement given that no one had ever done anything like it before, so the bet was on something totally unproven.

XM radio followed Sirius, perhaps ingeniously letting them pave the way.  XM radio has its origins in the American mobile Satellite Corp (AMSC).  After Sirius successfully petitioned the government to auction off digital licenses in 1992, a spin-off of AMSC (the American Radio Satellite Corporation) successfully obtained the other  license in 1997.  In 1999 the company went public after joining a partnership with GM and Direc TV.  After launching services in 2001, XM spent the rest of the decade competing with Sirius until their eventual merger in 2008.  The subscriber base has increased an order of magnitude over the last decade.  Although the product is solid and reasonably priced, I find their market share may be taken by other entities that stream via the internet.  On the other hand, most of the up front overhead costs appear to be out of the way, so it seems as if they should be able to operate with stronger margins.

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