Liberty Media Weighs Exporting Sirius XM Overseas

As a possible vehicle for moving Sirius XM overseas, Liberty Media is proposing buying senior debt in bankrupt WorldSpace for in the “low tens of millions” of dollars, but the deal still requires bankruptcy court approval, Maffei told us. WorldSpace had 173,000 subscribers by late 2007 to a home receiver-based satellite radio service, about 163,000 of them in India, according to the company’s 10-K report filed at the SEC. WorldSpace, which has been operating under bankruptcy protection since October 2008, also reached agreement with Fiat in 2007 for a mobile version of its service that was scheduled to launch in Italy this year.

Liberty secured a 40 percent equity stake in Sirius earlier this year, loaning the company $579 million. Sirius XM repaid the debt and the value of Liberty’s investment has soared to $1 billion from $400 million, Maffei said. Sirius XM’s enterprise value has jumped to $6.5 to $7 billion from $1 billion in February, he said.

Sirius XM, with about 18 million subscribers, still has “a lot of opportunity left in the U.S.,” especially if annual car sales return to the 11 to 12 million unit level, Maffei said. Sirius XM is sold standard with many vehicles.

“We're looking at whether there are opportunities” outside the U.S. for satellite radio, Maffei said. The possible purchase of WorldSpace’s senior debt is “just a small dipping of our toe in and it’s very early,” Maffei said. “You would think there are opportunities in other countries but noone has done it yet. We don’t definitely have a business model. While Liberty understands the metrics for revenue per user, churn and take rates for the U.S., “we don’t know what those are going to be” in international markets,” Maffei said.

WorldSpace doesn’t “really have a platform right now,” but has spectrum licenses and two satellites, Maffei said. AfriStar operates at 21 degrees east, delivering 59 channels to some countries within the Middle East and Europe, while AsiaStar is at 105 degrees east, providing 45 channels to India. The satellites each deliver three beams. A third satellite is in storage at EADS Astrium and Thales Alenia Space facilities in Toulouse, France, and Stevenage, U.K. Yenura proposed buying WorldSpace in March for $28 million, but the bid was rejected by creditors in August. Yenura is controlled by WorldSpace founder Noah Samora.

As it considers having Sirius XM expand overseas, Liberty also is weighing many options for its 40 percent ownership in the satellite service, Maffei said. Among them is a possible split off of Sirius XM, a move that was profitable in the case of Liberty’s investment in DirecTV. Liberty acquired News Corp.’s 41 percent of DirecTV in 2008, increased it to 57 percent and split the company off in November.

A split off of Sirius XM is “one way we have gone out and talked about how we have delivered value to shareholders,” Maffei told us. “But it’s not like we have a plan and an intention to do that. It’s an alternative because it’s one of the ways to get value out of the investment.”

Liberty also would have liked to have a chance to review the deal between General Electric and Comcast for NBC Universal, Maffei said. Liberty was locked out as exclusive negotiations took place between GE and Comcast, but expressed interest six or seven weeks ago when rumors of the NBC Universal sale surfaced, Maffei said. The deal will give Comcast a hedge against content costs, but it won’t affect Liberty Media’s QVC or Starz channels, Maffei said. “I'm not sure that anything that happens with NBC Universal means that we have to do anything relatively differently,” Maffei said.

Liberty is “looking at” MGM “like everyone else is,” but doesn’t believe buying the movie studio is a “must have,” Maffei said. MGM would be a strategic asset for Starz, which is developing its own original programming, Maffei said. Reports surfaced in November that MGM, burdened by $4 billion in debt, was up for sale. MGM, which has the largest library of modern films, was taken private in 2005 by a consortium consisting of Comcast, Providence Equity Partners and Sony.

With $700 million in cash, Starz Entertainment will likely expand its roster of original programming and Internet presence, Maffei said. Starz’s original series Spartacus debuts in January. Starz also expects to have a new CEO is place “within a month,” Maffei said. Starz CEO Bob Clausen is retiring. Starz began trading as a separate tracking stock of Liberty Media in November.

Meanwhile, strong subscribership gains continue to propel Sirius XM, despite declining advertising revenue and churn growth from price increases, the company’s chief financial officer, David Frear, said at the conference. The auto industry remains a major emphasis for the company, even as auto sales continue to slump, he said. About 25 million cars are equipped with Sirius XM technology but only about 10 million subscribe -- and the other 15 million are increasingly significant to the company in the slow economy, Frear said. So the company is “attacking the secondary channel” by increasing revenue-sharing with used-vehicle dealers, he said.

Frear has faith that the “the automobile industry is going to recover,” he said. Sirius XM has no idea what that recovery will look like, he said, and he takes a more conservative view of how long the recovery will take than analysts and the companies themselves. Sirius XM remains in a good position, Frear said: Its equipment is being installed in 60 percent of new cars by automakers, a proportion that the company is comfortable with.

Among car-buyers who receive paid promotional subscriptions only about 45 percent continue with full subscriptions, a number the company wishes it could increase, Frear said. Subscription conversion vary among the manufacturers, with General Motors considered “best in class,” by Frear. Despite an increase in 103,000 subscribers in Q3 from the previous quarter, churn increased as the company began charging for its streaming services and increased prices on multi-receiver accounts, he said.

Advertising revenue has been a disappointment this year, accounting for only a “couple percent” of the company’s total revenue, Frear said. The company had hoped to get that 10 percent. He remains “cautiously optimistic” for the revenues, and the ad market’s stabilizing would be “welcome news.”

The company has until March to get its stock price higher than $1 for 10 straight trading days or face delisting by NASDAQ. It probably would do a reverse stock split if needed, he said. The stock closed Tuesday at 63 cents.