Tag Archives | bankruptcy

Blockbuster–R.I.P.?

Posted by Ed Oswald on April 6, 2009 at 9:27 pm

The death knell may be ringing for Blockbuster. Today the video-rental giant admitted that if it cannot complete the financing deals that it is currently working on, there is a good chance the company may be forced to shut its doors. While the company last week said it was in the process of getting a $250 million revolving loan from creditors, that may be in jeopardy.

Why? The loan apparently has some conditions to it, and Blockbuster is now not sure it can meet them. Even worse, whether the loan goes through are not, it is not even sure that would be enough to save the company.

During my days at BetaNews, I always seemed to get the Netflix vs. Blockbuster stories and the pricing war and war of words that went on between the two. I can tell you from what I wrote during that period that Blockbuster’s financial problems stem from that fight.

Neither side was willing to lay off, and both put out lots of money to one up the other through promotions, advertising, and the like. Even more, the pricing war that went on between the two cut into each company’s revenues. While Netflix is still going, it too was bruised financially by the fight.

(It’s probably fair to say Netflix’s lack of overhead is why its wounds were less deep.)

I sure hope that Blockbuster can find a way out of this mess, but it could be a victim of the changing face of how we consume media just like the newspaper industry. I guess time will tell.

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Sirius XM Avoids Bankruptcy – Barely.

Posted by Ed Oswald on February 17, 2009 at 7:13 am

Mel got his way, and kept EchoStar at bay (that unintentionally rhymed). Liberty Media, which owns and operates DirecTV, will invest $530 million in the troubled company in the form of several loans, including $250 million right away. That up front payment will help Sirius XM to pay off the $171.6 million of debt due today.

The rest of the funds would go towards funding the day to day operations of the company. The second phase of the loan would go to pay off debts owed by XM Radio, which has its own set of financial problems.

In return for the much needed infusion of cash, Libery Media would get seats on the board and enough stock to represent a 40% stake in the company. It also means that Karmazin has a much better chance of keeping his job.

“We are pleased to have come to this agreement with Liberty Media, particularly in light of today’s challenging credit markets. Liberty’s investment is an important validation of what SIRIUS XM has already achieved and a vote of confidence in what we will achieve,” he said in a statement announcing the deal.

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Sirius XM: The Writing Has Been on The Wall Since August

Posted by Ed Oswald on February 11, 2009 at 11:47 am

Harry’s post earlier today regarding the possibility of a bankruptcy filing by satellite provider Sirius XM should come as a shock to no one. In fact, the news reminded me of a story I wrote back in August of last year for BetaNews that essentially warned of significant financial problems for the company.

At the time, Sirius XM CEO Mel Karmazin admitted to reporters that the company was not in the best of financial health — including to Bloomberg TV that same day. Essentially, the company had just taken on unfavorable financing terms for debt, which would put $1 billion in debt repayments due this year.

For almost any company, such a large amount of money would be quite painful to repay. For Sirius XM, it could be deadly. It’s stock price has fallen from about $1.50 at the time of that story to only 6 cents now. Add to this a sagging economy, and apparently slow growth, and the company does not have much money to work with.

The company up until recently had seemed to argue that it was fine and would survive its debt issues. But reality has set in for Sirius XM. It is not in good financial shape at all, and never has been. The chickens have come home to roost, as they say.

Sirius XM’s problems are probably most damaging to Mel Karmazin. Up until Sirius he had great successes in turning businesses profitable. This time, there are just too many problems with the way the satellite radio business has been structured for it to be turned around.

Raising your rates is not going to solve the problem either: if anything, its going to drive folks away. Also with the quality of service dropping — from audio artifacts and cut-outs in the broadcast to questionable programming decisions and service reductions — Sirius XM may have very little time to turn itself around.

What is next? The loss of signature content like Howard Stern or sporting events? More rate hikes? More cuts in programming so that the service sounds even more like FM than it already does lately?

I ask then, what is the point of satellite radio? Might as well go to streaming media via 3G, as Harry has repeatedly suggested.

Could it come down to Sirius being bought out by someone like EchoStar? It may have to: it owes about $575 million in debt repayments to the company, $175 million due next week, and another $400 million due in December.

The Wall Street Journal is reporting that — but it looks like Mr. Karmazin is resisting. Sir, I hate to say it, but you may have no choice, you’ve had your chance. Declaring bankruptcy would open the company up to possible shareholder lawsuits, while a deal with EchoStar may keep the company afloat.

In the meantime, I think for shareholders sake, Sirius XM needs to be honest and forthcoming with us all about its financial health. After the way it handled its channel merge, I just get the feeling that this company either does not understand how, or does not want to communicate with its customers.

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