Sirius XM unite as sales still tumble

July 29, 2008, 1:50 PM UTC

By Scott Moritz

Newly merged satellite radio shop Sirius XM says the combination will help trim costs and lead to a positive swing in cash flow in 2009 excluding satellite expenses.

The deal closes nearly a year and a half after it was announced and in that time the once hot-growing new medium has been sideswiped by a rapidly cooling economy and sluggish car sales. But new chief Mel Karmazin remains optimistic about the new chapter in pay radio.

“We have all the tools necessary to begin executing as a combined company with high aspirations for subscriber growth and greater financial performance in part from the significant synergies that we begin realizing literally today — on Day One. We are moving quickly to integrate the operations,” said Karmazin.

Among the areas analysts expect the broadcaster to cut costs is programming expenses. The financial strain could spell the end of massive contracts like the one Howard Stern commanded during the golden era of satellite radio.

The news comes as Sirius reported weak subscriber numbers for the second quarter, another sign that a pinch in consumer spending is squeezing satellite radio sales. Sirius was particularly hard hit on the car sales front. Slumping sales at Ford and Chrysler cut into new radio subscriber numbers. Sirius added 246,221 net new auto customers, well below the 325,000 some analysts were looking for.

The outlook for car sales isn’t exactly improving either, on Monday No.2 car maker Toyota cut its 2008 growth forecast due to high fuel costs and a slowing U.S. economy.

Sirius will give XM shareholders 4.6 shares of Sirius stock, for a deal worth about $2.76 billion. The company will be headquartered in New York and keep the XM facility in Washington, D.C.