Sirius And XM: The Myth Of Cutting Program Costs

Analysts who predict future price increases in Sirius Satellite Radio (SIRI) and XM Satellite (XMSR) come up with a "reason a week" that the firms will do better. Both stocks have been hammered down on fears about slowing subscription growth and huge debt loads.

The latest argument is that the companies can cut programming costs now that large deals like the ones with Howard Stern and Oprah Winfrey and behind them. According to RBC Capital Markets analyst David Bank quoted in the NY Post, "Satellite radio is attempting to be a lot more rational with the money they spend on content,"

Go tell all of that to the record companies, movie studios and TV networks. Programing costs never fall. Not as long as their is competition. To get ratings, sell records and get people in to theater seats the high cost of content is a given. Actors and music artists command big paydays because they bring in big revenue. Satellite radio is not likely to be the exception to the rule.

Of course, the two companies could try to shave expenses for talent, but that would raise the specter of slow grow in subscribers again. Less on air talent, less attraction to subscribers. Especially in a world where iPods can be plugged into car stereo systems and cellphones act as MP3 players.

Dream on.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that the writes about.