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Thursday, November 02, 2006

Best Of 24/7 Wall St. November 2 Morning Edition

Another Insult To Satellite Radio

Stocks: (AAPL)(XMSR)(SIRI)(MSFT)How much can XM and Sirius take? After assaults from the iPod, problems with the FCC, and slowing subscription growth rates, they ought to get a breather.Even the cell phone companies want into the music business. But, now their content partners want more money.

The satellite radio players have a deal with the music industry that, after two years, is about to expire. Of course, the music men think that with XM and Sirius having more subscribers, they should pony up more dough.

Music companies want everyone to know that they offered Sirius and XM lower rates early on “to help them get off the ground”. But, from a financial standpoint, both companies are still “underground”. Last quarter, XM lost over $100 million on $228 million in revenue. Their balance sheet shows over $1.3 billion in long term debt. So, they can obviously afford to give the music industry more money.

Maybe the music industry should ask for a better deal from Apple’s iPod or the Microsoft Zune. The satellite radio folks are out of money.

Newspaper Private Equity Deals Could Fail

Stocks: (NYT)(TRB)(GCI)

The newspaper industry never had so many fans. Funny. Most people have written newspapers off for dead. The circulations are falling, and companies like The New York Times and Gannett find their stocks at multi-year lows.

But, there are some fairly bright player who think they can still make money in the newspaper game, especially if they can take the promising parts of some of the chains and leave the rest to the “vanity” buyers like Jack Welch, who says he wants to buy the underperforming Boston Globe from The New York Times Company.

Much like Knight-Ridder before it, The Tribune Company has investors who want the company sold, in pieces if necessary. The stock has just underperformed too much. The company says that several private equity groups have expressed interest, but the prices have been too low. There are some vanity buyers, rich citizens from Southern California who would like the have a new toy, The Los Angeles Times. Local groups in Long Island and in Hartford and Baltimore have expressed interest in Tribune properties in those cities. Civic pride.

The real question is whether the industry is in a flat spin. The average daily circulation of the 770 newspapers followed by the Audit Bureau of Circulations dropped 2.8% in the six months ending September 30. And, that has been going on for awhile. Some papers are worse off than others. The LA Times lost 8% of its circulation. The Boston Globe was down 6.7%.The conventional wisdom is that the internet killed the newspaper industry. Cash flow at many papers is still good, but with dropping circulation and ad lineage, it won’t stay that way forever.

Cost cutting may help, for awhile.

The paradox about newspapers is that the web is killing them, but it may be the only thing that can save them. Companies like The New York Times see 10% to 15% of their revenue coming from the web over the next year or so. They have to hope that the online revenue increases faster than the print sales fall.

The vanity buyers may be looking at newspapers for reasons other than a big payday. But, the private equity crowd is in for the cash. They know that without improved internet metrics, buying a newspaper is probably not a winning hand.

Bonehead Analyst Call: Clear Channel (CCU)

It is always nice to see an analyst who will go out on a limb to get ahead of the market. Barrington Research cut Clear Channel, the huge radio company, to “market perform”. Before that the stock was rated “outperform”.

Barrington had last upgraded the stock in April 2005.For some reason the analyst at Barrington waited until after the company said it would look at going private. And, after the company reported quarterly earnings.

The stock hit a “rumor” peak and then settled back.

Being a bright fellow, the analyst waited for the stock to hit $35.55 on October 26, and then drop to $33.90 yesterday. That really isn’t “outperforming” anymore, is it?

To make matters worse, when Barrington rated the stock “outperform” in April of last year, the stock was at about $35. It promptly fell to below $30 and has not recovered until this last week. Real magic.

Barrington may want to look into getting a new radio analyst, or just dropping coverage of the industry altogether.

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