First Paramount, Now SiriusXM: Can Warren Buffett’s Media Investments Be Trusted?

“What does Warren Buffett know that I don’t?” is probably one of the most common questions in investor circles. But lately, as far as media investments go, it might be better phrased the other way around.

Far be it from me to question the wisdom of the Oracle of Omaha, but the news that Buffett’s Berkshire Hathaway more than tripled its stake in SiriusXM during Q2 seems somewhat perplexing, even more so in the wake of the mogul’s disastrous investment in Paramount Global.

Buffett recently acknowledged that Berkshire “lost quite a bit of money” on Paramount after acquiring an 11% stake in 2022, which ultimately ended in a complete divestiture of Berkshire’s Paramount shares.

“I think I’m smarter [about the entertainment business] now than I was a couple years ago, but I also think I’m poorer because I acquired the knowledge in the manner I did,” Buffett admitted at Berkshire’s May shareholder meeting.

Call me cynical, but it’s hard to see Buffett’s SiriusXM venture ending much differently — at least if it’s a long-term play.

The satellite radio company’s share price has remained stubbornly low amid the streaming audio revolution, with SiriusXM’s attempts to carve out its own streaming niche failing to gain much traction with consumers.

The company launched a major revamp of its app at the end of 2023, designed to highlight its streaming experience and draw in younger users. The result: Paid subs and subscriber revenues have remained stalled (actually slipping slightly from before the rebrand), as have overall net earnings.

What, then, accounts for Buffett’s interest in SiriusXM?

The company’s newly announced deal with marquee podcaster Alex Cooper doesn’t explain it, as the Berkshire mogul was already increasing his holdings in SiriusXM long before that. (Not that the Cooper deal will likely move the needle much; her popular “Call Her Daddy” podcast will not be exclusive to the platform, and SiriusXM shares have fallen again after spiking slightly on news of the deal.)

Perhaps Buffett is simply playing out his trademark strategy of investing in an undervalued asset, one that, in this case, will probably be around longer than people might think.

SiriusXM consistently accounts for around 20% of U.S. car listening sources, according to Edison Research’s annual “Infinite Dial” surveys — far from a commanding share, obviously, but not insignificant, either. The company faces no serious competition in the satellite radio space and will likely remain a fixture of car listening for many consumers, particularly older audiences who are less frequent podcast and streaming music listeners.

Still, that seems unlikely to boost the company’s value much over time, particularly as Spotify claims an ever larger share of the streaming audio market and appears to have finally achieved consistent profitability.

Buffett’s motives more likely lie in arcane stock-related factors: John Malone’s holding company Liberty Media, which owns about 83% of SiriusXM through a tracking stock, plans to spin off those holdings and merge them with SiriusXM proper by Sept. 9. This maneuver would simplify the audio company’s ownership structure and, in theory, boost its value on Wall Street.

Furthermore, per the terms of the merger agreement, SiriusXM shareholders would receive one share of the new stock for every 10 shares they currently own in a reverse stock split, thus significantly reducing the stock’s volume and giving a short-term lift to the share price.

It’s possible, therefore, that Berkshire will quickly sell off its SiriusXM holdings once the merger closes, having made a tidy profit through the reverse stock split. If that’s the case, Buffett’s judgment may be as sound as ever, Paramount notwithstanding. But if he’s betting on the long-term future here, he may simply be yet another outsider flummoxed by the media business.