Sirius XM Explores Alternatives for Life Without Howard Stern

Bloomberg

 

Sirius XM Radio Inc. is exploring programming alternatives in case the satellite broadcaster and talk-show host Howard Stern aren’t able to agree on a new contract, Chief Executive Officer Mel Karmazin said.

Stern, whose five-year, $500 million contract expires in December, is continuing to negotiate with the New York-based company and a resolution will come before the end of the year, Karmazin, 67, said in an interview yesterday. Sirius XM stations, such as Raw Dog Comedy and Playboy Radio, would help retain many of Stern’s listeners if he left, he said.

“There’s no deal,” Karmazin said. “The only announcement will be when there is a deal, or there’s not a deal. And I’m hopeful there will be a deal.”

Stern is responsible for adding about 2 million subscribers to Sirius XM since he moved to satellite radio from terrestrial in January 2006, according to Tuna Amobi, an analyst at Standard & Poor’s in New York. Total subscribers may surpass 20 million before the end of the year, Sirius XM said this month.

Karmazin declined to give an estimate of how many subscribers would cancel the service if Stern leaves. Without Stern, Sirius XM would “save $100 million a year” and use the money to fill the programming gap with various types of shows, he said.

“You don’t try to replace Howard,” Karmazin said. “I don’t think there’s a radio personality that’s out there that we would bring in and say to the Howard Stern fans ‘let us introduce you to this new talent.’”

Budget Savings

Karmazin said he would use the budget savings to “go and try to get different people who might appeal to different audiences.” Sirius XM, the only satellite radio provider in the U.S., might “expand our classical music, or maybe we would do a little more in the opera area, or maybe we would do something that we’re not doing today.”

Don Buchwald, Stern’s agent, didn’t immediately return telephone and e-mail messages seeking comment.

“Howard has a great deal of options, many options available to him,” said Karmazin, referring to reports that Stern may introduce his own online service.

Sirius XM will receive about 2 percent of its $2.8 billion in revenue this year from advertising, Karmazin said. While ads during Stern’s programs are capped to 6 minutes per hour, Sirius XM’s ad sales department insists they could sell more, he said.

“I want that subscriber to be very happy,” Karmazin said.

Karmazin said he doesn’t see any potential acquisitions for Sirius XM, which had $258.9 million in cash at the end of the second quarter.

“There’s nothing out there that fits our core competencies,” he said.

Buybacks, Dividends

The company might return cash to shareholders through buybacks or dividends, Karmazin said. Such a move will become increasingly likely as Sirius XM continues to lower its debt and build cash flow, though there’s no target date for such action, he said.

Sirius XM projects adjusted earnings before interest, taxes, depreciation and amortization to reach $575 million for 2010, compared with $463 million last year, Karmazin said at investor conference this month.

Last week, Sirius XM sold $700 million of eight-year senior notes in a boosted offering, according to data compiled by Bloomberg. The 7.625 percent notes were unsecured, and used to pay off 11.25 notes, Karmazin said.

Sirius XM was unchanged at $1.38 yesterday in Nasdaq Stock Market trading. The shares have more than doubled this year.

Stern Threatens To Quit -- Is It Just Idle Chatter?

Mel Karmazin and Howard Stern a match made in Hell. 
USA Today

Howard Stern is threatening to leave Sirius XM Radio now that the shock jock and the satellite radio provider are getting set to enter contract talks in 2010.

That threat probably seems less daunting to Sirius than it once would have. Sirius originally wanted Stern so badly that it gave him the most lucrative radio contract ever, a five-year deal that started in 2006 and paid him $500 million in cash and stock.

Today, he doesn't have many places left to go — at least if he wants another huge payday.

Free radio stations are struggling with steep drops in advertising and high debt loads, and probably can't pay top dollar to get Stern back to the medium where he began. He also likely would chafe at being censored again after enjoying the freedom of satellite radio, where his racy banter hasn't been subject to federal restrictions on language and content.

He can't switch to another satellite radio provider — Sirius swallowed the only other one, XM, last year.

So if Stern, 55, does re-sign with Sirius, it's likely to be for less this time around.

Sirius nearly had to file for bankruptcy protection this year and is still trying to reduce costs. The company is feeling the brunt of weak auto sales, which deliver many of its new customers. And it faces new threats from emerging commercial-free rivals such as Internet radio.

For these reasons — and because Stern has warned other times that he might quit or retire — his latest threat rings hollow to some analysts.

"It's probably positioning for contract negotiations," said Brett Harriss, an analyst at Gabelli & Co., whose parent Gamco Investors owns 1.1 million shares of Sirius. "I don't think he would give up his bullhorn."

Sirius' chief executive, Mel Karmazin, said recently that he will work hard to retain Stern, but the company would not offer more detailed comments. Stern's agent, Don Buchwald, did not respond to requests for comment.

Stern made his name on traditional or "terrestrial" radio. While Sirius mainly makes its money from selling subscriptions, the money that flowed to Stern on traditional radio came from syndication rights. In that setup, radio stations pay companies that distribute programs such as Stern's.

Many of those radio stations have struggled since Stern left the free airwaves, and the recession compounded the problems. In the first nine months of the year, radio advertising revenue fell by 21% to $11.8 billion, according to the Radio Advertising Bureau.

Citadel Broadcasting, the nation's third-largest operator of radio stations, filed for bankruptcy protection Sunday. Other big station owners also are wrestling with debts, and the syndication division of the largest station owner, Clear Channel Communications, already is believed to be paying Rush Limbaugh $400 million over an eight-year contract.

"Who else can afford Howard Stern?" Harriss said.

When Stern signed with Sirius, the company trailed XM Satellite Radio Holdings in the race for customers. It badly needed a marquee name to attract subscribers to its service, which delivers 130 radio channels anywhere in the country for $6.99 a month to $19.99 a month, depending on the package.

Now after buying XM for $3.3 billion, Sirius has 18.5 million subscribers, down slightly from a peak of 19 million at the end of last year. Sirius' radio lineup beyond Stern includes Oprah Winfrey, Martha Stewart, NFL games and Major League Baseball. Half of its channels are music and free of commercials, while the rest air sports, talk shows, news, entertainment, traffic and weather.

The company still has never posted a net profit. Revenue was nearly flat in the last quarter, and Sirius remains pressured to cut costs. Sirius narrowly avoided bankruptcy protection 10 months ago by getting $530 million in financing from Liberty Media. Sirius had to give a 40% ownership stake to Liberty, which is controlled by satellite mogul John Malone.

As Sirius tries to get its finances in order, it must cope with threats from emerging technologies, such as Internet radio services that also deliver radio programming without commercials.

The company has been trying to cut costs. Sirius' programming expenses in the past four quarters fell 18% from the total paid by Sirius and XM in the previous year, when they were still separate companies. Sirius has eliminated duplicative radio programs since it absorbed XM and found ways to reduce "on-air talent costs."

Given the climate, if Stern returns to Sirius, "he's not going to get $500 million again," said Miller Tabak analyst David Joyce. Robert Eatman, the agent for Sirius talents Opie & Anthony and rapper Nick Cannon, agreed that Stern is "probably not worth" $500 million to Sirius now.

But the question will be just how much less Sirius can pay and still keep Stern.

Stern accounts for about $80 million of Sirius' annual programming costs, which have totaled $365 million over the past four quarters. The $80 million covers Stern's salary, wages for his staff and production and operating expenses, according to filings with the Securities and Exchange Commission. The remainder of the contract was paid in stock.

There are no independent ratings available to track the popularity of Stern's show, which airs Mondays through Thursdays from 6 a.m. to 9 a.m. But he has been so important to Sirius that he was the sole radio talent mentioned in SEC filings from 2006 through 2009 as a party whose failure could hurt Sirius' business. (Automakers were also among the listed entities.) In his first year at Sirius, Stern received a stock bonus worth $82.9 million because Sirius' subscriber count exceeded an agreed-upon target by more than 2 million.

Stern could leave to start a new venture, perhaps a subscription service that sends his show to PCs and mobile devices. Sirius already streams Stern's shows online and through the iPhone. Or he could explore more options in cable TV, where his first pay-per-view special, "Howard Stern's Negligee and Underpants Party," was offered in 1988.

Stern also could retire.

"Howard has the creative and business freedom to do what he wants to. He can just about write his own ticket in a number of areas," said Tom Taylor, executive news editor of Radio-Info.com, which tracks the radio industry. "He doesn't need to do anything. He's going to pay the rent fine."

Sirius XM: Looking Back 5 Years

From the Motley Fool

Five years may not seem like much when compared to the nearly 25 years that Bob Edwards served as a morning-show host on National Public Radio. But a lot has changed for Sirius XM Radio (Nasdaq: SIRI) since he arrived.

Edwards was a pioneer. He migrated from terrestrial radio before bigger media icons Howard Stern, Oprah Winfrey, and Martha Stewart inked their big satellite-radio deals. Now Sirius is celebrating the fifth anniversary of Bob Edwards' arrival on satellite radio this month. The distinguished radio newsman joined XM shortly after it hit the 2-million-member milestone. Sirius was considerably smaller at the time. In fact, Sirius and XM together accounted for just 3 million subscribers.

Times have certainly changed. Even though this has been a rough year for subscriber acquisition and retention rates, Sirius XM still manages to claim 18.4 million subscribers. It's hard to think of any other premium subscriber-based industry that has grown sixfold over the past five years. Comcast (Nasdaq: CMCSA) and DirecTV (Nasdaq: DTV) have broader audiences, but they definitely weren't as small as Sirius XM was in 2004.

Today's subscribers are also paying more for access, and that's important when you consider the scalability of the satellite-radio model and Sirius XM's need to beef up margins to command the market's respect.

After all, margins and profitability are crucial for any business. Five years ago, Netflix (Nasdaq: NFLX) had 2.2 million subscribers. Its user base has grown quickly, but it's a far cry from Sirius XM's audience. One of the reasons Netflix is a market darling while Sirius XM trades at a fraction of its 2004 price is that a lack of cash flow has forced Sirius XM into printing new shares to keep creditors away.

Now that Sirius XM has gotten its financial act in order, its hope is that the stock gains that failed to materialize during its subscriber-growth heyday can show up and help create a positive-cash-flow story. It would be ironic to see Sirius XM's stock rise as its user base flattens out or possibly even declines, but that's what the market needs to see before it buys into the satellite-radio model.

Enjoy the birthday cake, Edwards. Let's see how rich dessert tastes in five more years.

Sirius XM: Beam Me Up, SkyDock

From Sirius Buzz

The XM SkyDock App is ready for download on iTunes. SkyDock, which turns an iPhone or iPod Touch into a virtual satellite radio receiver when docked, has been highly anticipated for some time. The new app represents the second official full satellite radio app for Sirius XM on iTunes. Apps for specific content have been produced in the past.

The company smartly calls the new app “XM SkyDock”. This should avoid customer confusion, and ensure that potential subscribers download the proper app when they are seeking out the great content offered by Sirius XM.

Satellite Radio subscribers hoping to get the most value and content should opt for the “Best of Sirius” on their subscription, thus enabling all that XM has to offer PLUS Howard Stern, and the NFL. With Baseball in the playoffs, and football ramping up, this is perhaps the best sports content solution available to consumers.

Interestingly, this app, combined with the many other apps and features represented on an iPhone could become a one stop fits all solution even for those with a factory installed satellite radio receiver in their car. No longer is your subscription tied to the dashboard, or a portable device that serves only one purpose.

The XM SkyDock app will not work without attaching a subscription to a SkyDock. SkyDocks are now available through various retailers such as TSS-Radio. sers as a free download from the iTunes store.