Sirius XM (NASDAQ: SIRI) stock has seen big success recently – and big declines from its dot-com IPO valuations. But a big reason for Sirius’s recent strength – Howard Stern – may be poised to leave the satellite radio provider, and investors and analysts are wondering if the company is strong enough to stand on its own.
Stern, 56, hinted last week that he may leave satellite radio when his five-year, $500 million contract expires in 2011, saying he may start a Web-only program or offer one through a mobile application. In a conference call last month, Chief Executive Officer Mel Karmazin said the company will likely have an announcement prior to the release of third-quarter earnings “as to what is going on with Howard.”
The shock jock is credited for attracting some 2 million subscribers when he moved his show to Sirius in January 2006.
Since then, Sirius XM Radio has been adding a boom of listeners, fueling a stock rally that has sent SIRI up a stunning +73.5% year-to-date compared to the Dow’s +1.1 and the NASDAQ’s +0.45%. But if Stern leaves Sirius, will the loss be big enough to negatively affect not only the stock, but the future of the company itself?
Standard & Poor’s analyst Tuna Amobi said that 200,000 to 300,000 fans may drop the service if Stern departs, but noted that customer growth overall will continue and that Sirius could add more programming with the costs it saves on Stern. Last year, Sirius had a loss of $342.8 million – spending $370.5 million on programming and content. But it’s reported a profit in each of the past three quarters.
So does Sirius even need Stern anymore? While his departure would certainly cost the company some subscribers, Sirius is on track to add 1.1 million subscribers this year – on top of the 18.8 million it had at the end of 2009. In 2011, it hopes to add 1.4 million more. SIRI stock is only up +4% in the last month, but overall remaining strong.
Sirius is likely considering the weight of Stern’s contract costs. His alone accounted for more than a fourth of the company’s total annual programming and content costs last year. Add to that the knowledge that Stern no longer brings in listeners in Pied-Piper-like fashion, as he did in 2006. While initially interested only in Stern, many fans have since discovered additional Sirius channels they enjoy.
Sirius has lately been working to lower programming costs as it negotiates with content providers, including Stern, the National Football League, and Nascar. In effect, the company clearly won’t be paying Stern the salary he got before – probably the reason he’s talking of leaving.
Since neither Clear Channel (his obvious go-to station) nor Stern is saying anything for certain – not a big surprise considering the contact negotiations that must be going on behind the scenes – SIRI’s immediate future is on hold. But one thing certainly is – the company has the sort of strength others only dream of. Taking a gamble on losing Stern could be a huge mistake, or a huge gain.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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