Sirius Looks Fit to Outgrow Howard Stern

If shock jock Stern lands elsewhere, analysts say Sirius XM Radio should keep attracting listeners—and at lower cost

Sirius XM Radio (SIRI) may keep adding listeners, fueling a stock rally that has lifted the satellite radio provider by 74 percent this year, notwithstanding the prospect of losing famed shock jock Howard Stern.

Stern, 56, credited by Standard & Poor’s (MHP) analyst Tuna Amobi for attracting as many as 2 million subscribers when he

moved his show to Sirius in January 2006, suggested last week that he may leave satellite radio when his contract expires. Stern’s five-year, $500 million contract includes his pay and that of his staff. When the show made its debut, Sirius awarded Stern and his agent stock that was then valued at more than $200 million, saying he was luring enough listeners to warrant the payment. While Amobi says 200,000 to 300,000 fans may drop the service if he departs, customer growth overall will continue and Sirius can build sales with the money it saves on Stern.

“If he leaves, it frees Sirius up, cost-wise, to add more talent,” Amobi tells Bloomberg in an interview. “The threshold where they’d consider letting him go today is a lot lower than before. They can grow without him.”

Sirius was little changed, at 1.05, on Sept. 10 in Nasdaq trading. The shares have gained 5.2 percent since Sept. 2, when Stern told listeners that he’s “pretty sure” he’ll exit satellite radio next year, according to Orbitcast. Patrick Reilly, a spokesman for Sirius, didn’t return calls requesting comment. On a conference call last month, Chief Executive Officer Mel Karmazin said the company hoped to have an announcement prior to the release of third-quarter earnings “as to what is going on with Howard.”


Sirius will probably add 1.1 million subscribers this year to the 18.8 million it had at the end of 2009, says Amobi. It may add a further 1.4 million in 2011, he says. While initially interested only in Stern, many fans have since found additional Sirius channels that appeal to them, he says. Among the converts is Beth Porter, a stay-at-home mom who lives in Concord, Calif. She signed up for Sirius service in 2006, specifically for Stern. Now she also tunes in to the Hits 1 and Raw Dog Comedy channels. “I’d start listening to music and comedy channels” more if Stern leaves, Porter, 43, says in an interview.

Stern no longer brings in significant numbers of new listeners, Amobi says. If an existing programming contract isn’t renewed, “we have no reason to believe that any such subscriber loss will be material to our business or financial condition taken as a whole,” Sirius said in a June 30 filing.

With Stern’s contract accounting for more than a fourth of the company’s total annual programming and content costs last year, Sirius may be better off spending lesser sums on a greater number of lower-profile hosts, says Susan Kevorkian, a program director at IDC, a research firm in San Mateo, Calif. “They’ll have presumably more money at their disposal to experiment with new channels and see what resonates with their existing subscribers,” Kevorkian says.

Sirius pays other well-known hosts such as Martha Stewart a fraction of Stern’s compensation. The radio company and Stewart agreed to a four-year, $30 million deal in 2005. Sirius declined to say what Stewart’s current contract is worth. Last year, the company had a loss of $342.8 million and reported spending $370.5 million on programming and content. It reported a profit in each of the past three quarters.


Sirius says it’s working to lower programming costs as it negotiates with content providers, including Stern, the National Football League, and Nascar. The costs “are expected to decrease as various agreements expire and are renewed or replaced on more cost-effective terms,” the company said in the filing.

“If they were to pay anything [like what] they paid before, it wouldn’t pass muster,” S&P’s Amobi says, referring to Stern. While offering Stern lower pay and a shorter contract is an option, the radio host said earlier this year that he has been fielding calls from potential employers. John Hogan, CEO of traditional radio operator Clear Channel Communications, said in January that “we would be the most logical company for him to optimize his exposure and financial return.”

Clear Channel declined to comment. Neither Stern nor his agent, Don Buchwald, returned calls and e-mails seeking comment. Stern has speculated on his show that he may start a Web-only program or offer one through a mobile application. “Howard Stern has an established presence and legions of followers,” says IDC’s Kevorkian. “If anybody can make it work, Howard Stern can.”

One fan, Harris Damashek of Brooklyn, N.Y., says he would pay $20 to $30 a month for a Stern mobile app, in addition to his Sirius service. “I enjoy listening to Howard’s take on everything,” says Damashek, 35, who makes mobile apps. “I’d build a mobile app for free for Howard.”

By Olga Kharif

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