Can Sirius survive without Howard?
The shock jock hints that he may leave after his contract expires. How would his departure affect the company?
Who knew that porn stars, drunken dwarfs and fart jokes were so valuable?
The radio star largely responsible for Sirius XM's (SIRI) success -- Howard Stern -- may be poised to leave the satellite radio provider, and investors and analysts wonder whether the company is doomed without him.
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 Mel Karmazin said the company will likely have an announcement before the release of third-quarter earnings "as to what is going on with Howard."
The shock jock is credited with having attracted 2 million
subscribers when he moved his show to Sirius in January 2006. Post continues after video:
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Standard & Poor's analyst Tuna Amobi said that 200,000 to 300,000 fans may drop the service if
Stern departs, but Amobi noted that customer growth overall will continue and that
Sirius could add more programming with the costs it saves on Stern.
Sirius had a loss of $342.8 million, spending $370.5 million on programming and content. But it has reported a
profit in each of the past three quarters.
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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 up only 4% in the past month but remains strong overall.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 been working to lower programming costs as it negotiates with content providers, including Stern, the NFL and NASCAR. In effect, the company clearly won't be paying Stern the salary he got before -- probably the reason he might leave.
Since neither privately held 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 is for sure: 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.
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