The Don Imus saga is over at CBS (NYSE: CBS ) . Both sides have settled their differences, concluding the legal claims that each had filed against the other. Terms of the mutual agreement are not being disclosed, though Imus can now focus his efforts on landing his next talk-radio gig.
That new job may come sooner than expected. Media reports have Imus negotiating with Citadel's (NYSE: CDL ) WABC, but I can't be the only one who feels that his best bet would be satellite radio.
There's no point in rehashing the racially charged comments that led to Imus' ouster back in April. My point is only that he'll be on an even shorter leash this time if he stays on terrestrial radio. He got away with some pretty outlandish things until three words sealed his fate. Now, his every questionable comment will be dissected, a luxury that someone as opinionated as Imus can ill afford.
Folks like Imus, Howard Stern, and Opie & Anthony don't become morning-show stars by playing it safe. That's the kind of bland radio you find in small markets with a forgivably thin talent pool. Talk-show celebrities like Imus draw crowds because they stand out, belt out the unexpected, and dare to color outside of the lines.
In short, Imus was built for satellite radio. There really are just two questions getting in the way of that inevitable sonic resting place. Will Imus consider satellite radio? And can satellite radio pay him?
The case against Imus going satellite
Imus was making $10 million a year at CBS. That's far less than what Stern makes on Sirius (Nasdaq: SIRI ) , or what Oprah Winfrey is getting from XM (Nasdaq: XMSR ) , but those deals are in short supply these days. Both companies continue to lose truckloads of money. Each provider made that one marquee talent acquisition, and it will be hard to justify that kind of capital outlay if it doesn't lead to a material sum of incremental subscribers.
That's been the problem for both XM and Sirius lately. Winfrey wasn't the audience driver that XM was hoping for, in part because she still has a very active non-XM presence at her flagship television show. You just didn't see anything close to the spike in retail sales that happened when Stern made the leap to Sirius.
Now that Stern's exodus is old hat, and the Winfrey channel has had a few quarters to run, XM and Sirius are back to winning the battle at the showroom. It's not really much of a battle. Nearly every automaker has sided with just one satellite radio provider, funneling new car buyers toward factory-installed satellite radio receivers. It may seem like easy money, but it's not.
Carmakers are subsidized for serving as satellite radio shoehorns, and even that isn't always enough. As seen this last quarter, 47% of car buyers with XM systems aren't paying for the service once their free trials expire. Loyalty is also elusive, since few new car buyers decide to ignore factory-installed receivers and sign up for the other brand. In other words, satellite radio loyalty in the showroom typically comes down to the car that's being bought.
There's also the pending merger between XM and Sirius. If the deal is allowed to go through, the two services will have plenty of talent to go around, since consumers will ultimately be able to cherry-pick their favorites. Will either XM or Sirius need Imus then? Also working against a controversial hire like Imus, neither company is likely to rock the boat in the pursuit of winning regulatory approval.
Imus still needs to go with satellite radio
The roadblocks aren't exactly massive hurdles. The more you think about it, the more they transform into reasons for XM or Sirius to belly up to the bidding bar and begin negotiating with Imus.
Let's take the retail apathy, for instance. The 2005 holiday season was a very special time for Sirius. Even though XM was spanking Sirius in nearly every possible way until then, Stern's terrestrial departure and subsequent publicity tour had radio fans hitting consumer electronics stores to get their Sirius receivers.
It was the first time that Sirius landed more net news subscribers than XM, a trend that has lasted for seven consecutive quarters (including this past one). There are some reporting and churn-related factors that favor the younger Sirius, but the trend is now undeniable. However, since Sirius, too, has stumbled lately at the retail level, the industry could use a little migratory buzz. Imus would provide that.
If XM or Sirius lands Imus, it would thrust the high bidder back into the limelight. No one cared about satellite radio at the retail level during the 2006 holiday season. Shoppers were too busy snapping up GPS systems, iPods, and flat-screen televisions to notice the satellite radio receivers collecting dust. The notoriety behind Imus' departure could be a promotional tool, something which would probably be kept somewhat quiet for a terrestrial hire like WABC.
So the recent subscriber slowdown is actually the perfect reason to make a splash with someone like Imus. He's not the most uninhibited or raunchiest terrestrial personality on the airwaves, but he's the bad boy of the moment.
And what about the merger? Well, what about it? A single controversial hire won't sway the regulators. There's a very real possibility that the pairing of Sirius and XM will never happen -- that much is clear, given the discount that XM is trading to the deal's exchange ratio -- and neither company can afford to squander a few quarters on cruise control on a dead-end street. Signing Imus would give the dealmaker an advantage. It may not be enough to give XM the net subscriber addition lead. It may not be enough to rocket Sirius to sustainable free cash flow. However, if the merger is blocked, you'll find two chummy companies back in the ring to slug it out for another few more rounds. Having a fighter like Imus in one of their corners wouldn't hurt.
XM is a former recommendation of theRule Breakers growth-stock subscription service. The newsletter has a pretty decent singing voice, besting the S&P 500 since its inception. Want to take it to the karaoke bar for a few weeks? Go for it with a free 30-day trial subscription. Yahoo! is aMotley Fool Stock Advisor newsletter selection.
Longtime Fool contributor Rick Munarriz is such a big satellite radio fan that he subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also a member of theRule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool's disclosure policy offends only the Wall Street Wise.