I am bearish on Sirius XM Radio
If content is king, and I think that it is, then Sirius XM is in trouble. CEO Mel Karmazin isn't going to be able to keep the content that keeps subscribers. The math simply doesn't work.
When Stern gets Sirius
When I say, "the content that keeps subscribers" I'm talking about Howard Stern, a $100 million a year shock jock who is easily the company's most important on-air personality. (Sorry, Oprah.)
Stern's contract expires at the end of 2010. Between now and then, Sirius XM will likely divert some of the millions it needs to repay Liberty Media
And while it's interesting that Stern will soon broadcast to your iPhone, Ford
There's also Microsoft's
Substitutes are everywhere.
Yet each of these services and platforms pale because they lack Stern. He knows it, too, and he's not going to settle for less than the $100 million he's getting now. More likely is that Stern will ask for a raise. After all, he deserves it.
Then-Sirius Satellite Radio had 662,289 subscribers the week before Stern announced he'd be leaving Viacom for the upstart. Today, Sirius XM serves more than 19 million listeners. Even if you attribute half that total to XM subscribers who have stuck around, that's still 9.5 million Sirius listeners. Many (most?) of them pay to hear Stern, who regularly commanded an audience of 10 million when broadcasting via terrestrial radio.
What would happen if Stern left for Web radio? What if he set up his own private studio, struck a deal with a Web hosting company, and started broadcasting under his own brand, independent of Sirius XM or any other media conglomerate? Would you pay $1 a month to listen?
Most would, I bet. Drawing an audience of 9 million -- less than half of Sirius XM's current subscriber base and less than what's he's drawn historically via terrestrial radio -- would bring in $108 million in annual revenue, an $8 million raise.
My point is this: Stern has options. So do most of Sirius' content suppliers. Take Major League Baseball (MLB). Sirius pays some $60 million to broadcast games during the season. If it doesn't have the cash to renew, baseball's executives could broker new deals with terrestrial stations and turn to the Web for the rest.
In fact, they already are. MLB last week released an application for the iPhone that, for $10 for the season, will deliver live Web radio game feeds for all 30 teams. Video clips and live score updates are also included. Sirius XM charges $10 a month for a similar service.
Skeptics will argue that the Web isn't much of a broadcast platform and, to a degree, they're right. Some Americans lack broadband Internet access. Satellites cover more territory.
But that's changing. President Obama has committed $7.2 billion to expand broadband Internet access in the US. Upstarts and giants alike are bound to line up to grab a slice of stimulus pie with the net effect being an expansion of broadband capacity. Wireless broadband, in particular. And that should aid emerging technology such as WiMAX, which can broadcast wireless Web signals over miles.
Will Stern turn to the Web? That's really not the point. The point is that he could, and that, if he did, he might make more money than he does now.
If that's not a serious threat, I don't know what is.
Read Rick's bullish argument on Sirius XM, and come back on Monday for the rebuttal arguments.