Sirius XM Has a Stern Decision to Make

Satellite-radio star Howard Stern is negotiating in public again.

The meatiest draw to Sirius XM Radio (Nasdaq: SIRI  ) shared some thoughts with his listeners yesterday. His five-year contract ends this year, and no one -- perhaps even Stern himself -- knows where he'll be come January.

On the one hand, Stern is publicly considering launching his own streaming app -- where smartphone and computer users can pay a few bucks a month to hear his show. If he stays with Sirius, he prefers to sign annual extensions instead of a new five-year deal. The media market continues to evolve, and he'd hate to be shackled to satellite radio if other popular content creators strike out on their own, digitally.

Don't panic, though.

On the other hand, Stern is also discussing adding a third channel to his Sirius XM network -- one that will likely revolve around music. Bringing up Sirius expansion in the same breath as he ponders bolting isn't the tact of someone who is bent on leaving. He wants CEO Mel Karmazin to know that he can offer feast or famine to Sirius XM. The ball, it seems, may actually be in Sirius XM's side of the court.

We walk from here
We can't dismiss Stern going the indie route.

"The more tantalizing option, of course, is that Stern is ready to break out on his own," I wrote last summer. "The success of Internet radio apps will make satellites unnecessary in a smartphone future. He can launch his own premium network and broadcast into computers everywhere."

Yes, everywhere. Stern can go global, something that he can't do given the licensing and satellite restrictions of where he hangs his hat now.

Portable connectivity continues to grow. Apple (Nasdaq: AAPL  ) , Research In Motion (Nasdaq: RIMM  ) , and smartphones powered by Google's (Nasdaq: GOOG  ) Android keep adding millions of new wireless subscribers every month.

It's not just smartphones. Sierra Wireless (Nasdaq: SWIR  ) and Novatel (Nasdaq: NVTL  ) have mobile hotspots being sold through leading wireless carriers. Unlimited bandwidth can be had for as little as $40 a month, enough to power several Wi-Fi-ready devices. A commuting buddy with one of these things is enough to connect his entourage's collection of iPod touch players, laptops, and tablets.

If this scenario seems like a slam dunk, think again.

Wear comfortable shoes
I was one of the earliest analysts to suggest the app route, so I may as well be one of the first to rain on the stream parade.

As cool as this all sounds, it's still uncharted territory. Premium subscriptions for streaming content services exist -- Sirius XM has had one itself since last summer -- but they don't seem to be gaining a whole lot of traction.

There is also the matter of commitment.

When Stern left terrestrial radio five years ago, he did so with a chip on his shoulder. He had something to prove.  

Things are different now. Sirius XM has paid him well, $500 million in compensation over the past five years. The FCC isn't hanging on his every word in the freer realm of satrad. He may very well make it his mission to prove that there is a better broadcasting medium than satellite radio, but it's not as if he's being shushed by media executives. Unlike his time at CBS (NYSE: CBS  ) , he knows he has a believer in Karmazin. Life is more Velveeta than vendetta for Stern at Sirius XM -- and he knows it.

However, the biggest stumbling block for Stern may be Stern himself. He's 56, and yesterday he indicated he'd like to work fewer hours. If he's planning on just 12-15 hours of live content -- with countless weeks off for vacation along the way -- this isn't going to fly if he's trying to champion a new medium. Yes, Stern has the pedigree and the fan base to own the streaming space -- but is he hungry enough to make it happen?

This is how it will all go down
Regardless of his assertions yesterday, it would be a shock to see Stern leave Sirius XM entirely. He's going to sign a shorter deal with lighter appearance requirements, but with perhaps more wiggle room to test out new forms of striking out on his own.

Who knows? Stern may very well do both. He can go the premium app route, but syndicate the content back through Sirius XM. It will at least buy Sirius XM time until it finds a magnetic celebrity to take his place -- something that is inevitable in every media situation.

Finding a way to play both fields also gives Stern an easy out if premium streams don't pan out. Oh, and Stern knows how to play both sides -- it's what he did yesterday in his public negotiations.

Where do you think Stern will be come 2011? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the companies in this story, except for Novatel Wireless. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2010, at 2:38 PM, bridgesafe wrote:

    siri will be just fine without Stern,he is old hat, no person in the world is worth $100,000,000 per year,he will never make those bucks anywhere else on the planet!!

  • Report this Comment On September 03, 2010, at 5:14 PM, mpk44 wrote:

    I agree. My wife and I followed him to SIRI, and will not follow him again. He's too full of himself. SIRI has offered him 5 of the best years of his career. My wife and I have both come to realize that SIRI is more than Stern.

    One thing he needs to realize is that the majority of his fans have been long term fans. In other words, we're old and for the most part, disinterested in smart phones and streaming.

    Every move his listener base decreases.

  • Report this Comment On September 03, 2010, at 5:44 PM, billbpeters wrote:

    Who cares?

  • Report this Comment On September 03, 2010, at 6:38 PM, upto65 wrote:

    HOWARD, SEINFELD, ALL GREAT COMEDY SHOWS HAVE GOOD ENDING BUT SIRIUS RADIO WILL GO ON AND ON. LOVE PRODUCT, CONTENT, TOO MUCH CONTENT, LETS MOVE ON. THIS IS NOT RUSSIA AND HE IS NOT LENIN OR STALIN, JUST A GOOD COMEDIAN. THEY WAS THE GREAT "COMEDIANS" AND THEY BOTH GONE. THANK YOU FOR YOUR SERVICE HOWARD AND GOODBYE.

    LIFE NEVER END'S WITH SIRIUS XM. SIRI WILL BE GLOBAL. THE ONE WHO CANCEL WILL SHOOT THEMSELF IN A FOOT. SIRI WILL RUN THE WORLD.

  • Report this Comment On September 04, 2010, at 5:03 AM, BearishKW wrote:

    what?

  • Report this Comment On September 04, 2010, at 9:51 AM, cdoorman wrote:

    I'm not sure that the wireless network coverage is there for the App route to work in a car, where most people, I believe, listen to him. With the use of a recording Satellite radio ( MyFi3, etc) people can record and listen to all of Howard, when they want, and to save it for later. I'm not sure the app is going to be allowed to do that.

    Bottom line, I'm with you, I see him staying, whether or not if it's in Sirius/XM business interest.

  • Report this Comment On September 04, 2010, at 2:04 PM, warrenrial wrote:

    Howard Stern has nothing to offer, and would never pay to listen. He radio days are gone, move on.

  • Report this Comment On September 04, 2010, at 5:02 PM, jdgretz wrote:

    I've watched this saga with a somewhat detached view. I have never appreciated Stern's comedy and was disappointed when XM and Sirius combined as that meant some of my XM subscription money went to pay Stern's outrageous salary. I don't see where Stern is a make or break deal for SIRI. Perhaps their fortunes would have been better with and extra $100,000,000 in their bank account each of the last five years. Then again, maybe Howard actually brought in over 1/2 a Billion dollars in revenue they otherwise might not have had.

    I think it would be interesting to know how many XM and Sirius subscribers (both in pure numbers and percentage wise) opted to pay extra to hear Stern.

  • Report this Comment On September 05, 2010, at 4:54 PM, jlwn111 wrote:

    He's already global, you FOOL! Sirius XM has one of the most sophisticated streaming operations on the planet (which is something you FOOLS continue to miss in ALL your discussions about SIRI). Every once in a while, Howard even takes calls from people overseas who are listening to The Show via Sirius.com or XM.com. If you really knew The Show and if really you had a clue about the future of SIRI, you would be WAY less annoying. But since you know next to nothing about Howard and know even less about the SUCCESS STORY known as Sirius XM, you're simply SUPER-annoying. And yeah, I bought at .04/share - right before you FOOLS thought they would go Ch. 11. Remember HOW WRONG you all were? LOL!!!

  • Report this Comment On September 05, 2010, at 5:35 PM, TooTall100 wrote:

    Did someone compare Stern to Seinfeld? That IS funny. Stern, yawn... Whatever. Sirius has a VERY broad and not very deep set of content. I have a six month trial and I am going to buy an Ipod and listen to a more focused play list. It is slightly interesting to be able to listen to ANY KIND OF MEDIOCRITY you want to sample. I heard a Buffalo Springfield tune. It was one of only a few that I didn't like. Having a channel dedicated to the Dead is interesting for one or two songs every once in a while. Trouble with Serius is they are seriously averse to paying for hits.

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