Does Sirius XM Really Need Howard Stern?

Does Sirius XM (Nasdaq: SIRI  ) really need Howard Stern? If Stern leaves satellite radio, what's his most likely destination? And how far should Sirius CEO Mel Karmazin go to keep Stern? I recently asked Sirius Buzz writer Spencer Osborne. Sirius Buzz covers satellite radio news but is not affiliated with Sirius XM. Spencer owns shares of Sirius XM.

Mac Greer:  Howard Stern recently said that he's "pretty sure" he's leaving satellite radio. And there's lot of speculation that Stern may start his own Internet radio show. You say that the main reason Howard Stern will stay at Sirius XM is his ego. Aren't there other ways that he can feed his ego --- like building out an Internet radio show?

Spencer Osborne:  Building an Internet radio show would boost his ego, but not as much as becoming the dominant force in audio entertainment. Stern also does not put up his own money for projects like this. Part of his ego is the money he makes, and the fact that people are willing to pay him as much as they do. Can another competitor pay him enough money to satisfy his pride? Will an Internet radio option become big enough in the amount of time he wants to dedicate to his career? The technologies Stern speaks of are still a ways off. Stern wants to go out on top. At this point, his best chance for that is with satellite.

Greer: The New York Daily News did some basic number crunching and estimated that Stern could bring in $60 million a year with a subscription-based Internet radio show that costs $5 a month and has a million subscribers. What do you think the economics look like if Stern starts his own Internet show?

Osborne: People need to be willing to pay $5 per month on top of the cell phone bill and on top of the data charges. For those that already pay these fees, the $5 per month will be inconsequential. For those that don't, the price of a smart phone is $200 with a two-year commitment and a cell bill over $100 per month. Bandwidth is always an issue. Bandwidth costs money. Those costs need to be borne out of the subscription price or saddled on the consumer. Stern would suffer a big audience drop if he went this route.

Greer: You've written that Howard Stern is a draw for Sirius XM but not as big as he likes to think. What would it mean for Sirius XM's bottom line if Howard Stern leaves to start his own Internet radio show?

Osborne: Stern away from satellite would impact subscriber numbers, but not in a huge way. It would be a blip on the radar and impact one quarter in terms of sub growth. Sirius XM would save on a substantial contract, but would lose ad revenue as well as some from XM who enjoy the "Best of Sirius" package. Ad revenue is not big now, but his show is the biggest contributor to that category. The biggest cost would be in having the cache of being the platform that has Howard, and trying to keep the Howard fans as subs even if Howard himself goes elsewhere.

Greer: Is it possible that Howard leaving ultimately make Sirius XM stronger in that the company could prove that it can be successful without Stern?

Osborne: The costs to carry Stern are big. No doubt about it. Saving that money makes the financials look that much better. However, Sirius XM can survive without him and in reality, the numbers already demonstrate this. Even with Stern, Sirius never caught up with XM in terms of sub numbers. The company is already proving success.

 Greer: Howard recently said that retirement was not an option but that he would end up somewhere. If he doesn't stay at Sirius XM, what are the top three potential destinations?

Osborne: No. 1 is Pandora /Slacker. There is rumor that Pandora may try to go public later this year. If that happens, they will be able to raise a substantial amount of cash with which to lure Stern away. I think Pandora would rather pay in stock, but Stern will likely want the largest components of the deal to be cash. He got a ton of stock from Sirius, and that did not pan out so well for him. I am sure Slacker would love to have Stern, but the finances simply may not be there.

No. 2 is Google (Nasdaq: GOOG  ) , via their new music and entertainment platform that is in development. Google wants to hop into music, but could take it a step further. Stern would be a draw to the service, and Google has deep enough pockets.

No. 3 is a television deal with a side career of radio podcasts. I see this as unlikely, but possible.

Greer: Any dark-horse suitors or companies that could emerge as Howard's next stop?

Osborne: Radioio. It is a relatively unheard of Internet radio company that Bubba the Love Sponge (a shock jock on the Howard channels) has spoken of going to. The company is a wholly owned subsidiary of IOWorld (OTC: IWDM.pk). They have over 1 million listeners and a pretty good platform and service.

Greer: If Howard leaves Sirius XM, is there another big name out there that you see filling the void?

Osborne: I think that the company would pull talent from within. Jay Thomas, Ron & Fez, and Opie and Anthony all have good shows. Jason Ellis is another who is entertaining.

Greer: If you're Sirius XM CEO Mel Karmazin, how much are you offering Stern to stay?

Osborne:  I would offer Stern $50 million to $60 million guaranteed. He wants to work fewer days, pay him less. To allow Stern to save face and earn more, give him a revenue share on advertising and a revenue share on the Internet radio feed.

You've heard what Spencer thinks. What do you think about Howard Stern's future on satellite radio? Does Sirius XM really need Stern? Post your thoughts below.

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Read/Post Comments (16) | Recommend This Article (11)

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 10, 2010, at 9:24 PM, Fredlee009 wrote:

    Actually Howard Stern never said that in the content your assuming. Pull the whole quote or stop reciting heresay. An article by a guy claiming he heard two words is not a credible source.

    Also why is this article titled the way it is. Every question you asked was to force Spencer, of which I would have gotten angry after the second question, after I just told you hes not going anywhere, to stop making me speculate on options that are impossible. Talk about his value, not where he would go. NO one can even COME CLOSE to paying Howard what Sirius XM can. In the end, exposure vs. money, there is no choice.

  • Report this Comment On September 10, 2010, at 9:26 PM, Fredlee009 wrote:

    Hey Howard, would you rather lose an audience base for a smaller one, take less money, and MAYBE make somewhere near what you where? And work MORE. Ya, Howards going to jump at that. LOL

    PANDORA !!

    AHAHAHAHAHAHAHAHHAHAHAHH

    AHAHAHAHAHHAHAHAHH

    STOP!!!!

    TOO FUNNY!!!!

    ahahahahahahahhaa

  • Report this Comment On September 10, 2010, at 9:29 PM, Fredlee009 wrote:

    Spencer, and IM SERIOUS, do you work for Pandora or Slacker? Do you have a website on these companies or something? You cant wait to mention them at every turn. Also, Why dont you call an interview the author who wrote this wonderful piece on the very topic your discussing, instead of asking this guy, who has nothing of value to say.

    http://www.kingofalltrades.com/2010/09/02/how-much-of-sirius...

    This is an amazing article on the subject, well thought out, with facts. Spencer thinks Pandora is competition for Sirius XM. See, thats called "being out of touch".

    Or this one on where he might go or end up doing. This article has excellent insight. You shoudl call and interview this Relmor guy. Im sure he has much more interesting comments.

    http://www.kingofalltrades.com/2010/09/03/what%e2%80%99s-nex...

  • Report this Comment On September 10, 2010, at 10:37 PM, ibEddy wrote:

    Although I don’t like it as a Sirius Long, it’s a good point. Someone, if not this round, will hire Stern too establish themselves, someone like Google or Bing will pay him a cool Billion.

    I don’t like Stern or his show but Sirius needs to lock him in at what ever price it takes.

    Lock him into a new contract and hope his show fails; really the only safe Stern is a has-been Stern?

    Ed

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  • Report this Comment On September 11, 2010, at 6:31 AM, nesurk wrote:

    I have been a Howard Stern fan for 25 yrs. I originally had XM and switched to Sirius when Howard came. I listen almost exclusively to Howard and have 3 radios but I have to say that if Howard leaves I will keep my Sirius subscriptions. Once you have Sirius you could never go back to torrestrial radio.

  • Report this Comment On September 11, 2010, at 10:09 AM, Valuestocksonly wrote:

    Howard will stay. 60mill a year for 2 years with an option for a third year. He will be included in the APP which he will get a piece of the pie. Howard will be rich at a fair price. If not GET RUSH LIMBAUGH!

  • Report this Comment On September 11, 2010, at 2:48 PM, neeke1 wrote:

    Stern will stay!

  • Report this Comment On September 11, 2010, at 3:04 PM, Jokers4 wrote:

    Expense not needed! Overrated social deviate does not draw anywhere near the option of choosing categories of music etc. to listen to.

    Howard can go away. We will draw more social conscious females for any idiot male customers we lose. I will double down the day he is out.

  • Report this Comment On September 11, 2010, at 5:22 PM, Blockbuster1111 wrote:

    Dump him he's not worth it. I have sat radio and don't even bother to go to his channel. Save your money Mel for something worth while.

  • Report this Comment On September 11, 2010, at 5:50 PM, tfirst wrote:

    I've listened to Stern berate other celebs for leaving their shows while at the top of their game. If he does his own app it will mean more hours for less pay. His leaving comments were purely for Mel's benefit while negotiating a new contract. When he left terrestial radio he was frustrated about FCC censorship. He's not stupid, and he's not going anywhere. If he does, his mistake will be siri's gain. 100 million a year...straight to the bottom line.

  • Report this Comment On September 11, 2010, at 10:24 PM, ibEddy wrote:

    Foolish bean counters count beans. What if you have no beans to count? If Google or Microsoft is ready to displace Sirius, Howard can do it for them if their product is strong enough.

    The game has nothing to do with subscribers gained or lost.

    Ed

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  • Report this Comment On September 13, 2010, at 8:53 AM, inetport wrote:

    Could care less where he goes, I don't listen to him now and have no plans to ever listen (or watch him) in the future no matter where he goes.

  • Report this Comment On September 13, 2010, at 11:31 AM, Guise wrote:

    I agree with "ValueStockOnly" in that if Sirius wants a HUGE multi-aged, loyal self-sustainable audience that dwarfs Stern....get Rush Limbaugh, even if only in syndication. Replays of Limbaugh's radio program throughout a 24-hour period would guarantee millions of long-term subscriptions.

  • Report this Comment On September 13, 2010, at 11:45 AM, Guise wrote:

    Howard Stern is a "has-been" jock whose "shock" is (yawn) so, uh, yesterday. He is a fool to even suggest that he can start over elsewhere with any success. Whatever value that Stern can muster will exist ONLY in the uncensored world of Sirius. Young folks are not interested in him, so it'd be a stretch of the imagination for "new" technologies to woo and headline him. Frankly, as a shareholder, I wish that Sirius would let him fail by just dumping him altogether. But, if Sirius chooses otherwise (hopefully at a significant pay cut), Stern should be grateful that Sirius is willing to keep him on life support. He's a faded memory anywhere else.

  • Report this Comment On September 13, 2010, at 1:01 PM, ibEddy wrote:

    Foolish fools Rush to call Howard a has-been. Fools, Howard is all you talk about. Mel made him a radio killer.

    Ed

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  • Report this Comment On September 13, 2010, at 7:11 PM, katwoman wrote:

    Dump Stern.

    He costs too much money. He has not PROVED his value to XM/ Sirius.

    Let him try to sell his show elsewhere.

    I will happily keep my sub and look forward to how the company will be strengthened with the additional cash flow.

    Take a vote and see who really will stay and who will go. Post the results and that should make the decisions easier for all those concerned.

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