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It's not all peaches and cream at Sirius XM Radio (Nasdaq: SIRI ) . Howard Stern's production company and the popular morning radio show host's agent filed a lawsuit in Manhattan's New York State Supreme Court yesterday, alleging that the satellite radio giant reneged on performance-based stock awards.
The suit claims that Stern's camp received the stock bonuses as Sirius obliterated subscriber goals during the first two years of his five-year contract. CEO Mel Karmazin's company has failed to make any additional payments.
There are obviously two sides to every story, and we've yet to hear from Sirius XM. It's probably not a coincidence that the stock grants were nixed after Sirius announced its plans to merge with XM four years ago. Did that event alter the language of the original deal, or is Sirius XM cocky enough to cheat its biggest star?
It's undeniable that Stern's arrival put Sirius on the map. However, XM still had more subscribers than Sirius by the time the two companies ultimately merged several years later. In other words, despite Stern's appeal, XM still managed to stay on top because both companies were landing new accounts hand over fist.
XM's broader audience was more about automaker connections than content deals. Its deal to have its receivers installed in General Motors, Honda, and Toyota helped it stay ahead in the market share battle. However, it's also undeniable that Sirius wouldn't have been the one with the upper hand in this merger of equals if it had been the overpriced small-fry competitor to XM that it was pre-Stern.
The broader question may be why it took this long to publicly surface. Were both parties just waiting until Stern's new five-year deal was inked three months ago before breaking out the boxing gloves?
Stern purists will argue that it doesn't matter. Stern's been at his best through his radio career when he's slinging venom at his boss, and now he has fresh arrows in his quiver. It will create some entertaining skewering for listeners, but what about investors?
Sirius XM has had no problem diluting investors over the years, so why didn't it just issue the stock if it has been rightfully earned? There's a fine line between good radio and bad business practices, and this can have larger ramifications than any on-air drama.
What do you think will happen the next time a major terrestrial radio or television star brokers a deal with Sirius XM? The radio giant has some serious leverage since its merger. It is the only game in town when it comes to satellite radio. However, desirable talent that could have been wooed by performance-based stock incentives will point to Stern's fallout and argue for more upfront cash instead. This isn't what Sirius XM -- a company that has done a good job over the past year in reining in its programming costs -- wants to necessarily do.
It also isn't what investors may want to necessarily see.
What do you think of the legal tussle between Howard Stern's camp and Sirius XM Radio? Share your thoughts in the comment box below.