How Sirius XM Beat the Super Bowl, and What It Means Going Forward

Howard Stern, fresh off a blockbuster 60th birthday show, demonstrates the value of original programming for subscription services. It's what Pandora lacks, but what Netflix and Amazon are diligently trying to develop.

Feb 3, 2014 at 6:00PM

Forget the Super Bowl. The most intriguing event held in the New York City area this past weekend was at the Hammerstein Ballroom Friday night.

It was Howard Stern's 60th anniversary party, and it was an epic event that demonstrates with no uncertainty what a gem Sirius XM (NASDAQ:SIRI) has in the now-sexagenarian shock jock.

Consider what went down as the night unfolded. There were musical acts that topped those at any Grammy Awards show. Adam Levine performed a cover of Prince's "Purple Rain." John Fogerty performed "Fortunate Son." Steven Tyler, Slash, and Dave Grohl got together for a rendition of "Walk This Way." There was a half-hour, live, sit-down interview with the reclusive David Letterman, who never agrees to be interviewed by anyone. Paul McCartney sang "Happy Birthday."

All that created a buzz. Writers ranging from The Big Picture's Barry Ritholtz to Fox Sports' Jimmy Traina were penning reviews of the show. Stern ranked third on Google trends Friday. That might not seem all that impressive until you consider that his show appears only on a subscriber service. It's not broadcast to the world -- only those 25 million willing to ante up the monthly subscription rate.

Be original
The buzz, no doubt
, is good news for Sirius XM. But the takeaway here is that high-quality, original entertainment like Stern is invaluable for subscription services like Sirius XM to survive. It's all that will separate it from Internet music services like Pandora (NYSE:P) and Spotify. And it's what will help online video services like Netflix (NASDAQ:NFLX), as well as Amazon's (NASDAQ:AMZN) Prime, to set themselves apart from anything else out there.

It's more than a monthly fee
Sirius has had great success in growing its subscribers. It added 1.66 million in 2013, more than anticipated. And it's continued that growth despite price hikes.

That's led some to call for Pandora to push a subscription service. The argument is that Pandora generates just $8 per active user per year through its advertising model, while Sirius XM generates $155 in annual revenue per subscriber.

While those numbers seem to argue for a subscriber-based model for Pandora and other Internet music services, they ignore the impact of the satellite radio company's original programming. Sirius' path to growth came on the back of Stern and other original programming, whether that was "Bubba the Love Sponge," Scottt Ferrall's sports talk show, or B.B. King's weekly blues program. Sirius management knows it works, or it wouldn't have re-inked Stern or grabbed Chris "Mad Dog" Russo from terrestrial radio in 2008.

Survey says: They don't care
A recently released survey seems to contradict this. The survey released by Macquarie Equities Research in late January would have us believe that few Sirius subscribers care about Stern. Only 5% of those surveyed said they would cancel the service if Stern did not return after this contract ends. What's more, just 12% said they listen to Stern regularly.

Two things to keep in mind here. First, the company surveyed only 800 subscribers, or just about .003% of listeners, and it isn't clear from media reports what methodology was used to arrive at the results. Second, the numbers fail to address how many listeners were drawn into the Sirius service by Stern, and now enjoy it so much that they'd stay even if he left.

The true importance of Stern to Sirius XM programming is a concern moving forward for Sirius XM and suitor Liberty Media, or any other company that's considering making a bid for the satellite radio company. It's also an issue of great relevance to subscription services on the video end, like Netflix and Amazon. And they seem to have begun to figure out the same thing Sirius did back in 2005.

Netflix now has several original series, including House of Cards. It's led some to question if the company is spending too much money developing original programming.
Amazon, meanwhile, is busy developing its own original series. It's making those series available free to Prime subscribers, which could be a great incentive to join the service, if the shows are intriguing.

The Foolish bottom line
Sirius XM will be weighing not only an offer from Liberty Media to buy the business, but also the value of keeping Howard Stern around for a few more years. As the birthday party showed, Stern is a giant in the entertainment industry, and even at age 60, maintains a strong appeal across generations.

Even if they stay for other reasons, Stern draws in subscribers. That's the value of high-quality original programming for subscription services. It's something Sirius XM has, Pandora doesn't, and Netflix and Amazon are working diligently to develop.

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John-Erik Koslosky has no position in any stocks mentioned. The Motley Fool recommends, Netflix, and Pandora Media. The Motley Fool owns shares of, Liberty Media, Netflix, and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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