XM's Major League Deal

In the second installment of our conversation with XM Satellite Radio (Nasdaq: XMSR  ) CEO Hugh Panero, David Gardner talks about the business of baseball and radio personality Howard Stern.

TMF: Hugh, baseball season just started. XM has an 11-year deal to carry Major League Baseball. How much did you pay and how important is the Major League Baseball deal to your bottom line?

Hugh Panero: Well, $650 million is the total value of the deal. It is about $60 million a year. It is a very unique sport. We think it is the crown jewel because it basically spans seven to eight months. There are over 2,400 games. They are on at different times of the day because of the various time zones. It is very different than football, which is maybe 240 games. It is all on Sunday and most people are watching it on TV. [Baseball] is made for radio. The pacing of it is for radio.

We really think that there is a huge market out there to go after -- what we call "dislocated fans." We were down at spring training, where a lot of dislocated fans go to bond with their teams, which they can't do because maybe they [live] out of the market for their teams. We really think baseball on radio is a fabulous piece of content for us and we are taking that out to the public in a big way.

TMF: Are you a baseball fan yourself, or maybe just something closer to a fan of baseball radio deals?

HP: I am a baseball fan. I grew up in the Bronx. I am one of four brothers. Three of us are Yankee fans; one is a Red Sox fan. I think it is a terrific sport and I am really happy that it is on XM Radio.

TMF: XM's primary competitor is Sirius Satellite Radio (Nasdaq: SIRI  ) , which, full disclosure, carries The Motley Fool Radio Show. Sirius has signed Howard Stern to a $500 million deal starting in January of 2006. Is that a good move for Sirius?

HP: I don't know if it is a good move for Sirius. It is clearly a very good move for Howard Stern. He is a smart guy and he has obviously done a deal that is very good for him. I think that there will be a number of... his hardcore fans who will subscribe to listen to him in that environment.

Whether it is a good business deal, I think time is going to tell. It is a lot, a lot of money. I had also spoken to Howard and some of his people and there was some interest in us doing some sort of a deal with him, but I never, ever contemplated a deal of that magnitude. That is more money than people like Oprah Winfrey make. That is more money than some of the biggest stars that exist. It is quite a gamble, but it was clearly a very good business deal for Howard Stern.

TMF: I would assume, Hugh Panero, you might even be quite happy with the deal on two counts. If you think Sirius overpaid, that is bad for your competitor, but second, it seems as if it was sort of a sign that your technology is coming of age. Do you agree?

HP: Well, the deal, when it was announced, obviously catapulted the awareness of satellite radio, just because it got a lot of press. Awareness and favorability are two different things. Howard is one of the more talented people in the radio business just by virtue of his longevity and the amount of money he has made, but he actually is a very polarizing figure who has made his money by focusing on markets where his voice is more acceptable.

As he becomes more broadly based, the number of people that like him and dislike him changes dramatically, but he is a talented guy and he is obviously going to be making a whole bunch of money for himself, but the issue is will there be a return on that investment? Time will tell. That wasn't an investment that we wanted to make at that magnitude.

TMF: I guess he has about eight million listeners. How many do you think might make a move to satellite radio, whether it is Sirius or your company, XM Satellite Radio?

HP: I don't know. When we looked at his numbers, he actually shows a bigger number that says it is 13 million listeners, but there are eight million of these kind of regular listeners and the question is at the end of the day, what is the sort of hard-core base that would move to satellite radio? I don't really know.

There are a lot of issues about controversial talk personalities, that when they are in an environment where it is taboo to say certain things and they get punished when they go off the ranch, they get some notoriety. Then when they move to an environment where there is less regulation, where everybody has a certain amount of freedom, there is something a little less novel about them. Howard is a very talented guy and I am sure he is going to attract some fans, but at the end of the day, it really just gets back to are they going to be able to attract some subscribers to justify what is a half-a-billion-dollar investment?

Read part 3 of our interview with Hugh Panero tomorrow. Missed part 1? It's right here.

Fool co-founder David Gardner heads up theMotley Fool Rule Breakersnewsletter service, which seeks out companies like XM that are breaking the rules in their industries. Want to see what stocks David thinks are worthy of Rule Breaker status? He's offering a free, 30-day trial -- take a look!


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