How important is Howard Stern to the future success of Sirius XM (Nasdaq: SIRI)? How many subscribers would leave with Stern? In this second part of our four-part series, I ask 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: If Howard Stern leaves, what does that mean for Sirius XM?
Spencer Osborne: It is kind of actually a two-fold question. If he retires, then it will hurt the company, but he is not anywhere else, so no one is gravitating somewhere else to listen to him. If he stays in the business, and now as a competitor to Sirius XM, Sirius XM has to have an answer for that. He has got the most popular channel on the satellite radio lineup and whether someone likes him or doesn't like him, you can't argue with the numbers that he is the most popular channel out there. There are a lot of ad dollars that run through that show. There is a lot of exposure that runs through that show and if he goes to a competing service, be it podcasting, be it terrestrial radio or something we haven't even really thought of yet that is a start-up, it would mean trouble for Sirius XM.
They would lose quite a few subscribers off the bat. I don't think the churn would be so massive that the company couldn't overcome it, because there are other things that people are listening to. It's just people have gotten used to listening to Howard Stern and they are going to continue to listen to him, and those fans are going to follow him wherever he goes. The best case scenario is Howard re-signs with Sirius XM for whatever, might be three years or so, and then when he is done with that, he retires. They don't really want to compete against him, in my opinion.
Greer: And what do you think is going to happen?
Osborne: I would say that he is going to re-sign for a two- or three-year deal and really start to; I think he is going to try to start wind it down. If he could, I think he would cut a deal for a three-day workweek, which we would all love to have. He has been around a long time. He has kind of earned it, and you know what? If they could sign him to a three-day workweek and Howard is happy, the channels could become kind of a minor league system, so to speak, of what is going to replace him when he is gone.
When Howard stops broadcasting on the microphone, I think he is going to be producing shows. The Howard brand production is going to become a name and he will still have a deal for the next ten years. He is going to be on the mic for a long time, but I think he is going to do a two- or three-year deal, let some of this stuff pan out in the technology marketplace and he will be in a great position two or three years from now to look over the landscape and say, These people are the winners. I am going to stick with this. If that is Sirius XM, then he will definitely benefit from having been there for as long as he has.
Greer: And if Howard Stern leaves, and by "leave" I mean he either retires or he takes his services elsewhere. How many subscribers do you think leave with him?
Osborne: Let's put it this way. This past quarter, 1.4 million subscribers deactivated. That was the churn for Sirius XM; in Q1, it was1.5 million. So if we take that and say, OK, 1.5 million subscribers are leaving anyway, all the time, the day Howard announces he leaves, for the quarter he announces he leaves, does that churn go up to 2.5 million? There is a very good chance it does, but you are going to have that instantaneous, passionate fan of, Oh, Howard left Sirius XM? I'm going to leave Sirius XM. And I think that passionate fan base could be about a million subscribers. So it was safe to lose that extra million? Yes. Is it something the company can overcome? Absolutely. With deeper penetration, more marketing and appealing to other demographics than they are appealing to now.
Greer: Liberty Capital (NYSE: LCAPA) has around at 40% preferred share stake in Sirius XM right now. If Sirius XM ends up getting acquired, do you think Liberty is the most likely suitor or is there another company out there?
Osborne: Very good question. I think that Liberty is a very likely suitor and right now they are the most likely because there is a poison pill in place that kind of shoots everybody else in the foot, but Liberty. Once that expires mid-next year, then you might have other potential suitors coming to the plate. Liberty is in a very good position. They have the 40% stake, it is preferred shares. Unlike other preferred shares, these are votable. Liberty can vote with these shares, so with this preferred stake they have a say in what happens and the question is, does Liberty see the value in buying the company outright or taking a larger position or does Liberty see value in trading that off in a stock deal to acquire something else that they feel they are going to make more money with?
I think that at that point, that is where the Googles (Nasdaq: GOOG) of the world or the Yahoo!s (Nasdaq: YHOO) of the world might hop in and say, you know what? This is now finally a viable medium that is showing profits quarter after quarter; it is going to show us top line growth. Let's hop into that. Liberty, I think, if they can trade out that stake for something different that they feel is going to make them more money, which is probably their first choice in a move, just outright selling out the preferred. They own a bunch of the debt as well, of Sirius XM, so Liberty, in the short term, would be the most viable takeover candidate, but in the longer term, Liberty, I can see them using it as a play to acquire something bigger, or to become a partner in something bigger.
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