It's not easy running a premium service when you're at the mercy of third-party providers.
Multiplex operators live and die by Hollywood releases. Toymakers with licensed franchises rely on the property owners to keep their characters fresh. Video game distributors, book publishers, and major record labels knock on wood as their contracted content creators toil away.
However, sometimes a single third-party property is the only thing separating a service provider from cheaper consumer alternatives.
- Where would Sirius XM Radio (Nasdaq: SIRI) be without Howard Stern?
- Where would AT&T (NYSE: T) be without Apple's (Nasdaq: AAPL) iPhone?
- Where would DirecTV (NYSE: DTV) be without pro football's Sunday Ticket package?
Exclusivity has served the premium services well. Sirius badly lagged XM in subscribers until it landed jock star Stern. It went on to narrow the gap, until the two companies combined as a merger of equals -- with Sirius' CEO at the helm.
AT&T wouldn't exactly be chopped liver if it hadn't introduced the iPhone three summers ago, but nabbing the revolutionary smartphone was clearly a game-changer for the company's wireless division. The iPhone's data-hungry ways may have exposed the weakness in AT&T's network, but there's no way that AT&T would have as many wireless customers today if Apple had gone with somebody else.
DirecTV's breakthrough deal to air every single NFL game through its Sunday Ticket package helps the satellite television leader charge far more than smaller rival DISHNetwork (Nasdaq: DISH) or area cable providers for monthly programming.
What if that exclusivity went away? Which of the three offerings is the most critical to its provider?
Outside of DirecTV -- which will be paying the NFL $1 billion annually to retain Sunday Ticket exclusivity through the 2014 season -- the end of the line may come sooner than you think.
Stern's five-year contract with Sirius ends in December. Apple presumably inked a five-year deal that would lock its iPhone to AT&T domestically until 2012, but rumor mills continue to suggest that Verizon's (NYSE: VZ) wireless division may be offering a network-tweaked iPhone 4 come January.
Let's take a glimpse into what each company would look like without its marquee markup.
Stern warning
Last week's quarterly conference call ended on an upbeat note. The satellite radio juggernaut expects to make "an announcement as to what's going on with Howard" before its next call.
This seems to indicate that Stern will either sign a new deal with Sirius, or retire. Sirius XM executives would be unlikely to provide a public timeline if Stern had decided to jump back to terrestrial radio or strike out on his own with a premium streaming service -- the grimmest of the three scenarios for the company.
Re-signing Stern -- even if it's for a scaled-back deal with limited live content -- is ideal, but the radio legend's retirement wouldn't be fatal. Sirius would lose some subscribers -- and XM would forfeit a good chunk of its "Best of Sirius" upgrade packages -- but it's not as if fans can follow Stern into retirement. Most will likely stick around to enjoy the rest of Sirius XM's, and the media giant can allocate the roughly $100 million a year it earmarked for Stern over the past five years to acquire new content.
Apple jacks
If Apple makes a bigger stateside push by making its iPhone available through different carriers, AT&T will be in a bind. There's nothing inherently wrong with its collection of BlackBerry devices or Android-fueled handsets, but such high-end smartphone offerings aren't materially different than what rivals already have available.
AT&T would be hit by the double whammy of becoming a "me, too" carrier -- one whose network reputation has been ravaged by Verizon's attack ads. Sprint Nextel (NYSE: S) touts its speedy 4G coverage. Verizon has spent years marketing the breadth of its network with the "can you hear me now" and "there's a map for that" ads.
AT&T has pitched its rollover minutes and family talk plans, but these may not be too influential when pitted against cheaper providers.
The only upside to losing iPhone exclusivity would be the resulting improvement in AT&T's network congestion, but that's a decidedly dubious blessing.
Sunday Ticket, bloody Sunday Ticket
In order to give rival cable and satellite providers a little more skin in the gridiron game, the NFL has offered RedZone premium packages with enhanced football programming. Even Verizon is getting in on this one. However, it's far short of the full-blown play-by-play canvas that DirecTV offers exclusively through the NFL Sunday Ticket.
DirecTV is locked in through the 2014-2015 season, so it has little to worry about in the near term. Still, the satellite TV provider can't rest easy. What if DISH, cable, or even the telco television offerings that AT&T and Verizon are aggressively pushing scale quickly between now and then, giving them the financial muscle to outbid DirecTV? What if digital convergence gets to the point where the NFL can deal directly with Internet-connected households?
DirecTV can point to its high-def channels and broad content offerings, but it may be a hard premium upsell if the NFL can make more money by offering the Sunday Ticket through any and all available outlets five seasons from now.
