Mel Karmazin has to know it's coming.

When the Sirius XM Radio (Nasdaq: SIRI) CEO is done with his presentation at tomorrow's Bank of America Media, Communications & Entertainment Conference, the Howard Stern questions are coming.

Will satellite radio's most iconic celebrity still be beaming come January?

Stern's five-year contract -- initially valued at a whopping $500 million -- comes to an end in three months, and Sirius XM investors and Stern fans are buckled in for the mother of all cliffhangers.

Sirius XM expects an announcement before its third-quarter call in early November, though it shouldn't surprise anyone if it comes much sooner than that. After all, one of the reasons that Sirius made out like a bandit after inking Stern is that he spent the last several months of his terrestrial run promoting his move to satellite radio. If Stern is going to make a move -- either back to commercial radio or launching his own premium-streaming option -- he may as well start talking now, before Sirius pulls the plug.

Negotiating in public
Two weeks ago, Stern discussed the possibilities during his show. He could stay on, though likely for fewer hours and with a shorter contract. He can retire from radio altogether, of course. He's certainly earned that right. However, he also proposed launching his own network, something that wasn't feasible several years ago, but is certainly worth entertaining these days. The proliferation of smartphones and wider Wi-Fi accessibility make introducing premium streams an easier sell with every passing quarter.

My conclusion at the time, though, was that Stern was simply negotiating in public. In the same breath that Stern was discussing the many reasons for him to bolt, he also was proposing adding a third channel to his Sirius realm -- one that revolves around music.

My hunch is that he will return, but probably only for a two- or three-year deal. Apple (Nasdaq: AAPL) has carved out a potentially lucrative streaming marketplace for Stern with its App Store -- now with more than 100 million iOS gadgets in the wild -- and even Sirius XM has its own streaming apps through Apple's virtual storefront as well as availability for owners of Research In Motion (Nasdaq: RIMM) BlackBerry and Google (Nasdaq: GOOG) Android devices. Unfortunately, there still isn't much of a market yet for premium audio subscriptions. A short deal would give Stern time to see that cottage industry to develop into his eventual mansion.

For now, Stern will stay. How can he not? Time is running out for him to begin promoting his next act, unless he's going back to terrestrial radio -- and how likely is that, when you think about it?

Looking for karma and Zen
Sirius XM is on a good roll lately. It has added 1.1 million subscriptions over the past four quarters -- posting breakeven results along the way. Things are going so well that Sirius XM's stock has actually inched higher in recent trading, despite Stern's public threats of leaving in a few months.

Karmazin is also showing that negotiating in public goes both ways, as several media reports are now starting to point out the positives of a Stern-less Sirius XM.

"Sirius Looks Fit to Outgrow Howard Stern," reads a Bloomberg BusinessWeek headline yesterday. The article goes on to suggest that the media giant can get along just fine without its biggest rock star.

S&P analyst Tuna Amobi estimates that just 200,000 to 300,000 of Sirius XM's 18.5 million subscribers would follow Stern out the door. It's a decent stab, for several reasons.

  • Yes, Stern's base is much larger than that, but many are unlikely to cancel -- especially those that have come to appreciate Sirius for more than just Stern.
  • There will be pressure for Sirius XM to reinvest some of that money into new programming. It can't go overboard, since every new channel added means greater signal compression. However, it's fair to say that Karmazin would go after terrestrial's biggest stars available to fill the void.
  • Many subscribers have already gone "all in" with lifetime subscription deals or are taking advantage of discounts on multi-year plans. In other words, many of the defections won't happen right away.

In favor of Stern staying
Basic membership rates are frozen until next year, part of the deal negotiated with the FCC to get the Sirius and XM deal approved in the first place. However, the satrad giant has been selling "best of" packages, that for XM subscribers delivers access to Stern on Sirius.

Regardless of how many subscribers cancel if Stern's setting up shop elsewhere in a few months, one can imagine that the number of XM subscribers paying an additional $4 a month to hear Stern and a few of the other Sirius-exclusive channels will diminish.

It's really in the best interest of both Sirius XM and Stern to make this work. Regardless of the compensation at stake -- and I recognize that it's substantial -- both would take serious steps back without one another.

It would be nice if both sides realize this, stop trying to negotiate in public, and get a deal done.

Sure, a deal is unlikely to be in place by the time that Karmazin speaks tomorrow, but momentum is creeping in Sirius XM's favor lately. It'd be a shame to see it derailed.

Will Howard Stern leave Sirius or stay? Share your thoughts in the comment box below.

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Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.