Source: Sirius XM

The clock is ticking on a decade of Howard Stern on satellite radio. The second five-year contract for the most magnetic star on Sirius XM Holdings (NASDAQ:SIRI) will expire at the end of this year, and it is starting to seem less likely that a third deal will be successfully brokered. 

To be fair, it did not seem like the second deal was initially going to materialize, either. Stern spent all of 2010 raising doubts about his return. The fireworks started in January of that year when Stern told his listeners that terrestrial radio bigwigs were attempting to woo him back to the airwaves of traditional broadcasters. He also discussed the possibility of launching a stand-alone premium streaming app and mentioned thoughts of retiring. 

It was not until Dec. 9, 2010 -- with just three weeks to spare -- that Stern and his crew signed up to bring their popular morning show back to Sirius for another five years. We will never know how seriously he was considering the many other options available to him. In the end, he was merely negotiating in public. He is probably doing that now, but there are some signs Stern is in fact ready to move on.

He certainly has other interests these days. A year after he signed on for another five years at Sirius XM -- reportedly for less than the initial widely publicized $100-million-a-year-contract -- he also became a judge on America's Got Talent, where Deadline reported he is making $15 million a year.  

Stern asserted after signing the second deal that he was not taking a pay cut, but reports later indicated the deal went from $100 million annually -- including about $20 million in production costs -- to roughly $80 million a year. The big difference is that he would do fewer shows under the new contract, so technically, he might have been right about not taking a pay cut relative to the reduced hours that he would be working.

As longtime Stern fans painfully know, he is also doing fewer live shows than he did during his first run with Sirius XM and far fewer than he did during his terrestrial radio days a decade earlier. He is older, wealthier, and like anyone else in that position, he can afford to spend more time enjoying life outside the studio. In short, it would not be a surprise if his return is accompanied by yet another reduced workload. 

Pegging a value on the power of Stern
The ideal situation for both parties would be for Stern to sign up for another five years or perhaps even a shorter contract term. Sirius XM could continue to position itself as the home of Stern, and it could once again reportedly exchange a lesser time commitment for a lower price tag.   

Amy Young at Macquarie expects that the next deal -- if there is one -- would be worth closer to $70 million a year. It would likely allow Stern and his team to devote more time to other projects outside of satellite radio.  

Sirius XM could certainly pay more. It has increased its monthly rate for subscribers twice in the past five years, and more people are paying. The number of self-pay subscribers at Sirius XM has grown from 15.7 million to 22.5 million during that same period, and in that time, the monthly average revenue per user has increased from $10.92 to $12.49.

The real question, though, is whether Sirius XM needs to keep Stern at all.

"For new entrants or niche players, obtaining high-profile anchor content is a key differentiator and important in building a critical mass," Deadline quoted Young as saying earlier this year. "As the business evolves, it becomes less vital."

In other words, Sirius needed Stern a decade ago because it was competing against the larger XM and trying to validate the satellite radio platform as a valuable alternative to AM and FM radio. It is a different marketplace these days. Terrestrial radio has generally languished, and Sirius merged with XM in 2008. It is no longer as hungry as it used to be. Sirius XM could survive Stern's exit, even if that is not the ideal situation.

These days, the real challenge to Sirius XM would be the connected car, making it more likely that Stern would launch his own premium streaming app rather than return to terrestrial radio if he wanted out of Sirius XM.

The audience Stern can reach through satellite radio has grown with every passing year, and the company is financially steady, coming off yet another strong quarter. It has rattled off 16 straight quarters of profitability -- according to S&P Capital IQ data -- and has grown despite making programming choices that have not always been popular.

It would be great if the company found a way to keep Stern, or at the very least kept him from going somewhere else if retirement is not in the cards. However, just as Stern waited until December 2010 to let Sirius XM know he would be back for another five years, it would not be a shocker if this one also goes right down to the wire.