Sirius XM Retains Howard Stern, Prevents Potential Subscriber Loss

Content has been at the core of Sirius XM‘s (NASDAQ:SIRI) success for a long time and the company has been consistently striving to improve and diversify its offering. An important step on this front came in earlier this week, when the satellite radio company struck a big deal with one of the most popular radio personalities, Howard Stern. ^[1] Sirius XM renewed its contract with Mr. Stern, retaining his services for another five years and bagging exclusive rights for his extensive library for 12 years. The Howard Stern show is Sirius XM’s content’s crown jewel and losing it would have cost the company a notable portion of its subscribers, as a survey suggested. Howard Stern could have retired following his contract expiration and sold his 30 years’ worth of content to the highest bidder. However, the latest deal implies that even if Howard decides to leave after five years, Sirius XM would still have his content for another seven. Although the satellite radio company has not gained much from the deal, it has effectively suppressed the threat of losing a lot.

Our current price estimate for the company stands at $3.96, just below the current market price.

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Sirius XM’s business model is based on subscription fee, and therefore the company is able to afford unique and exclusive content that separates it from other radio services. And this in turn has helped it maintain steady growth in the number of subscribers. Its content is spread over numerous channels comprising commercial free music, sports, talk shows, news stations, etc, with Howard Stern hosting one of the most tuned-in shows. Last month in an interview, Sirius XM’s former CEO pointed out that Howard could simply syndicate his content and retire.  Losing both him and his content, would not be good for the company. In fact, last year Macquarie conducted a survey to gauge the popularity of the show and found that 12% of Sirius XM subscribers tuned into the show regularly and 5% said that they will unsubscribe if the show ended. 5% of the subscriber base turns into 1.45 million subscribers and almost $200 million in annual subscription fees, which is a significant loss on account of just one show.

However, Sirius XM is expected to have signed this deal for just $90 million per year (figure not official), which keeps Howard for another five years and his content for 12. ^[2] This is a very lucrative deal considering that over $1 billion dollars (over five years) were on the line. After five years, even if Howard Stern decides to end his services with Sirius XM, the company would still have his content, which means that Howard would not be able to recreate his successful show on another platform. And after 12 years, when he could have the rights to his content back, he will be touching 74 years of age, and most probably in his retirement. Thus, we believe that Howard Stern has enough incentives to stay associated with Sirius XM through to the end of his career.

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1. The Howard Stern Show To Continue Exclusively At Sirius XM Under Long-Term Agreement That Includes New Venture In Video Programming, Sirius XM, Dec 15 2015 [↩]
2. Howard Stern would be the third-highest-paid CEO in America, CNBC, Dec 16 2015 [↩]