Sirius From the Motley Fool

[dennis]

Sirius' Stern Dilemma

By Brian Gorman
February 21, 2006

Sirius Satellite Radio (Nasdaq: SIRI) hasn't gone wanting for buzz over
the past year, thanks to the signing of the King of All Media, Howard
Stern. And as Sirius watchers well know, the Stern factor has
translated into a surge of subscribers: More than a third of its
subscribers at the end of 2005 came on board in the fourth quarter
alone. Sirius has to be careful, though, that it doesn't kill the goose
that lays the golden eggs.

It's a sure thing the great Stern migration will continue, but it
probably will be at a somewhat slower pace than that of the fourth
quarter. With Stern now in place, Sirius investors might well be asking
themselves: What's the next step for bolstering revenue?

A recent article in the USA Today provides some possible answers. The
piece notes that both Sirius and rival XM Satellite Radio (Nasdaq:
XMSR) have a variety of other revenue sources that they can mine. Among
the available fonts of cash are ad sales, premium data services, and
distribution of content over other channels. All of these seem to be
reasonable avenues over the long term to fuel growth; however, Sirius
should think twice about pumping up advertising too much in the near
term.

In the case of advertising, Sirius' dependence on Stern is something of
a liability. While XM's 6-million-plus users likely signed up for its
service for a wide variety of reasons and consequently tune in to a
number of different channels, probably more than a third of Sirius
subscribers came just for Stern. So advertisers naturally will seek to
have their ads played on Stern's channels.

However, immediately placing more spots on the Stern show could turn
out to be a big mistake. I've been listening for only a couple of weeks
now, and I've already heard one caller complain about the (very few)
commercials on the show and the fact that Stern doesn't always do a
Friday broadcast. Stern fans tend to be rabid about getting as much
Howard as possible, and if the ads increase too much too soon, some may
well feel betrayed and drop their subscriptions. And if Sirius starts
to lose Stern fans, it stands little chance of thriving.

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[Edsger Dijkstra]

> It's a sure thing the great Stern migration will continue, but it
> probably will be at a somewhat slower pace than that of the fourth
> quarter. With Stern now in place, Sirius investors might well be asking
> themselves: What's the next step for bolstering revenue?

Yes -- much, much slower.

> A recent article in the USA Today provides some possible answers. The
> piece notes that both Sirius and rival XM Satellite Radio (Nasdaq:
> XMSR) have a variety of other revenue sources that they can mine. Among
> the available fonts of cash are ad sales, premium data services, and
> distribution of content over other channels. All of these seem to be
> reasonable avenues over the long term to fuel growth; however, Sirius
> should think twice about pumping up advertising too much in the near
> term.

Perhaps, but ad revenue is their salvation.

Mel inherited a horrible situation and is doing a fantastic job of trying to
clean up the mess. You can't pay for Stern with subscriber revenue, so
bolstering ad revenue is the only way out of the box for them. OTOH, his
audience is much smaller than before, and it is a tough sell compared with
his terrestrial days.

> In the case of advertising, Sirius' dependence on Stern is something of
> a liability. While XM's 6-million-plus users likely signed up for its
> service for a wide variety of reasons and consequently tune in to a
> number of different channels, probably more than a third of Sirius
> subscribers came just for Stern. So advertisers naturally will seek to
> have their ads played on Stern's channels.
>
> However, immediately placing more spots on the Stern show could turn
> out to be a big mistake. I've been listening for only a couple of weeks
> now, and I've already heard one caller complain about the (very few)
> commercials on the show and the fact that Stern doesn't always do a
> Friday broadcast. Stern fans tend to be rabid about getting as much
> Howard as possible, and if the ads increase too much too soon, some may
> well feel betrayed and drop their subscriptions. And if Sirius starts
> to lose Stern fans, it stands little chance of thriving.
>

If they'll pay $13/month to listen to him, will commercials really run them
off?

At any rate, they have no choice but to push the ad time to the absolute max
if they're to pay his contract off.

As long as they don't cross the line to music channels, I'd bet they'll be
fine.

[Velvet]

"Edsger Dijkstra" <grace@nomail.com> wrote:
> If they'll pay $13/month to listen to him, will commercials really run them
> off?


Most of them had no idea that there would be a lot of commercials. It was
something that Stern downplayed while he hyped Sirius on Infinity for a year.

He also didn't tell them that he would be taking Fridays off, which is really
angering his subscribers.

If Sirius does raise the rates by a buck this year, and increases the
commercial load, they had better also forecast increased churn.

[Hard Harry]

Velvet wrote:
> "Edsger Dijkstra" <grace@nomail.com> wrote:
>
>>If they'll pay $13/month to listen to him, will commercials really run them
>>off?
>
>
>
> Most of them had no idea that there would be a lot of commercials. It was
> something that Stern downplayed while he hyped Sirius on Infinity for a year.
>
> He also didn't tell them that he would be taking Fridays off, which is really
> angering his subscribers.
>
> If Sirius does raise the rates by a buck this year, and increases the
> commercial load, they had better also forecast increased churn.
>


He talked about the Fridays off thing months ago. In fact, he talked
about many times.

--
Howard Stern Rules!