Friday, December 16, 2005

Howard: The Best Thing That Ever Happened…to XM?


ON JANUARY 9 THE GLOVES ARE COMING OFF…AND MAYBE SOME TOPS.

That’s the headline for a full page ad running in the newspaper of record—The New York Post—above the image of a clenched fist that is the logo of the new Howard Stern radio show coming soon on satellite radio.

In the unlikely event you haven’t already heard, New York “shock-jock” Howard Stern will start his morning gross-out-o-rama January 9th on Sirius Satellite Radio—and he promises the uncensored setting will allow his inner-deviant to fully reveal itself via not one but two channels on the Sirius network.

Says Howard: “If it's weighing a guy's bowel movement, I can do it. If I want to be gross, I can be gross.”

Now that should be funny.

Financially speaking, Howard has already covered the cost of his five-year, $500 million contract with Sirius by virtue of the fact that at least a million of his 10-12 million Infinity Broadcasting listeners will have signed up with Sirius for its $13-a-month subscription service in order to listen to Howard weigh a guy’s bowel movement and whatever other hilarity he has in store.

$13 a month times twelve months in a year times one million new subscribers approximates $150 million of incremental annual revenue for Sirius. Even adjusting for subscriber churn (the rate at which subscribers drop the service), the deal was worth every penny to the Number Two satellite radio operator—which stumbled out of the gate thanks to being overly dependant on Ford Motor, badly lagging XM in market share.

And now that Sirius has Mel Karmazin as its CEO—Karmazin being the man Don Imus called “The Zen Master” when he was building Infinity Broadcasting into acquisition-bait for Viacom—satellite radio has truly come of age.

Judging by the recent moves in Sirius shares, a lot of people are betting on Howard to be the satellite-equivalent of Milton Berle—the comedian whose popularity drove millions of Americans to buy a television set.

But is Sirius worth the price?

Sirius has 1.3 billion shares outstanding, $1.1 billion debt and $900 million of cash, according to my Bloomberg. At $7.00 a share this yields and enterprise value of $9.3 billion.

That’s roughly $3,100 per subscriber based on Sirius’ stated forecast of hitting 3 million subscribers by the end of this month.

XM, meanwhile, has 222 million shares, $1.1 billion of debt and $750 million in cash, giving it an enterprise value of $7 billion at the recent $30 share price.

That’s $1,160 per subscriber based on the forecasted 6 million subscribers at year-end.

So, right now, Sirius—despite having a higher fixed cost base with the Howard Stern and NFL content deals, plus less desirable satellite coverage than XM (Sirius needs another satellite to ensure complete coverage in event of a failure)—trades at almost three-times the per-subscriber valuation of XM.

Is a Sirius subscriber worth three-times an XM subscriber?


Both Sirius and XM—the Avis and Hertz of the business—present essentially the same service, beaming 100-plus channels of content, mostly interruption-free, to most corners of the country.

And that service is, to use a cliche, a game-changer: you can hear almost anything you want to hear, plus a lot of music you haven’t heard before—but with no commercials, no idiotic disk-jockeys, no Clear Channel-type 20-song computer-selected playlists.

Once you’ve tried satellite radio, regular AM/FM radio sounds hopelessly ancient, and a twenty minute drive in a car without XM or Sirius becomes torture. Five years from now, I expect satellite radio will be standard on all cars and increasingly taking share at home.

In the meantime, however, the subscriber base of nine million is relatively low, though growing quickly. Both XM and Sirius lose money and lose a lot of it—thanks to the high up-front cost of putting up satellites and building the systems architectures and chip designs for the receiving units.

But the ongoing capital expenditure is remarkably small. There is no Cable Guy who needs to drive out to your house and string cable and drill holes to set up the service. So at some point down the road, the satellite radio business—unlike cable—should turn actual real no-pro-forma-type-nonsense cash profitable, and, later on, might actually generate earnings for shareholders.

So, is Sirius really worth three-times XM? Only if you believe that Howard will continue to accelerate Sirius’ subscriber growth rate and allow Sirius to, over time, become three-times as profitable as XM.

But that is doubtful, for three reasons.

First, XM dominates the factory-installed automobile market.

Second, Howard Stern is probably as big as Howard Stern is going to get—a point lost on many retail accounts now buying Sirius stock to “play Howard.”

Third, and this is more speculative, but the headline in the Sirius advertising campaign, plus Howard’s own interviews, indicate Howard is turning towards a much darker direction than maybe even Howard’s fans are going to be comfortable with.

He appears to rule out only bestiality and torture: “I'm not comfortable with somebody killing someone, I don't want people being hurt.”

Most parents, given a choice of two satellite radio systems with essentially the same music, news and entertainment offerings for their car, will probably opt for the one that does not offer the sounds of human beings copulating, crack-addicted prostitutes debating sex, drugs and world events, and whatever else the uncensored Howard plans to broadcast on two Sirius channels, 24 hours a day.

That is not morality speaking, just practicality.

My guess—and I have no stake in the outcome—is that Howard’s value to Sirius has already peaked. In fact, he may be the best thing that ever happened to XM.


Jeff Matthews
I Am Not Making This Up


© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

47 comments:

TheOtherSide said...

No more growth in Howard? You yourself stated early in your writing that so far 1mill of his 10mill subs have signed up.

MuleMan said...

I have both services, and own both stocks, XM has raunchy stuff too - I'm sure you've heard Opie & Anthony. I think its important to realize that many many places have never had the opportunity to hear Stern on the radio - like 90%+ of the country.....whether you like his schtick is not relevant, and I don't....he does drive revenue and subscriber growth. For the under 30 crowd, which I haven't been a member for many, many years, SIRI is the choice.

Bet against Mel at your own risk.......IMO, no one on wall street knows how to drive shareholder value better.

Its_strange said...

Howard reminds me of Terrell Owens . He will push and push until people get bored with his act.

Jeff Matthews said...

Howard is a known quantity. He is as big as he is going to get. Nobody is going to be sitting in their friend's car a year from now hearing Howard and saying, "Wow, this guy is funny! I should get Sirius."

My point is that the Howard fans are signing up right now: this is the peak.

It's the functional equivalent of the Yankees signing A-Rod--his entire future value was priced into the deal. A-Rod could not get better, or draw bigger crowds than the day he signed up.

Its_strange said...

Bob Dylan agreed to host a weekly radio show on XMSR.....We need a good business blog that the radio records so we can listen to it when we can...record it when you can, listen to it when you can . ......Hey Jeff....email Cramer and see if you can get him behind this... Satellite business blogs...recorded when you can, listen to when you can

rkb said...

Bob Dylan to host a radio show? The man can't speak english...but nonetheless, I think that new technology (in terms of receivers and ability to record broadcast), not specific content, will propel the industry.

BDG123 said...

If this is truly a viable medium, and for many I suppose it is, there will surely be many well-heeled competitors in due time. So, both have the issue of "innovator's dilemma". When Fox or another media monster decides to party on their heads, what will happen to XM and SIRI? The barrier to entry is not so great that DirecTV or someone couldn't jump into the space. I also believe it is a mistake not to be driving this into the portable digital content space more than they are. If someone comes along and inks a deal with the iPod or comes out with a device that is similar, all of these big auto contracts are moot. Frankly as we all become untied, the auto contracts will eventually become moot regardless.

Frankly, the iPod and other MP3 devices will likely go the way of the Dodo bird as digital content evolves well beyond where it is today to encompass nearly everything in our business and personal life. But, that's another topic on whether Jobs will lead that revolution or make the same mistake he made before. He's a genius today but twenty years ago he was an idiot. He's a bigger idiot than genius because all of those measly iPods don't add up to the hundreds of billions he lost in twenty years of software and maintenance to master marketer Bill. I digress.

It's lunacy that the technology between the XM and SIRI is not compatible. The best way to stimulate growth between the two of them is to standardize. While it may mean subscribers have an easier time moving between platforms, the business benefits are more than worthwhile by increasing the market size. This is no different than Betamax vs VHS or IBM PCs versus Commodore, Atari and Apple.

In the end, I believe there is a very compelling business case for the two companies to merge. That is, egos aside. I suspect that will only happen when subscriber rates slow or we see a new beast(s) enter this space. And if the model is viable, they surely will.

cdub said...

Just checking the math on Sirius...looks like an EV of $9.3 billion to me. Not a big deal, but distorts the spread a bit further. Regardless of the "Howard's peak" debate, or the popularity of SIRI with the <30 crowd, I can't come up with any scenario in which SIRI is worth 3X XMSR.

Jeff Matthews said...

"cdub": the math has been corrected, and I like the "Howard's Peak" line.

Thanks.

tahoe kid said...

'muleman'- Howard is syndicated in some major markets outside the northeast. Also, I believe Opie & Anthony are a premium service on XM and I think Howard's 'show' will be standard on Sirius? FWIW, I have XM at home (for a couple of years) and in my car. XM and Sirius will both grow a lot from here.

aralls said...

BDG -- What's stopping the big dogs from entering the satellite radio arena is the fact that only two licenses exist, so SIRI and XMSR have a duopoly on the American market until (a) someone's license is not renewed or (b) the government grants additional licenses.

http://www.pbs.org/newshour/media/radio/comparison.html

Its_strange said...

i'm wondering if you could "blend "satellite radio with video games ....Maybe a NY vs. LA contest of some kind ...Hmmmm. Maybe a national man hunt for Bin Laden with satellite radio acting as the press ...with people calling in with tips ...Hmmmmm....

glenny said...

Jeff,

You only use dec 2005 subs. however if you take mel's forcast of 6 million at dec. 2006 then the ev/sub is only 1550 which is probaly double xmsr's at dec 2006. also howard had 11 million from 6-10 am. At sirius he is basically on all day and night greatly expanding the potential audience. Plus he will be on in 50 states on multiple devices. Plus after 1 yr of Howard don't you think Mel puts thry a dollar price increase which would result in an additional 100 mil in revenue in 2007(based on 2007 ave suns of 7 million). Therefore Sirius has only tappen a small percent of howard's potential.

tahoe kid said...

FWIW:

Howard Stern "Sirius"-ly Turns Off Hyundai Customers
Date posted: 05-11-2005

SAN FRANCISCO — A surprising number of Hyundai customers have told the Korean manufacturer they didn't want Sirius Satellite Radio installed in their vehicles because they didn't want to listen to Howard Stern.

Stern is the so-called "shock jock" whose syndicated morning radio program is filled with sex discussions. He will broadcast on Sirius Monday through Friday from 6 a.m. to 10 a.m. beginning in January 2006.

Hyundai recently surveyed 300 to 400 customers as it was deciding whether to install XM or Sirius Satellite Radio in its vehicles. Hyundai decided to go with XM as it rolls out a fall program that offers 90 days of satellite radio programming for free with its new models, starting with the Santa Fe SUV, and the Sonata and Azera sedans.

John Krafcik, Hyundai vice president of product development and strategic planning, told Inside Line that executives were stunned by the number of "unprompted write-ins" on the survey that said customers were "not comfortable with programming from Stern."

Other automakers, however, say they prefer Sirius.

Dave Larson, Mercedes-Benz M-Class product manager, told Inside Line DaimlerChrysler chose Sirius because the brand "has positioned itself as the premium provider — it fits more with our brand."

http://radio.about.com/gi/dynamic/offsite.htm?site=http://www.edmunds.com/insideline/do/News/articleId=105622

Johnny said...

I think people are underestimating Howard, of the friends that I have that listen to Howard, every one, that's right, every one of them is getting Sirius... Not only that, they are outfitting the house, office and car...they will be listening more than they used to. For those that have listened for longer than 5 years, they miss the unbleeped version...

Its_strange said...

johnny...what age are your pals ?

BDG123 said...

I realize PBS is the source of all things factual but the statement that SIRI and XM are a duolopy is totally incorrect.

In fact, DirecTV and Murdoch both have the bandwidth within their already assigned licenses to deliver similar technology.

Chug-A-Bug said...

Howard was a flop for Sirius.

Assuming they hit their targets and net 900k sub additions for the quarter, how much more is that over what they would have seen in organic growth? Maybe 200-300k. Just compare their targets to XM's growth at a similar stage in its history.

With their SAC in the mid-high $100s, SIRI would have been better off giving away $500 million worth of free radios.

As it is, all this did for them was let XM, which has a much lower SAC and much greater economies of scale, fight them on price this quarter. SIRI had to respond at least in part, and so their SAC is going to miss BIG TIME.

BDG:
The barriers to entry are absolute. There is no more spectrum available for SDARS. Even if there were, and even if the new entrant wanted to shell out the billions for system design, launch, etc., there is the problem that most of the OEMs are exclusive with the existing providers.

Merger of the two services is prohibited by their FCC licenses (which will not expire, they were purchased at auction), and would never pass antitrust muster.

Chug-A-Bug said...

BDG

DBS spectrum cannot be used for SDARS. There's a reason why a DBS dish is a dish, an an XM antenna is the size of a quarter. We're talking about two very different parts of the radio spectrum, even if you could get past the licensing issues, which are impossible.

BelowTheCrowd said...

The flip side to the Hyundai experience is the millions of people who've got XM-ready or even XM-installed vehicles who have failed to bother activating the service.

I suspect that over time, manufacturers will be forced to design open systems that can interface to receivers from either one or neither. Several have had such options before, thought they all seem to now be moving to exclusive deals. I suspect that such deals will become just as ineffective as automaker deals that tried to force customers into one cellphone company or another.

A good example is the current designs some manufacturers are beginning to put out there that include AUX inputs to their systems, so that you can connect your own receiver, iPod, cassette player or whatever else you want. That's probably the wave of the future.

Realistically, Stern is really moving to a part time schedule going forward: Only four days a week and ten weeks of vacation every year. His primary role is increasingly going to be as exec producer of the two Sirius channels that he basically owns. He's just started programming those, and so far what I've heard has not been bad, nor has it been particularly obscene or dark.

I think a lot of people are trying to read their own biases into Stern's comments about what he wants to do going forward. Worth remembering that the stuff he's been fined for before is not the stripper/porn star stuff that is featured so prominently these days. That's the stuff that is so silly it's been impossible to fine him for. His problems have been whenever he's tried to address real adult themes. (As he's noted himself, he's been repeatedly fined for stuff that Oprah does regularly.) He's also had problems that were clearly politically motivated.

So, I think the jury is still out on what he's able to do with his 48 hours of programming a day and how many people it can attract.

I also think the impression of XM as having better OEM deals is no longer the case. GM led the pack on this one (one of the few places they led anything) and gave XM lots of early traction. But now Ford and DaimlerChrysler have lined up behind Sirius, along with Toyota. Honda has gone to XM. And all of them seem to be hedging their bets somewhat, by increasingly incorporating the AUX inputs I mentioned above (something that should have been standard a decade ago.)

That said, I also think XM is better on valuation right now. I made a nice profit on SIRI, and sold out just past the peak this week. Glad to be out of it for now and wouldn't care to make a financial bet on either at the moment.

-btc

Andrew Schmitt said...

This creates an interesting hedging possibility between the two stocks. Note, the 3x valuation divergence appeared in Fall of '04, not when Stern was hired but when Karmazin was brought it to run the company.

Full analysis at http://www.nyquistcapital.com/2005/12/16/xm-vs-sirius-valuation/

Jeff Matthews said...

Wait a minute, Toyota has not "lined up behind" Sirius. XM has the Toyota relationship, although Sirius likes to mention Toyota in their presentations.

The exclusives line up as follows:

XM: GM, Honda, Hyundai, Acura, Toyota, Lexus, Nissan, Infiniti.

SIRI: Ford, Volvo, Jag-you-war, Mazda, Chrysler, Mercedes, BMW.

In Q3 2005 XM had 72.6% share of OEM subs. (Thank you Sanford Bernstein for the data.)

On the other hand, SIRI is doing much better than XM at retail this quarter, as you'd expect, based on what I hear from retail contacts.

Question: How many readers have actually chosen XM over Sirius because of Howard, or vice versa?

Andrew Schmitt said...

With active link here

aralls said...

BDG - Are you saying that DirecTV is currently capable of entering the satellite radio market merely by cranking out a receiver? That they already have the satellites and bandwidth/licensing taken care of with almost zero marginal cost, giving them a HUGE advantage over XMSR and SIRI, but they passed on the opportunity? Ridonkulous.

And I don't make any claims as to PBS's expertise in satellite radio licensing, but it's better than not posting a reference at all.

Clyde Doggie said...

One thing that has been only been briefly touched upon is the fact that Howard is only heard in a few markets. Limiting his effect to some percentage of current listeners ignores the fact that 2/3 of the country can't listen to him now. If you listen to his show lately (Yes, I do occasionally listen, and occasionally find it funny) you will hear callers from across the country bemoaning the fact he is no longer available. I believe in a year net subscribers could top 5 mil. Though, to quote another esteemed genlteman, I could be wrong.

MuleMan said...

tahoe kid said...

Also, I believe Opie & Anthony are a premium service on XM and I think Howard's 'show' will be standard on Sirius?

It used to be premium channel 202.....now it is standard, just as Stern will be.

Jeff - he may be as big as he is going to get......i.e. 100M listeners on TR......if he gets just 25% of his total market now, keeping in mind 75% of the US can't get him now......I think it might just pay off for Mel & he makes a habit of making it pay off.

Mel makes shareholders money.....period. He is the king of UPOD (under promise, over deliver).....my money says SIRI has closer to 4M than 3M subscribers by YE and that they are cash flow positive by end of Q3 06.

Blackswan said...

I have yet to subscribe to either as I am waiting for better home/portable hardware receivers. The currently available receivers are schlock. Where are the quality electronic manufacturers like Bose? Also, I am extremely interested in the BBC and have heard that SIRI just keeps repeating their News Hour broadcasts-does anyone know if XM has fuller BBC content? Also, does anybody where I can get information on the receivers that will have built-in recording features? Finally, some months ago I placed an order to buy the first internet radio and they informed me today, same will be shipped in one week. Go to the Roku site for more information.

Johnny said...

strange, my friends are between 30 and 45

Chug-A-Bug said...

The reason XM has locked up all those OEMs (yes, including Toyota), and the reason it will continue to own this space, is because of the telematics and data services that it offers.

Satellite radio is not just radio. It is bits. 1s and 0s in the most efficient and hack proof delivery system possible. The automakers get bandwidth, so they can tell people when to change the oil, update the car's firmware, etc. All through the satellite "radio" signal.

GM, Nissan, Toyota, Honda... they all get bandwidth and "data services." That's the hook.

Blackswan--
the XM2Go line has built in 5 hours of recording/time-shifting capabiilty and they are hardly "schlock" (the Sirius S50 is, however, sadly schlocky).

Howard (or any other single personality) will not grow bigger within satellite radio because internally, he is competing against 100 other niche channels. It is much easier to dominate morning drive time in a terrestrial environment, full of crap. But a Sirius or XM subscriber has hundreds of options. A 55 year old man telling fart jokes is not going to be the best one.

Finally, belowthecrowd, the take rate appears to be 60%. That's pretty darned good. The GM deal was an industry-saving one, but three years later it is also relatively much more expensive than other distribution channels. GM is the only automaker that XM gives revenue share, and pays installation and activation bounties and loyalty payments and the rest. GM's market share losses are actually good for XM -- the losses are largely to Honda, Toyota, Nissan, and Hyundai, where XM pays 0, 0, 0 and yes, 0, to install a radio and doesn't share revenue, and the money freed up can be used to gain much cheaper retail subs, who come with a 100% take rate and a 9 month pre pay.

Stuart said...

BDG -

The FCC has mandated that XM and Sirius come out with one recieved that is capable of recieving both signals ... http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6517501376

I am not sure when these receivers will come out but they are on the drawing board.

BelowTheCrowd said...

I stand corrected on Toyota. They claim to offer both as options on many of their vehicles. It appears that some of the XM hardware is pre-installed (the data link stuff) but you pick one or the other or neither. VW/Audi is pretty much the same.

Ultimately, I think there will be a move to more open systems, or at least AUX inputs in most cars. (Even the latest Lexus has one.) The pace of technological change is just too fast to NOT give people a universal connection mechanism.

I suspect the biggest driver of peoples' decisions about subscribing will be the various sports deals, not individual performers. NFL, NBA and MLB deals are probably going to be critical differentiators to those who care enough to shop around.

That said, as I said, I don't find either to be a particularly compelling investment at these prices. XM is a better value, but value is relative.

And to answer the question, I bought a Sirius receiver for a couple of reasons:

1) Want to see what Howard does next. I'm hardly a rabid fan, but I'm interested.

2) Wanted to listen in on the three months of "E Street Radio" currently ongoing.

Not sure I will bother beyond the 12 months I paid for. Much of that depends on whether either of them can start coming up with content that I can't easily duplicate elsewhere.

I think the bigger long-term threat to both of them is internet radio delivered by metro wireless (probably WiMax or some variant) connections. Won't work for people who drive long-haul outside of metro areas, but would work for most others.

-btc

lukern7 said...

I agree that barriers to entry in this industry are huge - that's why it's such a great investment opportunity. Jeff is right on, imo - XM is the better stock to buy today. XM was downgraded today, I believe, so I'm hoping for it to drift downwards a little bit for a real buying opportunity.

However, I wonder if one of the sat services will be able to sign another big name - Rush, Hannity, maybe John Stewart, etc. Neither of these guys has the cult appeal that Stern does but I'd bet that Rush has more listeners, and it would certainly be a coup for either service to get him. As satellite continues to gain momentum, I think it becomes more likely that some of the other big names will switch over. Also, although I think XM is the better investment right now, it's undeniable that Sirius has more momentum at the moment. If they manage to sign another big name in the near future and XM doesn't follow suit, I could see them becoming the "premier" service to have.

Aaron Koral said...

"Bet against Mel at your own risk.......IMO, no one on Wall Street knows how to drive shareholder value better."

Wait a second, isn't Mel Karmazin the very same guy who drove VIA.B to new lows back in 2004 with his overly optimistic forecasts of earnings growth from ad sales via VIA.B's radio and TV/cable broadcast properties, as well as its ill fated acquisition of Blockbuster?

When VIA.B continually missed the earnings targets Karmazin set the bar for, the stock tanked, and his job went down with it. Sumner Redstone, on the other hand, TRULY does know a thing or two about shareholder value (think about some of the things Redstone has done with VIA.B such as the spinout of Blockbuster and the split of the stock into two entities).

The 64,000 question about Karmazin is whether he "gets it" now about how technology drives value and doesn't "set the bar too high" on SIRI's earnings growth estimates like he did at VIA.B. It'll be interesting to see whether SIRI's content or ad sales drives increases in SIRI's revenue growth, Stern or no Stern.

I wouldn't buy either SIRI or XMSR, but IMHO, XMSR has the better balance sheet and I'll bet XMSR becomes cash flow positive first (I could be wrong, though).

ron s miller said...

I agree with Jeff, satellite radio is great to have in the car. I've had XM for almost 2 years. XM came with my car. I got the first 3 months for free. I listened to Howard for many years, but now he is the guy that he used to mock, the old rich guy with the young model girlfriend. Opie and Anthony are part of the basic XM service, the premium charge discarded with a rate increase for the whole service this past summer.

Don said...

DIRECTV is mentioned in this thread as a potential competitor to XM and Sirius. DIRECTV recently replaced its music channels with XM as part of its basic subscriber package. It takes care of the decent equipment issue if you have a good home stereo system. You just cable the DIRECTV box into the auxilliary of your receiver/amp/pre-amp and it delivers CD quality sound.

A few weeks after DIRECTV started carrying XM stations, I got an email offering me a cut-rate deal on an XM receiver for my car. If I spent a lot of time in the car it would be a no-brainer. I agree with Jeff that once you've spent a little time listening to satellite radio, commercial radio becomes intolerable.

BDG123 said...

Ok, I can see we don't have anyone from the business strategy and business development offices posting on here. Otherwise, we'd still be riding horses and living in log homes. For all of the people who can't see beyond the end of their nose and are crucifying my statements, you are very wrong. A direct quote from 2005, "According to Sanford Partners, DirecTv is going to get into the satellite radio market to compete with XM and Sirius. They will retrofit a satellite to be launched later this year for a cost of $100 Million. He speculates that DTV will give away satellite radio to their satellite television customers and to attract new customers. Similar to what DirecTv is doing to Tivo, who they at one time had a large holding in, DirecTv has sold all of their XM stock in preparation of the move. Sanford is short both XM and Sirius.".

Now will that statement come to pass in 2005? Well, I haven't seen any confirmation and we have two weeks left. That isn't the point. The point is for those who think that digital radio is exclusive to XM and SIRI are fools whether it is DirecTv or someone else. It is NOT a duopoly and it is not a high barrier to entry for a well-heeled media company starved for growth in this troubled environment. The technical specs of terrestrial digital radio are being defined as we speak. As soon as they are ironed out, we will have another FCC auction for additional competition. And, there is plenty of bandwidth available for both SDARS and terrestrial digital radio. Actually, bandwidth is reserved in the S-Band for terrestrial digital radio. Bandwidth that was pulled from auction by Congress at the time SIRI and XM successfully bid for their bands and additional bandwidth available in the L-Band that was not even under consideration by the FCC but has been tentatively set aside by WARC. Additional auctions for digital radio were pulled, after being agreed to, because SDARS is somewhat of an experiment and Congress decided to move slowly and ultimately decided to only hold auctions for two providers. By the way, SDARS is a very loosely used term. It is NOT satellite radio per se. If it were, XM would not need over 1,000 terrestrial repeaters. Oh, and I am quite familiar with the relationship between wavelength and parabolic antenna design. Your conclusions are based on statements I did not make and short sided notions which assume a static future.

If you believe XM and SIRI are a duopoly, I have some swamp land to sell you. When was the last time you saw the government create a duopoly via their actions? The digital content space and its required infrastructure are moving very rapidly. Whether it is terrestrial or SDARs or the combo technology XM has deployed or something yet defined via WiMax or cellular or something else, there will be new players in this space if the business model is a profitable one. SIRI and XM are living on borrowed time and when the grim reaper comes knocking, their ridiculous valuations will leave them very stock prices vulnerable.

Chug-A-Bug said...

BDG,

I'm sorry but your facts are just plain wrong.

The rest of the spectrum that would have gone to SDARS was re-assigned to wireless. By law, this is a duopoly. Sorry.

And there is the FACT that if you want to get installed in a car, the following carmakers are exclusive with either XM or Sirius: GM, Honda, Toyota, Ford, Chrysler, BMW, Hyundai, Mitsubishi. A third competitor would not be in any of these dashboards.

Terrestrial digital is IBOC. It's already on sale, and will flop for a host of reasons owing to the fact it must be a commercially-driven model with limited geographic reach that cannot aggregate or address enough niches. That, and nobody is incentivized to get the costs at the consumer level down to reasonable.

The DirecTV rumor hyopthecated by that analyst was dismissed the day it came out by DirecTV. As others have mentioned, Fox and XM are partners, not competitors.

Cellular is simply not a broadcast medium. Neither is WiMax.

Good luck to you.

Kevin H. Stecyk said...

Jeff,

Both Sirius and XM—the Avis and Hertz of the business—present essentially the same service, beaming 100-plus channels of content, mostly interruption-free, to most corners of the country.

Just a small point--both services are available now in Canada too.

I enjoyed reading your analysis. As per usual, it's insightful.

Best regards,
Kevin

SiamTwin said...

i know we are debating the relative business and financial merits of siri's investment in mr. stern. but i would just like to add that his popularity is a sad commentary on the state of this country. and i am not socially or morally conservative.

Its_strange said...

Over the weekend Southside Johnny and the Asbury Jukes got some air time on the Sirius Garage Channel which is hosted by Little Steven ...Sirius would be smart to air Southsides New Year Eves show at the Count Basie theatre in Red Bank NJ. South goes all out for this date. If you like horn driven , high energy rock , soul music this stuff is hard to top. Howard might bring in the young people but they had better have something for them as they get older.

IMHO said...

I chose XM because of its baseball package.

Baseball is the only sport I can enjoy on the radio.

A question on Howard's market penetration. Is it concentrated in large population areas?

BelowTheCrowd said...

Howard has never been on anything other than large metro area radio stations. Never even got onto as many as 40 stations.

Many large metro areas have not had any presence by Howard. Atlanta, for example has never had him on. Likewise, many larger metro areas have only been able to hear him in some locations. Half the SF Bay Area really couldn't hear him, and SoCal coverage was spotty outside of the core of LA and SD.

Outside the big metro areas he's been completely unavailable.

Remains to be seen whether that matters. He's certainly been available to a large portion of the listening public.

As I said before, I think he's going to be spending the next five years in somewhat of a transition: away from radio personality and towards radio producer/content creator. If he can make that jump, it's good for Sirius. If he can't then the only way he can justify his pricetag is by doing something really different and innovative. He's changed his tone and his interests several times over the years, and by his own admission the past few years have not been very good.

I'm hoping he can get back to some of the real satire he did in the past -- stuff that only tangentially involved strippers and porn stars -- because if he can't he's probably not worth listening to much anymore and certainly not worth paying for.

Ajoy Reddi said...

Jeff,

Do you even listen to Howard Stern? If you do then you would know that the content isn't has gross out as you think. Further the coverage issue that others have raised is an important one. There were big gaps in geography where no one could listen to Howard. (a big stretch of the Western U.S to the Midwest and many parts of the South, don't receive him). So incremental subs not accounted for in his present base will most likely sign up. And this is pure conjecture on my part, Howard also has an opportunity to broadcast to Canada. I'm sure a few Canadians will want to listen to him as well.

BelowTheCrowd said...

Ajoy,

A lot of people who rarely or never listen to Stern think they know he's about. Frankly, I think that his "bad boy" image is one of his major obstacles. After 20 years of listening to him on and off, it's quite clear to me that the stuff that bothers people is -- and always has been -- a minority of his content.

IMO, his current advertising campaign is not doing much to change that view, though several of the interviews and other PR efforts have shown a different side of him.

Canada is not going to get Stern. Their rules are such that while discussion of sex is generally OK, any content that might offend somebody for just about any other reason is not. He was kicked off the radio in Toronto and Montreal for that reason and unless he's willing to reconsider doing any kind of satire he's unlikely to be welcome there again.

Truth is, even in the US, he's tended to get hit harder for his more serious bits than for porn stars and the like. It's tough to be offensive when you're being fairly banal and silly. Very easy to piss people off when you're dealing with something a bit less frivolous than some porn star's boob job.

I like listening to him, hope he can be better in a good way, but still think he may be getting paid a lot more than he's worth.

I don't think this was ever intended to be a debate of the merits/demerits of Stern as a performer. So I'll close by saying that I agree to some degree with Jeff's financial thesis, disagree with his opinion of the man in question, and leave it at that.

-btc

Jeff Matthews said...

Yes, I've listened to Howard's show on Infinity. No, I'm not a fan. But this is not about whether I think Howard's show on Infinity is "gross." I couldn't care less.

My point--re-read the blog--is that whatever you think of Howard's show on Infinity, he is talking about using satellite radio to get very seriously down and dirty. Read his interviews. He means it.

The comment about ruling out only "bestiality" and worse was a quote from Howard--not a value judgement from me.

And if you think through what this mean, it might be that, far from shifting 10 million-plus fans from terrestrial radio to satellite, Howard does not get as many listeners on Sirius once the initial excitement dies down.

Which would suggest there is no good reason for Sirius to be priced at 3-times XM's value per sub.

tahoe kid said...

FWIW, the Acura/XM deal is the unit comes standard on the vehicle with a free day 90 trial. A great free look deal. While I really like sat. radio and had XM in my home, I think this method of putting it in front of car buyers is a very good strategy.

madrigalq said...

first, the 3.3 million subscriber number for sirius is inflated, as is their Q4 jump. they count any units pre-installed in cars as units sold...before the cars are even sold...without knowing if the people who eventually buy these cars will sign up with sirius. xm does not account for new subscribers in the same manner. also, i read earlier today that howard's infinity audience was probably closer to 6mill, not the 10-12 sirius says (and definitely not the 20 mill stern claims!)