The speculation of what will become of Howard Stern’s contract with SIRIUS XM Radio Inc. (NASDAQ: SIRI) is heating up. This stock may have had a stellar rise over the last year off the bottom, but that has not been the case of late. After hitting $1.61 in November, its shares had the lowest closing bell price of $1.32 on Wednesday since October 22.
This is all based upon the concerns and speculation over the fate of Howard Stern. The company keeps growing and raising its target subscribers, lowering its churn, and lowering its operating cost metrics.
The figure thrown around in public for the value of the Howard Stern contract is $500 million. What the real value is depends upon on many issues, and tracking this ahead when and if that contract renews will be difficult as well. It is very possible that SIRIUS XM would file a CT ORDER with the SEC so that it can treat the contract as confidential data.
The media is full of all sorts speculation and commentary. The L.A. Times calls it a similar situation to that of Derek Jeter and the Yankees. There is some remote speculation that Stern will start a show on the iTunes store that could start a new model for Apple Inc. (NASDAQ: AAPL). Entertainment Weekly has noted a heat up with F-bombs from Stern and then a cooling off about SIRIUS XM’s CFO comments regarding “a pay cut” around the different economics of today. Also, prior speculation of a contract announcement has been met with more questions than answers.
Stern has definitely added to SIRIUS XM’s growth and the question is what Stern is worth in the economy of today. The company has pricing power, a virtual monopoly, and its metrics have improved. Still, the question is over the ultimate value of talent. The company’s 2009 revenues were $2.47 billion, and Thomson Reuters has estimates pegged at $2.83 billion in total for 2010 and $3.10 billion in total for 2011. If Stern leaves, those figures and the performance metrics could all change drastically.
SIRIUS XM’s goodwill on the asset side of the balance sheet was last listed as $1.834 billion of its total $7.23 billion in assets. How much of that goodwill is attributed to Stern is up for debate; Stern would probably argue ‘much’ and Karmazin and management are likely trying to shoot for ‘less than when you joined in the old economy.’ The last Stern show on SIRIUS XM is set for December 16 or 17, but his contract is set to expire on December 31, 2010.
There is another possibility here. Karmazin or Stern could go for a shorter period contract extension that would allow SIRIUS XM “to keep your great services uninterrupted.” That would allow further negotiations to continue for a longer-term deal to be reached.
There is just over three weeks if it goes down to the wire without resolution, stay tuned.
JON C. OGG
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