December 14, 2005 4:00 AM PST
Is Stern worth his millions?
When Stern goes live as expected on the Sirius Satellite Radio network on Jan. 9, it will certainly mark one of the biggest shakeups the radio world has seen in years and potentially provide an extraordinary shot in the arm for the nascent satellite radio industry.
Sirius Satellite Radio gambles that shock jock Howard Stern is worth his $500 million paycheck.
The news has already boosted Sirius subscriptions, but the service has to attract a lot more subscribers and retain advertisers to cover the costs.
From Sirius' perspective, it had better. The young company, which has yet to turn a profit since launching its service in 2002, has agreed to pay Stern $500 million over five years to transform his show into two channels broadcasting around the clock. Some of that will go into production costs and the other salaries associated with his show.
Subscriptions, which typically cost $12.95 per month, will have to jump to justify that monster contract--Sirius executives say they need 1 million new subscribers, above and beyond what they would otherwise have drawn, to pay for the deal. No doubt about it: Sirius has all but bet its future on Stern.
That 1 million figure is rough at best, but it takes into account average subscriber fees per month of about $10.81 (lower than retail price, due to promotions and rebates) and an average monthly churn, or cancellation rate, of 1.8 percent, according to the company's latest earnings release. To get there, the New York-based satellite radio network is counting on a sizable portion of Stern's 8 million to 12 million listeners to follow their radio Pied Piper to the subscription service.
Sirius executives already have some reason for optimism. Subscriptions have tripled since Stern announced his defection from Infinity Broadcasting a year ago, from about 700,000 in October 2003 to more than 2.1 million today. And the network thinks Stern is the right bet to help it close the gap against its rival XM Radio, which currently reaches about twice as many people.
Only a few more weeks before Howard Stern moves to the Sirius Satellite Radio network. CNET News.com's Charles Cooper, John Borland and Harry Fuller debate whether CEO Mel Karmazin is crazy like a fox--or simply crazy.
Listen now... (9.5MB mp3)
Indeed, at the beginning of 2005 the company predicted it would reach 2.5 million subscribers by the end of this year. Now it's instead on track to reach more than 3 million by the end of the year, according to the company's latest earnings release.
"We're not putting a number on it, but we do believe that if he hasn't already paid for himself, then he has contributed a tremendous amount of subscription growth over the last year," said Sirius spokesman Jim Collins.
Under current projections, analysts say it shouldn't be hard for Stern to pay for himself.
"I think it will turn out to be a very astute investment by Sirius," said Sanford C. Bernstein analyst Craig Moffett. "The value of what (Sirius has) already gotten from him in promotional appearances alone is worth tens of millions of dollars in free advertising."
In a recent research note, Friedman Billings Ramsey stock analyst Maurice McKenzie said he expected Stern to draw about 1.5 million new subscribers for Sirius, weighted heavily toward the last quarter of this year, and the first quarter of next, when the buzz around the shock jock's defection is peaking.
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