By Relmor Demitrius
Mel and Howard
There are many ways to identify and define success. The same can be said about worth and value. It is especially true when trying to apply these concepts to something intangible, as an artist or performer. Take a talent like Howard Stern. He’s not a hard asset that you can simply attach a known value to, or state exactly what he would mean to your company. What is his actual value to Sirius XM Radio (NASDAQ:SIRI)? When Greg Maffei (CEO of Liberty Media and Liberty Capital (NASDAQ:LCAPA) and 40% owners of Sirius XM, ask Mel Karmazin (CEO of Sirius XM) how much is Howard Stern worth to the company, what does he tell him? This is the debate among bloggers to professional financial analysis that has been going on for years. How do you evaluate Howard Stern’s actual value to the company? He makes 100 million dollars a year, minus the cost to run his show. Is he worth it? Is he overpaid? Is he underpaid? Is he fairly paid? How much of Sirius XM’s revenue can be attributed to him. In this article I will go over the effect of signing Howard Stern to Sirius Satellite Radio and any effect overall he had on the satellite radio industry altogether. First, let’s get some opinions out of the way.
Howard Stern is an amazing talent and still the best radio on radio. No offense to Michael Savage fans, Rush Limbaugh, Opie and Anthony, or Larry King. Whatever. There is still no bigger celebrity in radio. Rush is close, but I don’t think he even can match Howard still to this day. Howard’s popularity may be waning but he is still the best. That being said, let us leave the personal opinions and feelings at the door.
Howard Stern announced in late 2004 his intentions to sign on with Sirius Satellite Radio. We can use XM as a “placebo” or neutral study of sorts to gauge Howard’s affect, as XM was not able to land his services, yet offered an extremely comparable product. Using subscriber data is one way we can determine what affect or advantage Sirius gained over XM by adding this particular radio personality.
Even though both companies were awarded licenses at the same time, one was bound to get the service started before the other. XM began service in November of 2001. Sirius began in July of 2002. That is an eight month head start for XM. Total subscriber numbers for Sirius at the time Howard Stern was announced in 2004 was around 800,000. XM had around 2.5 million at the time. However, XM had almost a year head start on launching their service. This is the obvious reason for the big difference when both companies began service. Also XM was considered to have better quality by samplers of both services. Let’s attribute some of this as well to XM’s early success. It proves also that content is important but so is quality of sound and the hardware too. So if you remove 1 million subscribers due to XM having a year head start, we’ll use a base of 1.5 million subs for XM before Howard (assuming both companies began service on the same day) and 800,000 for Sirius before Howard. Now let’s give XM a 1 million subscriber lead at this point, all things being equal. Sirius has begun in the hole in subscriber totals. Retail market is humming for XM and their product is well marketed and “first to market”. This is always a huge advantage. I think early deals with SONY helped give them another initial jump over Sirius at the time. It might have then attributed some to initial consumers decision, but now that the majority of the exposure is tied to what type of car you buy, the impact has decreased dramatically over time. Sirius radios have improved and the offerings are more similar. The blending of content and availability of Best of Packages has further blended this difference as well.
In July 2002 both services were in play and could be purchased by consumers. People now had a choice. Sirius begins trying to go into more of the OEM growth side, while XM focused mainly initially on retail. Although by the time of the merger both offered retail and many car options, they were both coming to the same conclusion: The OEM market (free trial at the initial new car purchase) was where it was at for huge subscriber growth. XM realizing this too late and needing to make a splash in the OEM channel over paid for GM as a reaction to this realization. Sirius at this point had already obtained the majority of the OEM contracts. As a combined company they are now in every major car manufacturer on the planet. This was well in motion before Stern signed. In early 2004, Sirius and XM were in 22% of all vehicles sold in the United States. In 2010 this percentage is now nearly 60%. Stern signed right in the time frame that both Sirius and XM were experiencing significant subscriber growth due to shift to OEM growth. Here is an interesting chart Sirius XM posted in May of 2009 at their shareholders meeting showing the shift from retail to OEM sales. Why is this important to Howard Stern’s value? Because we need to establish the exact scenario and timing in which subscriber totals in XM and Sirius jumped big starting in 2004 and were increasing in near proportion to Sirius, regardless of not having Howard Stern.
Clearly, retail growth was stalling even before the shift to OEM occurred. Exposure was becoming an issue. Relying on stores to move radios is risky. You’re a slave to consumer traffic flow, location, and salespeople who may or may not know the product. Also every satellite radio that was purchased had to be incorporated into an existing sound system and radio space that was available in each car. Satellite radio had a solution for this. Install the radio directly into the car, expose consumers to it at the time of new car purchase, and give it away as a free trial. With exposure at the source of where you most listen to the radio and with cooperation from the OEM market, adding subscribers was now a bit less challenging, but more costly. XM still had more retail sales and Sirius had slightly more auto sales, due to the lagging effect of the focus both companies took from day 1. Sirius apparently had caught on to the better way of adding subscribers before XM had. However, today XM has 10,057,380 subscribers. Sirius has 9,470,068 subscribers. Since 2002 this 1 million subscriber difference still hadn’t been made up. It is only 500,000 subscribers off, but clearly having Howard Stern did not seem to make it a large enough factor to cause one product over the other to be dramatically sought out. Well wait one minute you say. The merger gave consumers options now. Maybe XM fans would flock to Best of Services or now switch due to the merger making the two more similar.
As part of its synergies of the merger, Sirius XM was excited to announce a Best of Package. XM subscribers could now access the Best of Sirius programming as could Sirius subscribers now access the Best of XM. For $4 more a month, an XM customer could keep his XM platform, but still grab Howard and other exclusive channels on Sirius. How many people have signed up for this service in now over 1.5 year of offering it? Less than one million subscribers of the 10 million XM has. So around 1 in 11 people have chosen to add this package. We cannot however attribute all these subscribers to the Best of Sirius package on to Howard Stern alone. It appears less than 500,000 people would qualify here. I’m giving approximately 500,000 to other reasons for adding the package. I mean let’s look at what you get for $4 besides Stern. You get every NFL game, NASCAR, Playboy Channel, Martha Stewart, and College Sports. That’s a lot. Not a stretch to assume then that every person who signed up for Best of Sirius wasn’t just doing it for Howard Stern. There are a hundred reasons to get satellite radio in 2010 versus back in 2004. The amount of content added since then is staggering. I will not go into exactly what was added, but it includes Bloomberg Radio, Glen Beck, CNBC, NFL was not offered then, nor were many other sports packages.
How many Sirius subscribers bought best of XM? Only around 300,000. This is a huge difference and clearly shows that Howard Stern does have some fans over on XM, but apparently never big enough to cancel XM to go with Sirius. Otherwise wouldn’t they have already cancelled and just went over to Sirius by now? If the sub was from 2004 to now, they have had 6 years now to do so. If owning XM and not having Stern was unacceptable, these subscribers had from 2005 to 2009 to cancel their XM sub and get a Sirius one instead. Let’s assume using the facts that everyone on XM that wants to hear Howard, and everyone in the country who wants and now can listen to Howard has done so. Its been 6 years since he signed, and 5 years now of being on the air. The merger took place 2 years ago and the confusion of service is long over. The value of new subscribers coming in at this point solely for Howard Stern is minimal.
So if XM is a case study of satellite radio demand versus exclusively Howard Stern demand, and we know that in 2004 a shift to OEM sales occurred, and Sirius has never been able to overtake XM in subscribers, what can we say about the effect Howard Stern has had on Sirius Satellite Radio? The factual opinion is that while he must have added value to the product, their service was never able to distinguish itself significantly from XM’s and the Best of numbers offer a picture of how many people XM might have had that wanted Stern but bought “the wrong car”. It also says that XM customers like their XM platforms so much, they would rather just add Best of Sirius than cancel their XM radio, remove it, and install one for Sirius. Truly a die hard Stern fan would wouldn’t he?
So, 1 million subscribers paying an average of $11.80 each times 12 months. That’s 141 million dollars a year attributed to Howard Stern. Now add 5% of every XM subscriber, maximum, who wants to pay $4 for only Howard Stern. Once again being generous, let’s attribute 100% of all these Best of customers to Howard. That’s another 24 million dollars a year. I’m going to add another 20 million in simple exposure (brand awareness, mentions on TV, magazines, etc..) and another 20 million for unique advertisers attached to Howard per year. That’s a hefty 25% or more of their yearly total of all ad dollars. More than generous. Howard makes 100 million dollars a year, minus the cost to run his show. He clearly generates more income than Sirius has to pay him. How many subscribers would cancel the service if Howard left? Maybe 500,000 of the 1 million. Maybe half of the Best of Sirius customers cancel as well. Lets assume over time you get fewer Best of Sirius users now. Will his replacement add back advertising revenue? Who would they pay to replace him? Obviously they would make some of this back. It not as if a black hole would open up where he talked and become irreplaceable no matter the money spent. But it is good to get a worst case scenario look.
Howard maybe responsible for around 120 million in revenue over what they pay him. That’s from a total of 2.8 billion dollars in revenue a year.
Let us look at the Subscriber total chart from 2000 to end of 2006, 1 year into Howard broadcasting on Sirius.
Yes, there was indeed a small spike and increase in pace versus XM in late 2004. But this increased cooled around the time XM and Sirius both started shifting into the OEM markets. Notice the chart above and the time frame the OEM shift began. Seems to be regardless of service, they were both popular and OEM customers told them so. Today almost 50% of all subscribers given a free trial take the service. This is XM or Sirius.
Did Howard improve the image of the company and make them more popular? Probably true. If he brought over 1 million subscribers, maximum number I can attribute to him that the facts I presented here support, then his salary is justified. I can’t give him more because quite frankly, Sirius subscriber totals should be well over XM’s by now, if the talent he provides Sirius is so superior to anyone else that might be able to replace him for the same money. If you were going to present Howard as a unique and vastly superior offering to anything XM pays for, then the subscriber totals would need to reflect that more. Still trailing XM in total subscribers doesn’t help this camps case.
Conclusion. OEM sales exposed the product to many consumers. They like XM just as much as they like Sirius, but some (less than 5%) are willing to pay for access to Howard, and probably only half of those 5% only for Howard. Those that have XM haven’t made significant efforts to move over to Sirius, or cancel XM when their free trial ran out, and install a Sirius exclusive radio. I believe by the facts presented here that Howard is well worth his salary and should be paid accordingly, as well as offering him on smart phone applications and any overseas content offerings. But is he the end all savior of satellite radio? Absolutely not. Satellite radio would be here with or without him. Company is stronger with him, but would survive just fine without him. In fact, the cost difference is so minimal, it would be in tune to having a bad year, or a storm hitting your oil well that month. A small hiccup that would easily be erased with time due to the overwhelming popularity of the product itself and the now vast options of content offered by both companies. The revenue generated and saving of the 100 million of his contract would simply give reason to spend it elsewhere, and sign other talent to compensate. Like any company that losses an asset and has to repurchase another one. Howard’s popularity is no longer so huge that him leaving the platform would harm it in any way medium or long term. The facts are quite clear on this. Sirius XM added more than 1 million customers this year alone. That would offset losing Howard Stern right there. Their growth would probably cover any cancellations and they wouldn’t miss a beat. The company that hired Stern 5 years ago is vastly different in 2010.
In my next article on Howard Stern, I will discuss the future with or without him.
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Disclosure: Long SIRI
there is one small fact no one discusses …… what could that 100 million dollars buy in ‘OTHER’ Broadcasting resources …. what programing, what personalities, what hardware, what advertising, marketing campaign, content, …what expansion into NEW MARKETS/COUNTRIES …i think an active mind would easily come up with more whole ideas to using this money than this Disgusting, yes amusing azzhule – he is junk food when healthier choices are everywhere
I agree that sirius has options. And thats article number 3.
Wow. A blog called “King of All Trades” thinks Howie is the greatest thing in the history of history itself. What a surprise.
Did you read the article Matt?
The article talks about how Howard Stern is likely NOT the savior of Satellite radio and that more attributable to Satellite Radio’s success is it’s foray into the OEM market.
Correct. Matt did not read the article. Some people would rather be negative and generalize than to educate themselves. Too hard to learn.
I don’t think Stern staying or going will make a PPS difference over the next year anyhow. Very little has affected the price. The only thing that will is paying off debt, which will occur when the company is taken private. Then, and only then, the valuation will rocket overnight, and likely make a handful of people very wealthy, none of them being the patient shareholders.
Relmor, great read, but you could use a proofreader for some silly grammar corrections. To and too and your and you’re get misused at times. It may be isolated and not really a confusion on your end, because it isn’t recurring.
“He’s not a hard asset that you can simply attach a known value too (should be to), or state exactly what he would mean to your company”.
Excellent read Rel. Just so you know, I have XM and I also have Best of Sirius, but not for Howard. I got it for the Sports that I don’t get on XM. I’m sure there is a certain percentage of XM folks like me that bought Best of Sirius for reasons other then Howard…now, just sayin and not to take anything away from Howard…
I have 3 Siruis subscriptions; car, home, and office. I also pay an additional fee to have internet access. IF Howards contract isn’t renewed, I will cancel all of my subscriptions immediately. Not in retaliation, but because I would have no reason to keep paying for content I don’t really listen to. I recently re-uped for 5 months (5 for $20!) only. I should know at that point if Sirius is wise enough to keep him around. Personally I know 15+ people who have Sirius subscriptions who solely listen to the Howard Stern channels. The majority of those subscribers are women, like myself. Here’s hoping Sirius makes the right move. As I sit and listen to him discuss the contract negotiations at this very moment I say a little prayer to still be listening in the same manner this time next year.
Great article, but it does fail to mention that when XM got GM for the OEM market that was a huge plus for them in term of keeping up with subsribers with Sirius in the OEM market. That might be the reason why Sirius has not been able to take over XM in terms of total subscribers. Just think about how many cars GM produces where XM is installed in the cars. GM, Chevy, Cadillac, etc. I am not sure what other cars has Sirius installed besides Audi and VW? Am I missing other cars?
I think if Sirius wants to continue to grow this format then keeping Howard will only help them especially since he basically pays for himself based on your article with the subscribers he brings.
I agree with you, and that was my very conclusion. It all about the OEM market for now.
(less than 5%) are willing to pay for access to Howard, and probably only half of those 5% only for Howard.
Trying to shoe-horn a positive conclusion when the points contradict it.
Howard is 100% of this company. Without him sirius xm will fail. I’m no stern fan but any idiot can see that millions of people follow him and will pay money to do so. With so many options out there for services, content will be what sells. They have wasted so much money on tring to buy content and only one person can bring millions of listeners. They paid Oprah $50 million. I can count on one hand how many listeners she brought to xm. If she is worth $50 million, Howard is worth $500 million. Free radio said that howard could be replaced. Sirius XM will be digging there own grave if they don’t resign Stern.
I think you are right, and this applies to the big “gets” in talk radio on Sirius/XM (Howard & O&A to name a few). They have to realize that between IPods & Pandora, talk is the only thing that sets them apart or keeps our payments coming.
Excellent article, Relmor – A very concise and factually based examination of the worth Howard has brought, and continues to afford, Sirius XM Radio. This confirms what I have believed, intuitively (as I am not a listener of Howard’s, although I do recognize his unique value and superior place in the pantheon of radio greats): My view has been that it is in the best interests of both parties (Howard’s and Sirius XM’s) to reach a fair and equitable deal that will keep him with the company into the future. Your excellent analysis of the metrics under consideration support this view – as there certainly seems room for a very satisfactory conclusion for both parties given the current strength of Sirius XM and the continuing value Howard brings to the party. The variables seem only to be the hours to be worked by Howard, and the fair compensation to be awarded – both factors that should be easily reconciled given the realistic evaluation you have presented in this article. No matter what – Sirius XM is definitely on its way to continuing growth and strength into the future, and – as you have stated …”The company that hired Stern 5 years ago is vastly different in 2010″.
what if it went private?
Interesting analysis, very insightful
I see your logic, but I do not really agree with you. Let’s do it by percentages and not total number of subscribers. By your numbers, XM was 1,000,000 ahead of Sirius’s 800,000, so they had 25% more listeners!
Now, you compare that to 10,057,380 subscribers for XM and 9,470,068 for Sirius, a difference of 587,312, AND NOW XM only has 6.2% more . XM was way way ahead of Sirius in name recognition
Ok, but at what point is a 8 month lead and Howard Radio(his quote not mine) need to make up less than 1 million subs? Im still waiting…. Im more arguing that Howard is indespecible scenario as unrealistic and unsupported by facts. I did say he was worth his salary and his image and rep is important to the product, in general. I agree that percentage wise they are closing the gap, but with superior talent, their subs should be higher (Howards theory and his fan base not mine) than XM’s by now, or at least Best of XM numbers significantly higher. Sorry, but I still have to disagree with you.
Couldn’t you make many of these same arguments about how Howard leaving regular radio isn’t going to hurt the radio business? It’s now 5 years later, and CBS Radio is almost worthless.
I think if Howard pushed Satellite Radio into the mainstream. In the end though it’s just going to become a niche market. It’ll be great for people in the middle of nowhere and long haul truckers, but as the next generation begins getting new cars I don’t see them keeping Satellite Radio. They’ll have their Ipods, they’ll have internet accessibility within the cars. In the end Satellite Radio is going to lose out to the internet in the mainstream unless it has something you can’t just download from the Internet.
XM / Sirius will be fine without Howard, I have a total of 10 XM and 3 Sirius radio’s and no one listens to Howard, sorry he can’t compete with O&A. I don”t get what people hear in him, he needs writers to be “funny” were other do not.
I purchased the Best of Sirius package solely for the NFL channels. I put Howards show on once and vowed to listen to the whole show and was, simply, bored by it. I love that type of humor, maybe Howards show was great 10 years ago, but the show I heard was awful…
Chalk me up to the percentage of people that bought the upgraded package for a reason other than Howie.
Note: Not a Stern-basher or anything, just presenting facts: XM was a healthier company than Sirius pre-merger. They merge thanks to Mel Karmazin then they have to get a $500 million cash investment from Liberty Media to survive. Stock price is HORRIBLE post-merger. Customer service is worse than ever.
If Howard leaves, financially the company will be better. I personally do not subscribe to Best of Sirius because most of the programming doesn’t appeal to me on top of now having to pay for XM Radio Online for Android (which still doesn’t work right for 2.2/Froyo devices).
When you focus too much on one personality then you tend to lose the other quality talent. Sort of equate it out to Apple. Sure, the iMac brought the company from death to darling. Apple realizing that iMac would only take them so far they evolve and launch the iBook, the iPod and iTunes, and so on.
Slowly Sirius XM has realized this. How much advertising anymore involves Stern? You go to sirius.com and the only mention is an icon in a mash up of other programming and the little square in “Talk and Entertainment” on the dreaded bottom-half of the page. As for xmradio.com there’s no mention whatsoever on the front page.
Stern does bring an audience it’s just the company, especially with the economy, should reevaluate the amount of the contract or cut ties. A more sensible, pay-for-performance model should be in place. Otherwise Sirius XM has slimmer and slimmer chances of survival with the other programming choices available.
Again, not a Stern attack, just looking at it in a business manner.
XM wasn’t a healthier company. They may have looked healthy, but they had cancer. They had HUGE, overpriced, foolish contracts and deals that they shouldn’t have made and couldn’t pay for. The main one being Major League Baseball. XM had 100′s of millions of dollars in convertible notes due in 2009 that they weren’t going to be able to pay for. They were just as screwed as Sirius, if not more. One of the main arguments for the merger was to save BOTH companies from impending bankruptcy…and it did.
When Howard first signed with sirius there was not that many options. With cellphones and other streaming devices satellite radio may not be the first choice for music. Satellite has some exclusive content which they over paid for, but not sure if that is enough to keep it going.I am not sure what I will do after Howard leaves I won’t listen to terrestrial radio and I have many different music services on my iPhone. Plus many podcasts to chose from. Who knows what the future holds? Maybe Howard will go to a paid podcast or something like that. Satellite radio should survive but I think they will lose more then 1 million subscribers
Great article…if you read the entire piece. It does not take into account what “Howard’s” money could be spent on and how that would affect the company if he left. I personally got XM for the music, and then found Opie & Anthony and Ron & Fez. Now, XM 202 is 95% of what I listen to. I did not get the Best of Sirius package. I think Howard was the best in the 80s and early 90s, but when i tried to listen on a free weekend, I was stunned at how bad the show was. It was boring, self-promoting, and at times, cringe-inducing. I know all shows have bad days, weeks, etc. but it was like watching a bad stand-up comic- wanting them to do well- but just bombing. It will be an interesting 4 months. Opie & Anthony’s contract is up Oct 1, 2010 without any news of a renewal. (Howard’s is up in Dec.) Is this the end of “shock jock” radio? If so, my “contract” is up in Feb… and after 10 years, I will not renew either.
Well I did read the article and my objection isn’t so much glaming Stern (who I dislike), but mentioning Opie and Anthony in the same sentence as Larry King.
I’ve had XM for several year, got the best of Sirius to listen to NASCAR and NFL. Got the premium streaming option (which is a real waste of money since most sporting events are blocked from on-line).
Frankly I’m bored. Between Pandora and other internet options which are now more freely available via iPhone/iPad/Android whatever mobile devices and the high, high cost of XM Sirius I plan on pulling the plug. I’m guessing lots of other folks feel the same way. Sure, if Stern leaves I would assume most if not all of his fans will do the same. It was a noble experiment, but I think the Satellite Radio party’s days are numbered.
XM subscriber who has best of Sirius package. The reason I got the best of Sirius was for the NFL channel and games. I’m sure many who have the package got it for Stern, but I’m sure there is a decent % that got it for NFL, NASCAR, etc.
Just an FYI.
I have two Sirius/XM subscriptions. One for my car and one for my house. I originally bought XM instead of Sirius to hear another show I liked from my days in Ft Lauderdale Ron and Fez. I started listening to Howard again when XM and Sirius merged. The Howard show on now is not the same as it used to be 20 years ago.
1. Howard sold out. Howard is 58 years old. He has a helicopter and a house in the Hamptons. He got divorced and married a model. He is old and has lost a step or two or three. He is no longer relates to his audience.. He talks about the same television shows only 15 year old girls, gay guys, and my 70 years old parents watch. Howard thinks his opinions on Dancing with the Stars, American Idol, Americas Got Talent, and the Bachelor are relevant and edgy. They are not. He spends hours a week talking about these garbage shows. He dose not understand his demographic or he is too rich to care.
2. Howard now has competition that does his show better than he does. Opie and Anthony could fill in his time slot and do fart jokes better than Howard does. Nobody would even notice.
3. You can almost never hear Howard live. You will hear taped best of shows most days. How many days off a year does Howard get now? He takes 10 weeks vacation each year, On the other 42 weeks of work he has off every friday, so he has 92 vacation days a year. He works a total of 168 days in a year. Of those the most he works now is a little less than 5 hours a day. Now if you add all that up he will work approximately 4200 hours in his 5 year contract which was worth $500,000,000,plus he already received a $83,000,000 bonus. So he is working for the paltry sum of $138,809 an hour. It’s a wonder he can make ends meet. He is old and out of touch and can’t relate to his fans.
4. Somewhere Howard started believing his own hype. If you listen to him he sounds a lot like a senile Larry King. According to Howard he invented everything. For example Howards says he created Are you Smarter than a 4th Grader. Howard claims MTV’s Unplugged was his idea. Howard thinks Jay Leno’s entire show was stolen from him. Howard also says he invented radio, breathing, the concept of angles, and the color orange. Howard is now a crazy person.
I hope Sirius dose not sign Howard again and just drifts away.
I’ve been listening to Stern for over 15 years and I have to tell you, I was dissapointed to not have baseball with the merger. My meaning is I will most likely cancel Sirius and goto XM regardless what Howard does, Sorry Howard it’s not the same without Artie (but still better than with Jackie).
I wont go as far to say Jackie made Howard what he is today, but sometimes being only “funny” and “ballsy” can take u so far. Jackie and Fred brought the character, feel, and genuine “insanity” and downright filthy to an art form. I agree with you. Artie was better than no Artie, but Jackie is the king. Chemistry is hard to replace. Very underrated.
I have 4 radios and if o&a are not renewed i will cancel . i can get most everything else i want on my smart phone for free , lots with video too