Howard Stern will soon announce his plans for beyond 2010.  His current five year, 100 million dollar per year contract with Sirius XM Radio (NASDAQ:SIRI) will expire on December 31^st, 2010.  Will he re-sign with the company that made him the highest paid radio or television performer in history or will he part ways?  His comments so far seem to indicate he is indeed staying.  Regardless of his decision, it is important to explore and weigh his options from his point of view and from Sirius XM’s.  Is any decision or path disastrous or a huge negative for either party?  Are there options best suited for both?  Here are the most logical choices and scenarios.  With each choice comes with its own set of consequences and effects for both parties.

The most obvious outcome is Howard gets his way and works less hours. He will probably try to work less hours while making the same salary as his current contract.  Since he got four days a week last time, I think this time he tries for three.  Current comments he has made in the last few months on air seem to indicate he is at least contemplating a three day work week.  What would happen if he re-signed and worked less days? His fans would care and the show would suffer.  Just too much away time.  Now this cast of characters is away from each other more than together.  Four days off, three days on.  If Mel Karmazin (CEO of Sirius XM Radio) allows this to occur, expect his audience to drop off even more.  Now you’re asking your fan base to “go find other entertainment” two days out of the work week rather than one.  Already he is away a lot of the time.  Jim Rome works 5 days a week.  Rush Limbaugh works a full week.  Michael Savage clocks in to put out a show every day.  Howard Stern apparently doesn’t feel it is necessary.  He is special.  That’s fine.  His listeners will learn to do without him more and more.  This is a positive for the company, as it directs frustration and malaise toward Howard and his show, and none at Sirius XM or management.  This scenario overall would be beneficial to the company but not ideal short term.  I think Mel gets some degree of a salary drop out of Howard if he wants to work less time.  He may also even let him start the show an hour later, as well.  Another huge mistake by Howard and disappointing to his fans.  It is a morning show after all on the east coast.  Half the country will be at lunch when the show is finally getting going.  This once again would direct frustration at Howard and not the service. So if Howard does work less and comes in later, SiriusXM would benefit in one regard because it will ease the transition from Howard to eventually no Howard with no ill feeling toward the company.  This would be Howard Stern’s 100% decision to do this, because Sirius XM wants Howard to work the same amount and arrive to work at the same time his loyal fans are used to.  Howard claimed yesterday Sirius XM should be called “Howard Radio”.  More like Lazy Radio, in actuality.  Factually, that is a much better name.  Or Howardless Radio, or Howard Lite.  Or Half Howard.  Discount Howard.  Whatever works.  All are more accurate and make more sense than “Howard Radio” considering his stated new demands on the company.  As my last article proved, the OEM market transition and XM subscriber base being still higher than Sirius’s proves he is not the end all for satellite radio.  If you did not catch yesterday’s article, it can be found here( http://www.kingofalltrades.com/2010/09/02/how-much-of-sirius-xms-success-is-howard-stern/).  He has overstated his value and I believe Mel Karmazin being in the business almost all his life and being very intelligent is well aware of this.  At the time he was announced in 2004 the new platform needed the popularity and publicity of signing a huge name like Howard Stern.  Today that is not the case at all.  The content offering is so vast one talent does not define the service.  Remember, Mel did not sign Howard to this huge and expensive contract.  Ex Sirius CEO Joe Clayton did.  Howard also received millions in stock options as well in this deal.

The best case scenario is Howard re-signs for the same money and works the same amount of time, but gets another channel to groom his replacement. He mentioned today on air that he might get a third channel.  His budget might go up if this happened.  This would be ideal for Stern and his fans, as they would still get him the same amount of time at the same start time, and good for the company because his replacement would be created by maybe a still part owner of the company, Stern himself.

Howard Stern could take his talents to South Beach….  Ok just kidding.  Stern can offer his own platform, utilizing internet technology. I am not an expert in exactly how this would work, but I do know it’s something Howard has never done before and would be completely out of the ordinary for a radio personality.  Internet service only is inferior exposure, as is offering it directly to smart phones.  Howard would be narrowing his audience greatly if he did this.  The delay from being off the air to back on would also be a large gap.  People might consider this confusing and lose interest in him and his cast of characters all together.  They may feel its too complicated or Howard has now insufficient avenues of communicating access to his service and loses the ability to generate new listeners (New Sirius XM customers signing up for the NFL, etc.. wouldn’t be exposed to his content).  Plus he would have to set up his own billing or hire someone to do that, handle customer service, and maintain the network.  This is more work and more costly than what he is doing now.  Sirius XM can possible one day offer a global distribution network, with the help of part owner, Liberty Media.  Anyone in the world might one day be able to hear Howard Stern anywhere.  Would he pass up the chance to be a part of this future?  Howard also already has 100% freedom on his channels.  He left terrestrial radio because he was being censored and the money was so much better on satellite radio.  Leaving for a new platform might net him less money, less listeners, and possibly higher stress levels.  Howard Stern isn’t the type of personality to enter this phase of his career with an unknown entity and possibly find out there aren’t as many people willing to directly pay to access him as he thought.  Howard Stern sees Sirius XM and satellite radio as part of him, and has pride in its success.  On the verge of breaking out and making it putting all the naysayers to bed and shoving it in the face of the FCC and terrestrial radio is too much to pass up.  I don’t see Howard doing this new platform scenario right now.  This is the least likely scenario happening.

Howard Stern could retire. He is still a relatively young man.  He is only 56 years old.  Speaking into a microphone for three hours a day, four days a week (even three days a week if he has his way) isn’t exactly taxing.  He has supporting writers, hundreds of on air personalities, bits and a busy interview schedule.  It is not like he has to write a three hour Academy award winning cinematic event every day.  I would think this world we live in can provide endless material for someone as smart and clever as Stern.  I believe he has the energy for another full contract.  Five years wouldn’t surprise me, but I feel three or four might be in the cards this time.

Mel can decide Howard is asking for too much money and simply refuse to pay him. Howard leaves bitter maybe even being fired for on air comments.  His fans leave in mass exodus and his stations are immediately transitioned into another talent or some other product.  Sirius XM losses 500,000 subscribers (about equal to what they gained last quarter).  Within 1 year Sirius XM hasn’t missed a step and its business as usual.  They save the 100 million dollars a year they paid Howard.  They can now use this money to improve the product.  Obviously, what’s being described here could also be done if he simply retired as well.  Whether this is signing away Rush Limbaugh or Michael Savage who knows.  I would expect Mel to make his first big splash if this money frees up.  Don’t bet against Mel actually hiring someone or even two talents here for less money than Howard and capable of adding even more subs than left because Howard left.  It might be one service, one content provider, one talk show host, or two, or a combination of all these.  It would be fun to find out how Mel would do this.  With all the added revenue since the business model in finally generating positive cash flow, Mel might be looking to make a big splash soon anyway, so this would definitely up the time table and necessity.

Howard can retire on good terms, at the end of his current deal. Howard’s contract expires on December 31^st, 2010.  After that he can do whatever he wants with his time.  He may choose to decide its been a long career and wishes to spend the rest of his life with his family.  His crew is well taken care of and he can help them with their careers from the sideline as well.  This is an okay scenario also for Sirius XM because his fans are not angry with the company.  In this scenario even less subscribers would cancel.  Likely,  a very small percentage would cancel in this situation.  Now him leaving can be transitioned well, and Sirius XM can move on in strength.

Howard decides to go back to terrestrial radio…..  Just kidding.  Let the ignorant approach this subject with you.   I won’t waste your time.  This is next to an impossible scenario.  Only reason I won’t say impossible is because it would be irresponsible for me in this setting to say such a thing.  Anything is possible of course.  Ask me in chat on kingofalltrades website, and I will tell you the real chances of this happening.

If Howard Stern did leave in any of those above scenarios, what exactly could Mel get for 100 million?  I am not sure exactly about how their contracts would work but there is a long list of talent Sirius XM could go after if needed.  They could afford more than one of these fine talents.  Howard Stern makes more than double of any of them.

Rush Limbaugh.  Has millions of listeners and loyal fans across the country.  A perfect fit for satellite radio and a big draw for new customers.

Michael Savage.  Has over 8 million listeners across the country and is widely respected.  His is smart, funny, and intelligent.  Conservative in some ways like Rush, but not myopic or a Republican apologist.  Broader range of target audience.

Tom Leykis( The Sam Kinison of Radio).  He still works and his show would work much better on a satellite radio uncensored national audience.  This guy is smart, worldly, funny, and controversial.

Adam Corolla.  Not a fan but some people find him funny.  I however do not.

Russel Brand (already been reported talking with him).

Jim Rome.  Huge sports audience across the country.  An LA guy that has national appeal.

Colin Cowherd (Smartest Sports Talk Show Host in the Country).

Joe Rogan (Surprisingly intelligent funny and talented, a true sleeper.  If you only know him from Fear Factor, you don’t know him).

Buy Pandora outright.  Incorporate the service into theirs.  This would be in effect like Mel shopping for steak and throwing in some bananas.  The cost to buy Pandora would be very minimal.  Wouldn’t take the entire first years salary of Howard Stern to do it.  This company barely makes a penny and has a business model that is near impossible to monetize.  But stripping their program down and using it in some way with their services might be beneficial.  Same below with Slacker.

Buy Slacker outright.

Jesse Jackson.  Enough said.  This would be a huge channel.

Sarah Palin.  Popular political figure with time on her hands.

Al Gore (Pollution Channel…)

Could you imagine the Bill Clinton Network….. “Cigar Hour” followed by The “Best Night Spots in Mexico”.  It would be a national sensation.  As ludicrous as that sounds, what satellite radio can offer is limited only by the imagination.  If I was handed 100 million dollars and told to add subscribers and you could do anything you wanted to do, I would be like a kid in a candy store.  Sirius XM is just now beginning to understand the amazing freedoms they enjoy and possibilities in the satellite radio format and distribution model.  The future is bright for the company with or without Howard Stern.

Stay or go I see a nice future for satellite radio.  They have enough income to maintain a large subscriber base by simply adding talent lost.  Nobody is irreplaceable.  And if Howard Stern leaves satellite radio he will find that out too.  The age of the content provider and the platform and the model are more important than any one person or entity.  Just ask Comcast or Apple how true that is.

Disclosure:  Long SIRI

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.

For up to date financial news, fundamental/technical analysis on all trades and investments, visit www.kingofalltrades.com.

Disclosure:  Long SIRI

Tom Smith, Chairman and founder of Taser International added that they were confident that deploying their TASER technology would provide a safe and effective use of force option which would enable the Texas DPS to uphold its motto of  ’Courtesy, Service, Protection.’

About the stock:  TASR opened the day at $3.75, up 3.31% from yesterdays close of $3.63.

In the weeks since the final bankruptcy sale and approval of Worldspace assets to Noah Samara; this time through Yazmi LLC, one thing is abundantly clear.  The plight of all the assets of Worldspace and SATCO is as yet unknown and still awaiting a final outcome.  Court documents prior to final sale stated that the consideration to be received from Yazmi in the sale purchase agreement would not be sufficient to pay Liberty Satellite Radio and Liberty Satellite Radio Holdings in full.  The Debtors estimated that Liberty’s aggregate secured claims were in excess of $116 million dollars.  Under the settlement agreement, the Debtors were released from such claims and the corresponding liens, allowing the Debtors to distribute the proceeds of the sale to other creditors.  In exchange for that, the Debtors and the other Parties to the settlement agreement provided releases to Liberty, and Liberty received other consideration.  That “other consideration” was Liberty obtaining a return of $370,000 in funds which the debtors transferred to Liberty; that Liberty had loaned to support the WorldSpace Italia subsidiary.  When Liberty decided not to pursue a Liberty purchase agreement, the need for those funds evaporated. Liberty also received $250,000 of the Yazmi sale proceeds, which was 5% of the total and significantly less than Liberty would have gotten if its senior secured claims were still in effect.  The Debtors believe that the note from WorldSpace Italia that Liberty received is of little value; the Debtors also believe WorldSpace Italia cannot repay that note, and the Debtors themselves have limited resources with which to possibly pursue collection.  The Debtors were willing to relinquish their right to abandon their responsibilities and their assets to Liberty in exchange for Liberty’s relinquishment of much of its claim.  Why was Liberty so willing on paper, to abandon its senior claimholder status?

Liberty also wound up after closing of the Bankruptcy sale deal with a lien of $5.5 million dollars; which just happens to match the very amount Noah Samara paid for the Worldspace assets thru Yazmi LLC.  Liberty, along with all the other parties involved, is barred from suing Samara’s new business Yazmi LLC. as part of the Bankruptcy sale agreement.  Another interesting couple of points are; the fact that for the Bankruptcy sale to close, SATCO had to file for chapter 11 Bankruptcy; and the fact that there were no provision in the sale agreement for the sale or handover of the ground spare and or unfinished satellite which are both in storage.

Worldspace Bankruptcy sale order:

http://www.kccllc.net/documents/0812412/0812412100602000000000006.pdf

Yazmi received the orbiting Afristar and Asiastar assets which were transferred with final approval on July 29^th 2010 from Afrispace Incorporated.  As of today, there are no other filings regarding the former Worldspace satellites from Yazmi LLC

It appears that the final dissolution of Worldspace and all its intertwined assets is nearer, but still under a cloud of mystery and disinformation. The bankruptcy process has been streamlined a bit more so as to not convolute the situation, but final disposition of all assets seems to be in a state of flux.  Speculatively, there seems to be a back room situation with regard to Liberty and Yazmi. How else to explain the lien for 5.5 million which Liberty now holds from the bankruptcy sale; which again, is the same exact figure that Noah Samara paid for the Worldspace assets in the bankruptcy sale?  Why would Liberty take such a small sum and step aside when they were the major DIP lien holder?  Why would they agree to take the Worldspace Italia debt, uncollectible debt according to documents, as part of their settlement agreement?

As I continue to investigate the situation, and review documentation, it seems quite possible that some assets which Worldspace had are in Liberty’s sights.  However, in the multi-corporation tree that was Worldspace, streamlining of the ownership of those assets must take place before Liberty can have a solid and real chance at unencumbered ownership of whatever it is they see as valuable to them.  Once again, we know that Liberty has a large presence in Europe through Liberty Global.  Liberty Global’s European operations are conducted through Liberty Global Europe, which provides video, broadband internet, and voice services in 11 European countries under the brands UPC, Unitymedia (Germany), Cablecom (Switzerland) and Telenet (Belgium), and digital programming & services through Chellomedia, a world class multimedia content provider.

Liberty Global’s European headquarters is located in Amsterdam and home to their technological development, network management, and product development teams.  It is also the location of Liberty Global’s European distribution center, the Digital Media Centre (DMC). The DMC is the source of digital television for millions of households in Europe, in and outside of Liberty Global’s footprint.  In each of Liberty Global’s European markets, local affiliate operations benefit from the company’s global scale and centralized technology procurement, combined with its commitment to locally managed culture and content environments. Looking at this last sentence again, one could see where Sirius XM Radio (NASDAQ:SIRI) and Liberty Media might possibly benefit down the road should expansion into Europe be in the cards, or even to South America, as Liberty Global also has a presence there. One indisputable fact remains that Worldspace had licensing for L-band spectrum in Italy and Germany, those licenses are most likely the real source of Liberty’s interest.  Another interesting thing, and one which I feel is a part of the big picture is Liberty Global’s recent news announcing development of a home media gateway, as seen here:

Liberty Global partners up for IP multimedia home gateway

Liberty Global has announced plans to work with Samsung, Intel Corporation, NDS and Nagravision to build a new common IP gateway device for its European digital TV customers.  The multimedia home gateway will be an all-IP platform capable of distributing video, voice and data content throughout the home and to multiple video displays.  The user interface will seamlessly integrate video content, widgets, apps, and an advanced search and recommendation engine.

Samsung will build the multimedia home gateway, which will be powered by the Intel Atom CE Media Processor.  The middleware and the user experience will be provided by NDS, based on Flash Technology.  Nagravision will provide the conditional access solution through NAGRA Media Access.  This solution will support MoCA and WiFi, and participate in the Digital Living Network Alliance (DLNA) ecosystem.

Based solely on this information as anyone can see, the true potential for Sirius XM and Liberty has barely even begun to be explored.  There is much more going on behind closed doors than most of us are ever privy to.  With that in mind, and with Sirius XM’s recent quarters of solid improvement, the future of the company truly has never been so bright.  There is obviously still much to be done within the company, and much to be seen as things continue to sort themselves out, but those who bet on the demise of Sirius XM have surely lost to this point because the company is clearly focused on mitigation of the issues it had with respect to infrastructure and exorbitant costs of maintaining that infrastructure.  As satellite technology and capacity continues to evolve, the benefits to Sirius XM will clearly be evident.  The launch of Sirius FM-6 satellite will begin to bear fruit with regard to infrastructure cost reductions as synergies start to be gained and realized from Geostationary Orbit Satellites (GSOs) on the Sirius side join the already GSO satellites from the XM side of the company.  The movement from Non geo stationary  infrastructure will mean a significantly smaller footprint (less satellites in the air, which translates to less costs and CAPEX) going forward and required for the future infrastructure.  The teaser given last Sirius XM conference call regarding the SIRI 2.0 roll out is only a small glimpse into what the future holds.  A further enhanced internet presence would seem to be in the cards for Sirius XM as well.  Sirius XM  made a very conscious decision and made it an important part of its business plan when they created cell phone applications for the internet version of the service on every major cell phone platform.  The company now needs to be working towards improving the internet capabilities (more available channels) of the service as well as working toward the release of SXM 2.0. This will help solidify the companys’ position as the premier satellite and internet music and entertainment provider in the world.

Disclosure: Long SIRI

Mel and Howard

By Relmor Demitrius

The day Howard Stern signed with Sirius Satellite Radio, the radio landscape was changed forever.  I think we can all agree that with this decision in 2005, to some degree at least, radio did indeed change.  To what degree and what lasting affect did it have might be debatable.  The biggest celebrity on radio and considered the most talented voice on radio, well, wasn’t on traditional radio anymore.  There was a new format in town.  Commercial free radio that could be heard anywhere in the country.  Satellite radio (SATRD) would change how people listened to the radio forever.  But how did Howard Stern change radio?  To what extent?  Is this a lasting change or a minor hiccup in the history of terrestrial radio?  Is the norm for radio soon to be satellite delivery?  Would more and more talent move from traditional outlets into this latest technology?  Five years later we can begin to answer these questions. 

On the tail end of Howard Sterns first contract with Sirius XM Radio (NASDAQ:SIRI) is a good place to stop and consider just what  the affect was of his signing and how the future looks  with or without Howard Stern.  In this first part of a three part series of articles I will delve into this topic and cover different angles to these questions.  I would like to first lay some groundwork on Howard Stern and present some facts that might improve our understanding of Stern, Sirius XM, radio in general and the relationships these three entities share.

How did Howard Stern even come to be on Satellite Radio?

Why is the number one draw on radio not reachable on the free airways?  Even from Stern’s early days he pushed the envelope.  He made himself a legend by doing what other’s were not willing or courageous enough to do.  The “Shock Jock” term was coined because of Howard Stern.  He said things and did things on air that well, quite frankly, were shocking.  His questions to women were considered crass, rude, and downright dirty by the moral center of America.  Controversy in this situation is sure to follow.  When you ask a every female guest if they are a lesbian, your going to attract some attention.  No one had dared ask these questions to female guests on normal radio, let alone celebrities.  Is this clever?  Is he morally justified?  Didn’t matter.  The cleverness isn’t in the question, it’s the audacity to challenge a certain force that had been censoring and controlling American thoughts for decades, the FCC.  The Federal Communications Commission had its hand in television, print, and radio.  When the year is 1980 and this is the first type of this brand of radio America is first being exposed too, sure there were bound to be run-ins with this organization.  Only one problem.  Howard Stern is no ordinary man.  He put principles before his career and challenged the authority on these issues constantly, causing his employers I am sure to lose much sleep and cost themselves a lot of fine money for violations.  Would the American people turn on him?  Would the FCC win again and control another “mouth of freedom”.  Interesting question and one we already know the answer too.  But do we know why?  I think I do.

The answer lies within the very man himself.  This was no ordinary shock jock, even though he  may have been considered the first.  Why wasn’t he the last?  His relationship with his audience.  His genuine personality day in and day out was coming through over the airways.  People understood him.  They felt his love for his wife and family.  His caring nature toward his crew.  His undying loyalty to those who made him who he was.  When he asked a lesbian if she “did dudes” you knew he wasn’t asking for himself, he was asking for you and me.  This deflection of “indecency” in a way is the reason for his success.  If we were convinced that Howard Stern wasn’t really some devious little horny weirdo that lived in a basement, our ability to enjoy the moment of the radio entertainment was made easier.  Its hard to explain, and it’s a concept that is harder to understand to oneself than I would even be able to communicate to another.  I suppose the best way to put it is that Howard Stern was relatable.  He was one of us.  We aren’t devious or evil, but ya, we had always wondered if Nicole Kidman was a lesbian and if so did she “do dudes too”.  I use her only as an example of a celebrity.  When in history had anyone ever bothered to interview a porn star?  The point is that his humanity even in the absurdity won out.  We liked this guy.  We liked his crew.  They were funny and compassionate and rude at the same time.  Stern pulled off crude and classy at the same time.  He fought for our causes and freedom of speech.  His love for his wife and family made him even more relatable.  Him staying with his wife during all his temptations and his fame even made him a hero of sorts.  The FCC was going to lose this one.

Stern didn’t like that he couldn’t say what was on his mind.  He didn’t like the fact that the FCC fined him more than any other radio broadcaster.  One of his points was that the national media can lie daily to the American public, but if you say “boob” on the air you’re an evil influence on children.  Maybe in a way satellite radio was simply just a perfect alternative for his program.  One could argue it was literally a match made in heaven.  The more the FCC pushed, the more Howard pushed back.  The more his employers were frustrated by Stern’s behavior the more Stern I’m sure sought another avenue for his show.  When Joe Clayton (CEO of Sirius Radio at the time) and Leon Black (board member) approached Stern to come to Sirius Satellite Radio, I would think Stern’s only reservation was would this format work?  Would my audience hear me?  I know I can now say what I want, but would anyone here me?  No FCC complaints.  No more fines.  No more annoying terrestrial radio bosses telling him to “tone it down” or “we lost another advertiser over this or that”.  Sirius XM can advertise with whoever wants to associate themselves with his show if they want too, but the best part is they don’t need any one advertiser to pay their bills.  Their subscribers pay their bills and they dictate what they want to hear, not the FCC telling them what we want to hear.  Howard was offered 500 million reasons to leave terrestrial radio.  If not for XM driving up the price, I would bet he would have left for 100 million, just to get away from the FCC and his old terrestrial employers. 

Now that we understand a little more why Howard Stern worked, who he is, and what he stands for, its easy to understand why he choose to come over to pay radio.  He reached more fans through terrestrial radio, but he could call his own shots now, cuss on the air, and have no government involvement on his content.  Reaching a few less people was worth it to Howard Stern.  He was putting his future in the hands of a new technology. 

Now we know the why and the how we got to this point in time.  Next article will discuss if it worked or not and details about his career with Satellite Radio.  The third article will discuss his future, his new contract, and what life would be with or without Howard Stern on Sirius XM Radio.

For up to date technical/fundamental analysis of all stocks and trades, visit www.kingofalltrades.com.

Disclosure:  Long SIRI