Satellite radio makes push for audiences - East Valley Tribune: Business

Satellite radio makes push for audiences

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Posted: Monday, October 11, 2004 6:39 am | Updated: 5:02 pm, Thu Oct 6, 2011.

NEW YORK - Sirius Satellite Radio is betting $500 million that Howard Stern is its ticket to the mainstream.

The company said Wednesday it would spend at least $100 million a year on a fiveyear deal that would move Stern’s talk show from traditional radio to one of its satellite channels.

It’s a risky proposition: Sirius, which has never been profitable, has lost more than $1 billion in the five years since it was founded. It has far fewer subscribers than its only satellite competitor, XM Satellite Radio, which also loses money.

The two are now in an expensive frenzy of hiring talent. The question is whether their audience can reach critical mass before their lenders and shareholders lose patience.

‘‘I think it’s a pretty good bet to take,’’ said Joe Clayton, Sirius’ president and CEO. ‘‘All we have to do to get our bait back is attract the first million subscribers.’’

Analysts estimated it would take closer to 1.3 million subscribers, and some components of the deal are unclear. The announcement didn’t specify Stern’s salary or detail extra payments he could get for attracting advertisers or more subscribers than expected.

Until now, Sirius has poured money into its business without earth-shattering results. It has spent millions to air National Football League, National Basketball Association and National Hockey League games, but it has only 600,000 subscribers.

Yet, ‘‘if any one program is going to get people to stand up and say, ‘I want satellite radio,’ Howard is the one,’’ said Matt Feinberg, the head buyer of national radio advertising time for Zenith Media.

Sirius and XM are the aural equivalent of cable TV. To hear their stations, listeners must buy satellite radios and pay a monthly fee.

Like cable companies, XM and Sirius also must persuade customers to pay for a service they’re used to getting for free. Like cable, most of its channels are commercial free. And like cable, the satellite broadcasters aren’t subject to decency standards governing traditional radio.

Both companies bounce their signals off satellites. Because they don’t have to buy space on the broadcast spectrum, as traditional broadcasters do, the companies are able to send out more than 100 different channels.

Sirius has one station for Christian rock and another for 1980s hair bands. XM has a trucker’s channel and a station that plays only European hits.

To win subscribers, who spend between $9.99 and $12.95 a month, the two companies are trying to sign familiar names.

XM debuted a show this week hosted by shock jocks Opie and Anthony, who were fired by Viacom subsidiary Infinity Broadcasting after airing a play-by-play of a couple having sex at New York’s St. Patrick’s Cathedral in 2002.

XM also launched a show this week hosted by former National Public Radio ‘‘Morning Edition’’ anchor Bob Edwards, whom XM scooped up after public radio bounced him from his slot as host of ‘‘Morning Edition.’’

‘‘We’ve gotten more than 50,000 e-mails and letters from fans of Bob Edwards,’’ said Chance Patterson, XM’s vice president of programming operations.

Sirius, for its part, has hired football commentator John Madden and is developing a channel programmed by rapper Eminem.

XM has 2.5 million subscribers to Sirius’ 600,000. Both have issued optimistic projections on the number of future subscribers they expect, but both also have included strong caveats in financial reports filed with the Securities and Exchange Commission.

‘‘Our business might never become profitable,’’ Sirius said in its last annual report, going on to say that it has had revenues only since 2002 and those revenues ‘‘have not been significant.’’

‘‘Demand for our service may be insufficient for us to become profitable,’’ XM said in its annual report, adding that if one of its satellites were to fail, it would affect the quality of service. Both companies have reported troubles with their satellites.

Those warnings haven’t scared off investors. Sirius had a $4.79 billion market capitalization, with its stock up 52 cents to close at $3.87 a share. XM had a market cap of $5.93 billion, with stock in its parent company, XM Satellite Radio Holdings closing at $29 a share, down 48 cents.

Of the two, Sirius has proven repeatedly that it has more expensive taste.

It is paying CEO Clayton, the former president of telecom flame-out Global Crossing North America, a minimum of $600,000 a year. The company also pays for his New York apartment and his flights to and from Rochester, where he has a home.

It also has a 15-year, $4.9 million lease at New York’s posh Rockefeller Center.

With its present spending structure, it can’t pay for the Stern deal without raising more money, analysts say. The company will have to raise between $100 million and $200 million to pay for the deal, said Jonathan Jacoby, an analyst at Bank of America.

Still, Jacoby said, the deal is good for both XM and Sirius. ‘‘It vindicates the viability of the medium, even though it has so few subscribers,’’ he said. ‘‘I’ll tell you who it’s good for: It’s good for Howard Stern. He’s the clear winner.’’

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