Company's loss creates debate on Stern's value

NEW YORK — It’s hard to make money without Howard Stern — but it’s also hard with him.

Sirius Satellite Radio posted a sizable $459 million loss on Tuesday, mainly because of a one-time stock payment worth about $225 million it made to the shock jock during the quarter.

Loss reps a sharp increase over the $194 million deficit in the first quarter a year ago and shows that while CBS recently suffered a 6% revenue drop in its radio division after losing Stern, having him aboard also has its disadvantages.

Questions persist about the viability of Stern as an investment.

The good news: Investors were sufficiently satisfied with Sirius’ gains in overall subscriber numbers and the cost of acquiring them, as well as a roughly 200% jump in revenue, to send the company’s stock up 6% on Tuesday.

In the first three months of the year, Sirius drew in 761,000 new subs — a larger number than some Wall Streeters had expected.

But the quarter shows that strong subscriber numbers may not be a magic bullet.

Even assuming that Stern lured all the new subs, and that none paid a discounted subscription fee, that would still account for only about $30 million in the quarter in new subscription revenue — nice, but not exactly enough to offset a $225 million stock payment.

Of course, before the holidays Stern was also responsible for hundreds of thousands of new subs–if not more–but those numbers also pale when compared to the hundreds of millions he’s receiving.

And because satellite radio’s model is binary (you’re either a subscriber or you’re not), having a mega-hit doesn’t have the same effect it might have for, say, a TV network, where a success brings all sorts of indirect benefits, like ratings and ad sales for other shows.

With the controversial personality so pricey, Sirius is trying to find new ways to spin off revenue.

In a conference call with investors, Sirius announced it will allow subscribers to listen to Stern’s show on the Web by June — a move it believes will bolster the effort to recruit subscribers.

Plan involves making content available at Sirius.com and, possibly, execs said, on HowardStern.com. Execs told analysts that the move would be “particularly attractive to people in their office and in their home, and a perfect catalyst for people to subscribe.”

But the move could be read as an urgent effort by Sirius to seek new ways to wring benefits from their gamble, having already extended the Stern brand across two full-time channels. In the call, topper Mel Karmazin declined to comment on how many new subs he thought the streaming would bring in.

Of course, Sirius could recoup some of its investment by licensing some Stern content back to terrestrial radio, a tack taken by XM in its unusual deal with CBS Radio for Opie and Anthony.

But Karmazin dismissed the idea of Sirius as a syndicator, for Stern or anyone else.

He said there had been requests but the company had “no interest.” “We’re in the business of getting subscribers to satellite radio,” he said.

Overall Sirius did grow revenue in the quarter to $127 million, a significant jump compared to a year ago.

Incorporating other media into satellite radio remains an element of the company’s strategy. In addition to online streaming, Sirius said that it is working on machines with buy buttons and MP3 capabilities in future product releases.

Company made several rosy predictions for the future, including positive free cash flow as early as the fourth quarter and $1 billion in revenue for 2007.

In the first quarter, company ratcheted up subs to 4.1 million as it starts to close the gap with XM, which has some 6.5 million.

Sirius’ subscriber-acquisitions costs were lower than some had expected as the Stern push slowed down. Costs-per-subscriber dropped to $113 from $190 a year ago.

In the call, Sirius took aim at XM — which was recently forced to add commercials to stations in which Clear Channel is a partner — when it emphasized that “Sirius will not run commercials on our music stations.”

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