Did Howard Stern kill Sirius?

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Did Howard Stern kill Sirius?

Post by Hoosier Daddy » Sun Mar 04, 2007 12:56 pm

from MSN.com
Why Sirius is still doomed
The merger plan isn't going to rescue the satellite radio company or those who invested billions in it. Here's why the company is still in a death march.


By Jon Markman


The announcement of a proposed merger between Sirius Satellite Radio and its archrival XM Satellite Radio was treated by most of the media this week as if were just another financial event to be studied through the prism of balance-sheet analysis and the federal regulatory approval process.

But the merger plan actually amounts to the death of a dream for investors who came to believe that shares of Sirius -- propelled skyward for a short time by the hiring of snarky talk show host Howard Stern -- would make them rich beyond compare.

For while the merger might ultimately save the company from total oblivion, it is unlikely to save investors from billions of dollars in losses incurred over the past several years or, perhaps more importantly, from a loss of faith in stock ownership.

Millions of people bought Sirius shares at $6 to $8 for their retirement accounts, and rode them down to $3.50, never losing faith in Stern. At this point, they need to face up to the fact that they're screwed. Stern made half a billion. They will make nothing. They can file SIRI stock certificates away under "S" for stupid. They blew it.

World domination

How did this happen? It's a weird deal, it really is. For reasons that are little understood, certain public companies occasionally acquire an iconic status that inflates their market value light-years beyond real value. Optimism overpowers common sense, and investors pile into shares of an unprofitable but sexy company which they believe will surprise skeptics and dominate the world.

Sirius earned that status around 2003, after it was rescued from bankruptcy by the skin of its teeth. Shares had plunged from the mid-$60s in 2000 to less than $1 by 2002. They then gently tripled to around $3 when its "radio in the sky" service launched nationwide. Investors figured a dozen years of fitful planning and marketing, and the expenditure of massive amounts of money, were finally about to pay off.

The company was considered special in part due to the great timing of its service debut. The bear market of 2000-2002 was ending, the Iraq war was starting, the president was riding high, optimism was returning and investors were in the mood to fall in love. I recommended the stock at $1.15 in May that year in a column, arguing that it was like buying into the early days of cable TV.

Commuters stuck in vast suburban traffic jams from Long Island in New York to the San Fernando Valley in Southern California were the first to catch on to the promise of satellite radio and buy shares of Sirius and XM in mid-2003. No longer did they have to listen to the endless commercials and DJ drivel of conventional FM radio -- they were free! They filled stock chat boards with endless messages about their love for the service, which cost around $10 per month, passed around spreadsheets showing the incredible profits the companies would earn if they only converted 5% to 10% of their potential audience, and vowed to put their kids' college savings money into the stocks.

Auto makers, which had already blown millions of dollars by backing satellite radio's early years in the belief that they would help kick-start sales, started installing the devices at their factories. Analysts caught the fever, and published estimates that Sirius would rise to $10, $20 and beyond -- more than five times the price at the time.

But the fervor really kicked into overdrive in October 2004, when Stern announced that he would bolt from his long-term syndicated radio deal at CBS in New York for what seemed like the perfect setup at Sirius. No longer would he be hamstrung by restrictions on foul language imposed on conventional radio by federal regulators. He would be free to speak freely on a satellite broadcast and cuss out his parade of cross-dressing, dope-smoking, sex-switching guests on the air in any way he saw fit.

Trading satellites for Apples

That sounded good, as Stern was the most popular radio host in America at the time, and shares soared on the news. But the price Sirius chief Mel Karmazin agreed to pay for Stern's services -- $500 million -- was utterly outrageous and emblematic of the company's unconscionable overspending on content, hardware subsidies and distribution. By then the iPod had also begun to come into vogue, and I came to believe that given a choice between listening to their own tunes on a portable device and listening to programming shoved down their ears over the air (even it was commercial-free), consumers would prefer the former. I wrote a column in mid-December 2004 encouraging readers to sell Sirius at $9 and buy iPod maker Apple at $31.

Since that time, Sirius shares have pretty much gone straight down, sinking more than 50%, while Apple shares have gone straight up, advancing 170%. But you know, it didn't take a genius, or a psychic, to understand why this would happen. It was just common sense. No matter how popular Sirius became, it was almost impossible to determine how it would ever make a profit -- which is the only thing that should ultimately matter to investors. Apple, in contrast, was already wildly profitable, and set to become more so.

The merger announcement lifted Sirius by about 10% on Monday, and the company issued an earnings report Wednesday that was not quite as terrible as usual. But make no mistake: The death march is on. If the merger deal fails to gain regulators' approval -- and the betting now is that its chances of success are less than 30% -- Sirius shares are headed back under $3 by the end of the year.

Fine Print

Radio industry magazine Talkers reported this week that Stern's annual ranking among peers had dropped to #12 this year from #1 last year. Since his audience on satellite radio is a 10th what it was over the air, his influence has shrunk dramatically. The latest Sirius and XM earnings reports showed that subscriber net adds were down sharply from last year. One of the most popular iPod accessories these days is a transmitter that lets you play your MP3s through your car stereo. My friends in Hollywood say that's the main way they listen to music in their BMWs during their commutes now, eschewing satellite radio even if it is built into their cars. "Satellite stations play the same old songs, even if they are commercial free," said one buddy. "Music now is about listening to what you want, when you want it."
Thoughts?

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Post by Tom Taggart » Sun Mar 04, 2007 1:30 pm

Sirius --and XM,--- are echoes of the dot-com tulip mania.

"High concept" ideas not put to close economic scrutiny before millions were spent.

Spending millions for talent was merely a symptom of the terminal illness,
not the cause of death.

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Post by Mark Hallburn » Sun Mar 04, 2007 2:22 pm

I can't stand Howard Stern. He USED to be funny. Now he's just crude.

But I can't blame Stern for Sirius' failure.

There simply aren't enough subscribers to support both networks. The merger should make for one profitable company-IF the FCC doesn't screw things up!
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Post by Arp2 » Sun Mar 04, 2007 2:38 pm

Mark Hallburn wrote:There simply aren't enough subscribers to support both networks.
Each service has surpassed the number of subscribers where each said it would be profitable. What say you?
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Post by Hoosier Daddy » Sun Mar 04, 2007 2:56 pm

Mark Hallburn wrote:He USED to be funny. Now he's just crude.
No, he wasn't funny. Like The Simpsons and South Park, you eventually run out of creative steam. And, with Stern, you can only do the same "Come on, baby, show me your tits" schtick so many times before you're yesterday's news.

Stern is actually a very intelligent man. You can pick up on that undercurrent when he interviews someone or discusses an issue of the day. So sad that he hasn't graduated to a more mature broadcast platform. It would be the difference between Roseanne Barr and Oprah.

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Post by J. Fox » Sun Mar 04, 2007 5:29 pm

I think the I-Man is a good example of someone whose show has evolved over the years. All of the big newsmakers are guests on his show and he has that balance of humor and seriousness when interviewing.

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Post by Dave Loudin » Sun Mar 04, 2007 7:03 pm

A current example of intelligent morning radio is Adam Carolla's show.
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Post by SPIKE NESMITH! » Sun Mar 04, 2007 7:44 pm

*sigh* Slow news day at MSNBC?

This just in; stocks sometimes lose value.

...could someone pass that important newsflash on to the author of that article, please? Good God above, it's like it had never happened before!

The long and the short of it is this; Sirius printed a never-ending flow of stock, that's why it's in the toilet. But as a new service using new and unfamiliar technology (to the general public), it's not unusual for those companies to be in the red for a while. Startup is a bitch. I'm sure I've cited this before, but in the UK, Ruper Murdoch's Sky TV were tens of millions of dollars in the red for 10 years or more. Now they're practically printing money, and this is in the face of increased competition. When they swallowed up their only competition - the government-approved British Satellite Broadcasting - at the very start, the technology advances suffered (BSB's d-mac was HD compatable in 1990!) the programming quality suffered and prices went on the increase within a year.

The XMSR/SIRI deal isn't about satellite radio tanking, it's about two competing companies who are smart enough to know that creating a monopoly is the yellow brick shortcut to riches. Look at Sirius' subscriber growth in the past 2 years, they were set to eclipse XM in hardly any time.
Millions of people bought Sirius shares at $6 to $8 for their retirement accounts, and rode them down to $3.50, never losing faith in Stern. At this point, they need to face up to the fact that they're screwed. Stern made half a billion. They will make nothing. They can file SIRI stock certificates away under "S" for stupid. They blew it.
:cry: Waaah. I didn't diversify. Waah. I balanced my entire retirement on one stock and now it's worthless. Waah. :roll:

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Post by AmpedNow » Sun Mar 04, 2007 9:25 pm

Satellite radio is far from doomed. The merger will only cause it to gain momentum.

But, there are still many problems that it has to overcome before it becomes mainstream enough to be true competition:

1. Despite the ability to hear all kinds of content and formats coast to coast without market exclusivity, most people still can't wrap their minds around "paying for radio"... This is the single biggest obstacle they need to overcome: to convince more people of the value.

$12.95 really gets you a lot of choice. Esp in small markets where choice is limited to begin with. But most people are still happy with the stations they have listened to for years.

2. The technology, while amazing, is still too clunky for the average person. Only us tech geeks enjoy the challenge of a "clean" install in a vehicle. Most people would rather not bother with all of that.

Until people can simply take the radios out of the box and turn it on, it will always be at a disadvantage to terrestrial radio... And satellite radio by its very nature will never be that simple.

3. When you really think about it, it makes no sense that the NAB gets so twisted out of shape over satellite...Esp. when you read things like this:


http://www.mediaweek.com/mw/news/recent ... 1003551019
Arbitron: XM/Sirius Would Nab 3.4% of Listeners

Katy Bachman

FEBRUARY 27, 2007 -

If the two satellite radio companies, Sirius and XM Satellite Radio, get the green light from regulators to merge, the combined company would capture 3.4 percent of all radio listening, according to an analysis of Arbitron Fall 2006 survey data scheduled for release Tuesday. The analysis marks the the first time the satellite radio audience has been quantified compared to the total radio audience.

During the survey, about 5.6 percent of respondents mentioned listening to satellite radio. The highest audience share of listening captured by a single channel was 0.2 percent. The average satellite channel had a .009 listening share.

The good news for terrestrial broadcasters is that satellite radio listeners are heavy listeners of all radio. In fact, they spend more time with terrestrial radio than satellite or Internet radio. Compared to the 19 hours a typical radio listeners spends with radio, satellite radio listeners spend 33 hours a week. Satellite radio listeners spend 14 hours with AM/FM, 10 hours and 45 minutes with satellite radio and 8 hours and 15 minutes with Internet radio.

The Fall 2006 survey (Sept. 21 to Dec. 13) was the first in which Arbitron added instructions in the diary asking respondents to indicate their listening to satellite and Internet radio in addition to traditional AM and FM radio. Although Arbitron is collecting listening to satellite and Internet radio, it has yet to decide when satellite and Internet radio will be reported in its regular local market reports, an initiative it has delayed twice since Arbitron first announced its intention to include alternative audio media a year ago.

I think the NAB would be better off going to Congress and demanding restrictions on iPod sales... Apple is a much bigger competitor.

As for Stern, he has only helped satellite radio, despite the $500 million... If he never came over, Sirius wouldn't be buying XM and calling it a merger... In fact, Sirius would have long been bankrupt, because nobody would know who they were.

The finances will still take a lot of time to work out. But by merging, they will be able to combine resources, technology, and content. In other words, it will be an even better value.

By the tone of that piece, you would think that the last satellite radio has been sold and there's no potential market left...

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Post by Mark Hallburn » Sun Mar 04, 2007 10:53 pm

I agree some people don't want to pay for radio... But most now pay for TV in the form of cable or DirecTV or Dish.

Count me in the crowd of refusing to pay for YEARS!

But then I started driving 60 miles EACH WAY to work... And got tired of stations fading in and out...

Now my commute is half, but I still love my XM... I catch a local newscast on a metro affiliate and flip to XM for Headline News or sports talk... Rarely music...

Cut to this weekend. My wife and I took a road trip... Listened to XM MOST of the way... (The turnpike in the Marmet area drops out... So we switched to K-Love...) The 500-plus mile trip had us flipping between headline news, Southern Gospel, 70's, 80's, 90's, and Major League Baseball... I'm a news hound, but there is VERY little local news on the weekends on local radio...

Do I HATE paying $12.95 a month? Darned right! But even el-cheapo has found the price worth paying.... I get a HUGE variety of programs, stay better-informed, and don't have to flip the dial trying to find a strong signal...

I am HOPING satellite radio will learn from AOL and cut the subscription cost as it sells commercials... But that is likely years away... And SOME people buy satellite radio to skip the commercials... Unlike AOL you can't click past them on the radio...
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Post by PassiveObserver » Mon Mar 05, 2007 12:16 am

No matter what happens, you still need local radio to know what's going on. So no real threats from the XM nation.
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Post by Dave Allen » Mon Mar 05, 2007 5:21 am

Damn right!
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Post by The Interpreter » Mon Mar 05, 2007 7:29 am

S. Adams wrote:No matter what happens, you still need local radio to know what's going on. So no real threats from the XM nation.
If you live in Huntington, and CC is your radio company of choice, you, too, can buy a Huntington Herald Dispatch. You don't HAVE to have Mr. Cornwell read it to you. Magic or Kindred? News? On a weekend? Surely, you joke.

I was alive in the sixties. I remember the radio stations competing against others to get the news. Jingles like "The News...Comes First...On WCMI."

Although 911 reversed the trend somewhat, it has been getting more and more difficult for many years to find local news on the radio.

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Post by herdgirl72 » Mon Mar 05, 2007 7:36 am

WOUB does a good job of having local news on...yeah its NPR...
but if you are looking for local news on the weekend 89.1 is
pretty consistent...

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Post by Dave Allen » Mon Mar 05, 2007 7:40 am

On Saturday mornings we do local news at 6:55 (10 minutes) 8:00 (30 min), 11:00 (5 minutes) 11:55 (10 minutes). On Sundays its 7am (15 minutes), plus MetroNews throughout the day.

Of course Monday-Fridays at 1:30 we buy, sell and trade 4-Wheelers and goats on Tradin' Post.
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Re: Did Howard Stern kill Sirius?

Post by Ace Purple » Mon Mar 05, 2007 10:11 am

Hoosier Daddy wrote:But the price Sirius chief Mel Karmazin agreed to pay for Stern's services -- $500 million -- was utterly outrageous
Stern signed with Sirius before Mel Karmazin joined the company. Joseph P. Clayton was the CEO at Sirius when the Stern deal went down.

Stern signing news release
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Post by fearpeddler » Mon Mar 05, 2007 11:20 am

satelite radio wont die anytime soon, if i remember correctly dish network didnt come into the picture after direct tv swallowed up primestar and had sat all alone for a few years selling everyone half-assed service. Even if this merger does get approved I dont think they would be alone in the business too long before some rich guy with sum cash he doesnt care to lose starts up another one. but the big difference people forget to see when they compare sat radio to sat tv is that no matter where you go in this country you can get alot of radio stations for free... there are lots of places in this country where you can get cable or sat-tv but you couldnt pick up a tv signal over the air.. terrestial ( dont think i spelled that right) radio was the first great tool to feed the masses, its definitely shown its a system thats well worth maintaining. I'd worry about the internet suckin up television before I even entertained the idea that satelite radio is the greatest thing in the world and we all should own one.... now, lemme try to get back to topic....



paying for radio is totally stupid. you'll sit through commercials watching a tv show, whats the problem with it when you're listening to radio?
Doesn't MSNBC stand for the Media that Spins the News for Barrack's Cabinet?



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