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What Howard Stern's New Deal Means to Sirius XM

The self-proclaimed King of All Media, Howard Stern, has saved Sirius XM for a second time by agreeing to keep his radio show on the service for another five years.

When Stern first joined what was then Sirius, the company had less than one million subscribers and looked like it would be bested by XM, its much bigger rival. It was actually somewhat shocking that the longtime top-rated morning radio personality joined Sirius over XM in 2006.

His decision, shocking as it was, pretty much immediately turned things around for Sirius. The company quickly began adding subscribers and when market conditions forced the two companies to merger, it was Sirius as the company that ended up controlling what became Sirius XM (though eventually Liberty Media ended up owning a controlling interest).

Stern is one a the very short list of personalities who has proven that his audience will not only follow him, but will pay to hear his show. His leaving may not have immediately put Sirius out of business, but it would have caused a significant drop in subscribers -- especially if Stern went to another pay service.

" The Howard Stern Show is still the single most important piece of content that Sirius XM has-and the most expensive," Barton Crockett, an analyst with FBR Capital Markets told Bloomberg in March. "I think he's worth every penny."

LISTEN UP: @HowardStern announces his new deal with @SIRIUSXM . #HowardsBack https://t.co/L1qgx2mOfu- Stern Show (@sternshow) December 15, 2015

Source: The Howard Stern Show's Twitter feed

What happened?

Stern tends to play contract negotiations right down to the wire and he often takes an adversarial tack with his employer.

In this case, with his contract being up at the end of 2015, the radio host was mostly quiet. He talked about retiring, though it was clear he wasn't going to do that. He also spoke about having two dream offers -- many guessed that Time Warner 's HBO, which has snapped up Bill Simmons and Jon Stewart, might be one of them -- but it seemed like staying was hist first choice.

Though it went almost down to the wire, Stern and Sirius XM reached a new deal for his show to continue for another five years. The company also signed a 12-year agreement for archival rights to Stern's catalog and made a deal to launch its first ever video venture with the host.

"As a broadcaster, it does not get better than working at Sirius XM and I'm truly excited for the future with this great company," said Stern in a press release . "I happen to think that its best days are ahead. So, if you are not listening to Sirius XM and The Howard Stern Show , then you are really more like a zombie, a rotting corpse monster, living half a life, deadened and blackened inside. It's as if you were still watching black and white television while shopping in actual stores on your way to the post office to fax a memo."

That's statement is Stern being Stern, but the deal is significant because it's akin to a lifetime commitment from the 61-year-old broadcaster.

Why does this matter?

Sirius XM faces serious competition from the Internet. At one point its curated music channels were a draw but streaming services have made that irrelevant. In addition, the company could once rely on its slate of talk shows as a differentiator. Now, the wealth of top hosts with free podcasts makes that advantage much smaller.

Stern, however, has a dedicated audience willing to pay for his show. The satellite company does not release listener numbers or ratings, but he's clearly a draw. Various surveys affirm and dispute exactly how important Stern is to the satellite service, but if he left, it's fair to say many people would at least consider not renewing their subscriptions.

One often-cited survey of 800 Sirius XM customers done by Macquarie Equities Research found that 12% of Sirius XM subscribers listened to Stern and 5% would leave if he left. Those numbers feel low (and the controversial nature of his program may cause some people to downplay their fandom), but even at 5%, the loss would be significant.

The satellite company currently has 29 million paying customers who pay about $14.99 a month. Losing 5% of that would be a drop of 1.45 million subscribers or $21.73 million a month. That's $260 million a year -- not a death blow for the service, but a problem.

It's bigger than that

In reality though, the bigger issue Sirius XM faced had Stern left was not the immediate diehards who would follow him to HBO, a podcast, or wherever else he might go. The problem would be in the overall devaluation of its service.

With music no longer being a calling card and fewer talk personalities not being a driver, Stern's presence likely tips the scales for many on-the-fence customers. Had he left, it would have started the type of slow bleed that does not kill you quickly, but does kill you.

That issue would have been exacerbated if Stern had left for HBO. If his show had become an audio and video offering on that company's streaming services, then many Stern fans would be faced with shelling out money to follow their hero. If they had to do that, then many of them would almost certainly look at whether Sirius XM was still worth $14.99 a month.

This new deal gives Sirius XM time. The company has made itself less Stern-dependent and in five years, perhaps his loss or retirement won't be a big blow. For now, though, this is a big deal for the satellite company, which keeps its signature host on-board, where it can leverage his devoted audience to launch a video product.

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The article What Howard Stern's New Deal Means to Sirius XM originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. He is a Sirius XM subscriber mostly because of Stern, who once mentioned his book on air, but called him "David." The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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