Sirius XM Holdings, Inc. (SIRI) and Howard Stern: What Does the Future Hold?

Does Sirius XM Holdings Inc (SIRI) need the radio superstar?

Mar 13, 2015 at 2:10 PM
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The latest edition of Bloomberg Businessweek featured Howard Stern on the cover, with a write-up that illustrated the radio star's dynamic relationship with his employer, Sirius XM Holdings Inc (NASDAQ:SIRI). The article considered the star power of Stern, and questioned whether or not the company could survive without him, since Stern's contract expires this year.

In the past, we've seen magazine covers this like act as contrary indicators, since most consist of information that's already widely known -- and priced into the shares. Therefore, any contrarian traders out there should probably take note of this, in light of SIRI's price action.

Looking for a second at SIRI's technicals: the shares sat at $3.88, at last check. At their lowest point in 2008, they were worth $0.08. Obviously, the stock has made headway. Even on a shorter-term basis it's done well, outperforming the S&P 500 Index (SPX) by over 13 percentage points in the past three months.

Daily Chart of SIRI since November 2008

But what would a future without Howard Stern on the radio look like? I'm not just asking in regards to SIRI, but the entire radio industry. Because what other star does it have?

The question for me is whether anyone can come along and do something similar to what Howard Stern has done. Not in the way of imitating his style, or his humor, or the structure of his show, but just becoming a big-time name by being on the radio. Howard Stern is either an example of things to come, or a major outlier who somehow managed to captivate millions through a medium most people don't even consider anymore.

Per the Bloomberg Businessweek article, most of SIRI's customers are on the higher end of the income scale, making roughly $100,000 and up annually. Maybe a lot of these people listen to Howard Stern, but I don't think they pay for Sirius Radio just for him. I would bet that most of these people would continue to pay for satellite radio even if Stern left the company. If you make that much money, what's another $20 to have hundreds of additional choices for entertainment while driving in your car -- most newer versions of which now come equipped with satellite radio technology? In fact, SIRI CEO Jim Meyer concedes that most subscribers are paying for variety, not a single program.

No, I don't think SIRI's future success depends on whether Stern stays or not, per se. It's more likely to depend on how it can fend off the competition. As alluded to, more and more technology is being put into cars (and everything else) these days, and eventually, they'll all have Internet access capabilities. This opens the door for streaming music providers -- such as Pandora Media Inc (NYSE:P) -- to step in and challenge SIRI. The future seems to indicate a much more saturated radio market. So what will differentiate companies?

Talent. Content.

In that sense, SIRI may worry about Stern leaving and going to another company -- some have even suggested him taking a gig with Apple Inc. (NASDAQ:AAPL). But if he leaves, what's to say Sirius XM Holdings Inc (NASDAQ:SIRI) doesn't find the next radio star? People have become famous just from Twitter Inc (NYSE:TWTR) and other applications. I would bet someone could gain fame through radio, if backed by a company like SIRI. If the radio market does grow, as it appears like it will, and companies fight for the best content (please see online video-streaming services), new talent, fresh content will emerge. Maybe stars from other mediums will gravitate to radio. So while it appears Howard Stern is a huge bargaining chip now, a changing of the radio landscape could quickly push him off the top of the radio mountain. People won't forget about Howard Stern -- he'll most likely always be the first person people think about when they think "radio star." But there's a chance that radio's grandest figure won't hold as much power in the coming years.


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