Martha Stewart (MSO) shares jump on Sirius (SIRI) announcement

On Monday, Martha Stewart Living Omnimedia (ticker: MSO) and Sirius Satellite Radio (ticker: SIRI) announced the creation of a new 24-hour satellite radio channel devoted to women's lifestyles.  Here's a quick look at the deal:

What MSO gets/deal terms:

• Length: 4 years
• Guaranteed minimum payment: $30 million
• Upside: Revenue sharing agreement based on advertising and subscription numbers beyond a certain threshold
• Non-financial benefits: a chance to promote MSO products to SIRI's 1.14 million (and growing) subscriber base

What SIRI gets:

• More content to help differentiate itself from rival XM Satellite Radio (ticker: XMSR)
• A chance to attract women subscribers; currently most of its programming is male-oriented
• Marketing on the MarthaStewart.com web site

Why this might not make sense:

• As pointed out in an earlier post, not all content is appropriate for radio; Stewart's cooking and decorating shows might fit that category
• One women's channel may not be enough for SIRI to attract a significant female subscriber base; currently, most of its best programming (Howard Stern, NASCAR, the NFL) is male-oriented

Stock market reaction to the deal:

• MSO: Stock up 12% since announcement
• SIRI:  Stock up 1% since announcement

Quick comment:  The deal makes more sense for MSO than for SIRI.  MSO earns at least $30 million and possibly more over four years at little cost to the company.  Sure, Martha Stewart will host a show or two, but she won't be on 24/7; less expensive talent will fill up most of the day.  Still, however you look at the numbers, its hard to justify MSO's 120 million increase in market cap.  Even with upside from revenue sharing, plus increased magazine sales, it is unlikely that MSO will make anywhere near $120 million from this deal.