Sirius Satellite Radio (SIRI) clearly made a huge gamble by taking on Howard Stern. Could a company with well over a hundred channels come close to betting the company on one channel, one that is only live a few hours a day? Subscriptions have risen and Sirius recently passed the four million mark. But the stock market has dragged the shares from close to $8 in late 2005 to $5 now.
Granted, there are other issues that investors have with satellite radio. Sirius had a mere $242 million in revenue in 2005 against costs that drove an operating loss of $829 million. The company's market capitalization at $7.1 billion is 29 times trailing twelve months sales. Almost no company can boast that multiple.
The issue with Stern adds up to whether the throngs who have signed on to hear him will renew when the time comes. For a lot of people, that will be a year from now. Fundamentally, Sirius has 184 channels, but the ones carrying National Public Radio and Broadway's best musicals are probably not getting a lot of play.
So, Sirius casts its lot with Stern. In many ways it is a traditional media gamble. The gamble that puts a lot of money in the pockets of Rush Limbaugh, Stern and Don Imus. The gamble that a star can carry a network.
Sirius needs to increase its revenue by a factor of 4x to 5x to break even at its current cost rate. Since some expenses will probably rise as revenue does, that breakeven number is probably higher.
Year-end subscriptions for Sirius were 3.3 million, so they have gotten to 4 million in a matter of three months. But the Stern listeners from regular radio have almost certainly already made their move to Sirius.
The scary question is, how many of them will stay?
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also the president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has, in the past, served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.