10/28/2004

Suddenly, satellite radio matters

The two major satellite radio companies have announced deals that have sent their stocks through the roof. Sirius Radio Inc. Announced a few weeks ago that they had signed Howard Stern, the announcement sent Sirius' stock up 15%. XM just announced that they have radio rights to Major League Baseball, this announcement sent XM's stock prices up 10%. These recent actions have many analyst wondering can satellite radio really become a powerful force in the entertainment world, and which of the two strategic actions will have the biggest payoff.

Howard Stern has a cult following of listeners from coast to coast, from his late night TV show to his syndicated radio show that was broadcast in most major metropolitan areas. Satellite Radio provides a FCC-less format where Stern can be as vulgar as he wants to be. The price that Sirius paid to acquire Stern was far less than the price that XM paid to acquire rights to Major League Baseball, and therefore Sirius will have a much easier time recouping its investment in Stern as opposed to XM's investment in MLB.

I believe that Sirius' move in acquiring Stern will turn out to be the most profitable move of the two companies, because of the fact the Stern holds so much power in the radio world, and Sirius has gained absolute control over where Stern is broadcast. Therefore there is a greater incentive for potential customers to go to Sirius for Stern as opposed to XM for Major League Baseball. Major league baseball is broadcast on network TV and several cable stations, and by observation one might easily conclude that most people would rather watch a baseball game on cable.

7 comments:

Biancca said...

I like satalite radio for the international programs. I enjoy French, German and Russian radio programs, but right now I have to listen to them through my computer. Needless to say the soun quality is terrible. I hope these new boosts in profits/stock prices or what have you will provide incentive for satalite radio to further expand its international programming as well. Some programs are available through Dish Network now but I would love to see more.

pramahaphil said...

I believe that technological advancement is one of the biggest objectives that both firms have at this point in strategic plan of each.

Rufio said...

The demand for Satellite radio is definetly on the rise. The problem is that it is not readily avalible. Satellite radio signing on Howard Stern will certainly icrease the amount of listeners, but I feel that they need to start reaching out more to other markets. Just because the FCC allows anyone on satellite radio to say what ever they want doesn't mean that they should adopt this as an advertising campaign. Satellite radio needs to be careful not to taint their name if they desire to increase their demand. Not everyone wants to listen to vulgar things on satellite radio, and in order to increase demand a broader target market must be reached.

John West said...

I can only say that if I weren't currently a student, that I would definately have lots of shares of XM and especially Sirius stocks in my portfolio. A couple of weeks ago Sirius was trading at $3.5/share. I have no doubt that within time, it will be in the 20's and possibly the 30's. Satelite radio is going to be in every car soon and the industry is right on the threshold of exploding.

Bryce Larkin said...

I love listening to Howard Stern. I think the satellite radio is an up coming technology and this will put it through the roof. I believe the Sirius got the better deal of the two, even though it comes with a $500 million price tag.

Maudi said...

I think Sirius will do well at first, but honestly, how long will their stock stay that high. I am sure that people will get sick of just listening to Howard Stern. You can turn on the TV and watch Howard Stern just as easy as you can turn it on to watch a baseball game. I personally think that Howard Stern is a lot funnier to watch then he is to listen too. I think that both industries will do all right with the announcements, but I don't think that they will stay up for long.

Dr. Tufte said...

I wonder how these services can recoup this money. Satellite radio is generally commercial free. So where do they get their funds - from the flat monthly charge. That flat monthly charge is not likely to support too many big deals. I think these two firms are in a death match: whoever spends enough to go bankrupt first loses.