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Thursday, September 29, 2005

Satellite Radio: The Impact of Stern

The Howard Stern channels, on Sirius satellite radio, went live today, though with exceptionally modest fanfare (less than 5 national media outlets reported on this event). The Sirius channels 100 and 101 are officially live and broadcasting, though the broadcast is dead air. The channels are scrolling an announcement of what is to come, “We’re building toward Howard’s arrival in January.” but there is no content yet, at least as of Thursday evening.

The management and shareholders (myself included) of Sirius are counting the days to January 9th, when Howard officially launches with his highly anticipated premier uncensored show. The few months left are actually going to work in Sirius’ favor, as they fall in the holiday season and also will provide more time for testing and equipment development and education.

The end of the 2005 season is going to be big for SIRI as those loyal Stern fans will begin migration to Satellite and the subscription numbers will continue to accelerate, beyond the growth rates of XMSR. Every statistical model I have run demonstrates Sirius accelerating at a rate of between 38% and 65% faster than XM Radio over the next 3 months. The most conservative estimate still shows tremendous growth, such as if GM was to extend their employee pricing promotion into the late fall, still has Sirius out mounting XM at a rapid clip.

Not only does Stern play principally into the divergence in subscriber trend, but the NFL, NHL, NBA, and Martha Stewart press from her new show, has a halo effect on Sirius subscriptions. Because XM’s primary programming investment, the MLB, the winding down season has a negative effect on growth. The three main factors that are lifting XM sales trends include the following: GM auto sales; their exclusive portable walkman device; and the addition of primary programming, such as Ron and Fez to follow O&A on the Extreme channel. Each of these factors actually is dwarfed by the fact that Stern also has a halo effect on the overall industry, which already has benefited both XM and Sirius in many tangible and even many non-measurable ways. This holiday season will prove growth within the industry at a velocity ahead of last year due to the amount of media attention directly attributed to Stern, and his launch.

Though XM continues to control the competitive advantage in hardware, traditional and non-traditional partnerships, and overall active subscribers, Sirius is, and continues to become, a major threat. This threat is real, and it is based on an actual asset that will be very difficult to combat. Panero truly needs a wake-up call and must center on development of a sagacious market strategy to combat the migration of both future prospects and current subscribers from XM to Sirius. Panero is out feeding propaganda to the media and Wall Street, which will not provide much more than a few weeks of relief from what could be a long holiday season for the XM shareholders.

What does Sirius have in their favor? There is no doubt they are behind because of their initial entry to market strategy and the delay in competing technology. Their advantage is real though, and it is their exclusive content and innovation. They have locked in the only content available today that is truly exclusive radio content (note: Bob Edwards does not fall into this category). Unlike the NFL, NBA, MLB, and other sports franchises, Howard Stern is not available for viewing or listening to elsewhere. Unlike Martha Stewart, Ellen DeGeneres, Richard Simmons, and Dr. Phil, this is the primary outlet for Stern, it is the Stern product, not a co-branded spin-off. Unlike ESPN, Fox News, and BBC, Stern is unique and has no real direct competition. Stern is unique, his show is what Sirius is buying, and he will bring over a significant number of subscribers that want to continue to have access to this program. HBO did it with the Sopranos, Sirius will do it ten-fold because they are not starting from scratch.

What Mr. Panero has seemed to forget is Howard Stern is porting his primary talent and primary value to Sirius. The product is Howard Stern. This is not another outlet for Stern, it is The Outlet. This is not a channel of many channel of content for Stern, it is Stern. This is not one of many talk shows or news programs, this is Howard Stern.

Howard Stern has between 15 and 20MM listeners nationally via his syndication deals with Infinity and others. He draws some of the most valuable demographics. The average listening time to his show is around 2.5 hours. Howard appeals to a segment of the population that is willing to spend money on entertainment and perceives actual value in what the Stern Show offers. Howard has about 1MM visitors to his website monthly. The website also averages a repeat rate of 80% of the active visitors. In essence, over a 6 month period, the website has 2-3MM visitors that are engaged in visiting multiple times. Howard’s E! show averaged almost 1MM viewers per day. All of these numbers will intersect into a subscriber base much larger than the estimated 500K in the next few months.

Howard will truly revolutionize the Satellite radio industry, but not in the way he says he will. He is going to redefine the landscape and create a more valuable product to accelerate the adoption curve. Because of his demographic pull, Stern is going to draw in the early adopters at a faster rate than the market would see normally. The adoption curve for this technology and service will continue to accelerate and should surpass the Broadband, HDTV, and even DVD curves.

Time will only tell, but this is a soap opera that will be very interesting to watch as it unfolds. One thing we can be sure of is that, Howard will make it an interesting few months.

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