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Technology > Tech Biz
Suddenly, satellite radio matters
Sirius's Stern move makes more sense than XM's baseball play.
October 25, 2004: 5:37 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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BOSTON (CNN/Money) - The satellite radio business has been cranking up the volume these past few weeks.

Sirius Satellite Radio struck first with its hiring of Howard Stern. That announcement pushed Sirius's stock up more than 15 percent. The stock has since settled back down a bit.

Then last week the company's much larger rival, XM Satellite Radio, struck back: It announced that it would broadcast Major League Baseball games. Investors also loved that news, and XM ended the week at a new 52-week high.

The baseball aspect

Before those developments, my colleague Paul LaMonica named XM as the satellite radio company investors should consider because it has become the Kleenex of the space. Paul misjudged the American League playoffs (and sent me a bag of bagels as a bet payoff), and he may have misjudged Sirius too.

XM stock is up 10 percent, thanks to the baseball announcement, an 11-year deal for which XM paid $650 million. The Wall Street Journal reported that XM paid several times Sirius's offer for MLB rights. (Sirius earlier paid $220 million for rights to broadcast National Football League games.)

I'm not convinced that the pool of out-of-town fans is large enough to provide the 700,000 additional subscribers XM would need to justify the price. XM's recent run-up, coupled with the uncertain benefits of the MLB deal, make this stock a little too expensive and wobbly for my tastes.

Also of note: More than a third of XM's traded shares are shorted, compared with about 7 percent of Sirius's.

The other one

Which brings us to the scrappy also-ran in the satellite space. A funny anecdote leads us in: I went to the Patriots game a week ago (trying to distract myself from the Red Sox being down 3-0 to the Yankees at that point) with a friend who is a Sirius subscriber.

During a break in the action, an advertisement for Sirius radio came over the loudspeakers, and my friend -- apropos of nothing more than perhaps the beer in his belly and the Pats doing well -- decided to stand up and scream "I have Sirius and I love it!" He was immediately approached not by security but by people who asked about the service and wondered if it was worth the $12.95 per month.

Why is this incident telling? Because despite being around for several years, satellite radio has only recently jumped into the public consciousness, mostly because of the Howard Stern announcement.

The Stern factor

Love him or hate him, Stern is a radio powerhouse. In this relatively early stage in the satellite radio war, strong content plus promotion works. That can go a long way toward helping Sirius close the gap between its 700,000 subscribers and XM's 2.1 million.

Sirius Satellite Radio Incorporated
XM Satellite Radio Holdings Incorporated
Howard Stern

Sirius is already seeing a strong boost as a result of the Stern announcement, but this will pale in comparison with the number of consumers who will sign up for Sirius once Stern leaves analog radio in December 2005.

Granted, Sirius is paying a lot to secure Stern, and when a company starts to justify a move by claiming that it needs to sway only 10 percent of Stern's listeners to pay for the deal, it's worrisome. That's fuzzy math.

But Sirius could make back Stern's salary if he brings in 200,000 additional subscribers each year. And with a marquee name like Stern's, the self-proclaimed "king of all media" just may make it work.

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