Answering the Stern Question

10 February 2006



Oprah Signs Deal with XM Radio for $55 Million

Howard Stern, the self-styled “king of all media,” moved to satellite broadcaster Sirius Radio earlier this year. The bigger XM Radio needed to answer the “Stern Question,” and has done so deftly and wisely by signing Oprah Winfrey to a three-year, $55 million-dollar contract. “Oprah and Friends” will launch in September, and the deal hasn’t caused XM management to back off its goal of cash-flow break-even by year-end.

Satellite radio is in its infancy and is not all that different from the cable TV industry of many years ago. The challenge is to get enough subscribers to pay for the content and still have money left over. The receivers have become affordable, and both XM and Sirius have made deals with car manufacturers to put their wares in the new models (a brilliant move cable TV couldn’t make). However, unless there’s stuff people want to hear, they won’t pay the subscription fees.

Sirius thought it had the key to greater market penetration and more appealing content in hiring Mr. Stern. His listeners, the argument went, would follow him to pay-radio from free-radio. His demographic is the 18-34 year-old male, probably single, and interested in the more earthy pursuits (to put is in as genteel a fashion as possible). XM, if it was to compete, had to go after a different group. Enter, Ms. Winfrey.

Her followers are legion, and her ability to create products that appeal to that crowd has yet to hit any limits. Moreover, they are female and of a broader age range, clearly offering a fresh subscriber base. At the same time, XM got her for about 12% of what Sirius paid for Mr. Stern’s efforts. That may be all the difference.

XM has 6 million paying customers to Sirius’ 3 million, and XM plans of hitting 9 million by year-end. Ms. Winfrey may well deliver the lion’s (lioness’?) share of that number for far less per listener than Mr. Stern will do for Sirius. When the news hit, Wall Street sent XM shares up 9% to $26.91 in pre-market trading and it gave back only $1 or so when trading opened. It isn’t a decisive triumph, but it looks like a better deal for its shareholders than Sirius’ deal is for those who own its stock.

The Danish flag appears here as a protest against the violence being done to the free press of that country and elsewhere by those offended by some cartoons of the Prophet Muhammed, peace be unto him. A perceived insult is not an excuse for intimidation and violence, even in the name of the Creator. One cannot insult God, only small-minded men who falsely claim to speak for Him.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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