SUBSCRIPTION RADIO Sirius takes big risks in signing Howard Stern to $500M deal

Howard Stern must lure 1 million listeners for Sirius to make money.
LOS ANGELES TIMES
It took three 1,000-pound satellites to launch Sirius Satellite Radio Inc.'s subscription radio service two years ago.
Now the company is betting that one man -- shock jock Howard Stern -- can help the ailing company finally achieve liftoff.
The five-year, $500-million deal luring Stern from Viacom Inc.'s Infinity Broadcasting is fraught with huge financial risks for New York-based Sirius.
For the Stern deal to pay off, Sirius disclosed, he must lure to satellite radio at least 1 million of the 8 million listeners who now tune him in for free. That is nearly twice the 600,000 subscribers Sirius has now.
Stern's signing marks the second splashy effort this year by Sirius to close the widening gap with its Washington-based competitor XM Satellite Radio Holdings Inc., which has 2.5 million subscribers.
Sirius agreed to give the National Football League $32 million in stock and $188 million in cash to carry games for the next seven years. New England Patriots quarterback Tom Brady and announcer John Madden are serving as TV spokesmen.
Like the NFL deal, Sirius is giving Stern an undisclosed combination of cash and stock, with Stern's entire production costs estimated at $100 million a year.
High hopes
In a conference call with analysts, Sirius Chief Executive Joseph P. Clayton predicted Stern would lure millions of new listeners when he starts Jan. 1, 2006, calling Stern "the most effective person to shift traditional radio listenership to satellite radio -- in particular, to Sirius Satellite Radio."
Some industry analysts aren't so sure. "It's a big gamble," said Scott C. Cleland, a media and technology analyst at Washington investment research firm the Precursor Group. "I hope Howard Stern got a guaranteed salary. [It] doesn't mean everybody will go out and buy a satellite radio."
Sirius certainly could use the business. Just last year, Sirius flirted with a bankruptcy filing before investors led by Apollo Management recapitalized the company. Still, Sirius remains a distant second to rival XM, which boasts four times the subscribers.
Investors have seen Sirius' stock tumble from a high of $66.50 in 2000 to less than $4. The stock was up 15 percent Wednesday, however, at $3.87 on the strength of the Stern announcement.
Sirius said its private research suggested that as many as 28 percent of Stern's fans would become satellite radio subscribers.
Analysts believe the two companies each will need 5 million to 6 million subscribers to break even.