By Demian Russian
In a research report issued on the announcement of Sirius XM Radio (NASDAQ:SIRI) and Howard Stern signing a new five-year deal, Wunderlich Securities Media Analyst Matthew Harrigan reiterated his BUY rating and $1.75 price target on the Satellite Radio service provider. While noting that there wasn’t any granularity on Stern’s compensation, he saw likely upside to Stern on par with or exceeding his previous compensation. Harrigan said that Sirius XM was “uniquely able to monetize Stern.”
We still believe that Sirius is uniquely positioned to contain programming costs, especially for sports as it has an advantaged broadcast distribution conduit for audio. Stern is a unique franchise and is virtually irreplaceable in the sense of not being able to placate Stern loyalists with other talking head personalities. We still view SIRI’s music, sports, and cable programming as so compelling that losing Stern would have been only a short-term dislocation.
– Matthew Harrigan, Wunderlich Securities Media Analyst
Stating that the results of the new Howard Stern contract “likely conform to our Sternonomics analysis,” Harrigan noted several “Sternonomics” variables. These variables included Stern’s compensation, the length of the contract, and the number of listeners who would defect to terrestrial radio or a Stern Internet streaming service. Harrigan’s analysis assumes a”70% monthly ($9+) variable cash flow contribution on each Stern fanatic and a low 1.5% churn rate.” While Harrigan ran compensation iterations at $75 million, $100 million, and $150 million, he remained neutral between a five-year contract at $100 million and losing one million customers. “Any variation is likely captured in the mobile app upside,” he noted. While viewing the new Stern contract announcement as an overall positive, he noted that Sirius XM’s stock “remains supported by the decent U.S. automotive market.” Read More
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