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Old 01-22-2007, 05:14 AM   #1
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Post Lucrative Satellite Deals Vanishing


January 21, 2007 -- If any more money from Sirius Satellite Radio comes Howard Stern's way, he should take it. So should Martha Stewart, Oprah Winfrey, the major sports leagues and any other content provider that has a deal with Sirius or XM Satellite Radio.
That's because the lucrative contracts Sirius and XM have been doling out for programming are drying up. Fast.

Beginning with the Stern deal in 2004 - which has a total value of around $700 million over five years, including stock bonuses - Sirius and XM have viewed content as a key way to differentiate each other and have spent lavishly to lure key talent to their respective companies. But spiraling stock prices, slowing growth, soaring costs and a struggle to get into the black suggest that the rich paydays will expire when the contracts do.

"Both companies are becoming a lot more circumspect about the kinds of exclusive content they sign up," said Oppenheimer & Co. analyst Tom Eagan. "As these contracts come up for renewal, I think they'll try to fine-tune these deals" more in their favor.

Valuations on some of XM's content deals range from $50 million over four years for Oprah to $650 million for the rights to broadcast Major League Baseball games, according to Wall Street analysts. Martha Stewart's deal with Sirius is estimated at $29 million over four years, while its seven-year NFL deal is valued at $230 million.

According to RBC Capital Markets analyst David Bank, both companies have put a premium on reducing programming costs.

"Satellite radio is attempting to be a lot more rational with the money they spend on content," Bank said. And while many of these content deals have succeeded in their stated purpose of attracting subscribers - Stern and the sports leagues have no doubt lured listeners away from terrestrial radio - just as many of them haven't.

Or at least that's the impression Sirius CEO Mel Karmazin gave during a Citigroup conference last week in which he not so subtly implied that if a given content deal wasn't producing subscribers, it wasn't getting renewed.

"We're now able to determine which of our content is really driving our subscriber base so that when renewals come up . . . we [can] make a decision as to whether we want to keep it or not keep it," Karmazin said.

Part of the reason for the rich contracts stems from Sirius and XM trying to outbid each other, swinging negotiating leverage decidedly in favor of the talent. Among the many benefits of a merger between Sirius and XM - which is still possible after FCC chairman Kevin Martin completely backtracked last week from his comment that they couldn't - would be the return of negotiating leverage by removing a competing bidder in the marketplace.

"A combined XM/Sirius would be able to negotiate a 20 percent decrease in each contract upon its renewal, given the increased leverage of only one satellite radio operator versus two previously," RBC Capital Markets analyst David Bank surmised is a recent report.
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