Sirius Happy to be Successful No. 2 to XM, Clayton Says
Sirius’ deal with Howard Stern has “the potential” to defy Wall St. analysts and ultimately give the company the lead in satellite radio subscriptions over rival XM, Sirius CEO Joseph Clayton told Consumer Electronics Daily. But referring to the 2nd-place DBS company and its CEO, Clayton added: “I also think we can be very successful as number 2, just like Charlie Ergen and EchoStar.”
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
As an RCA executive, Clayton said, “I was with DirecTV at the launch. We were 2 or 3 years and 2 million subs out in front of Charlie, and here we are 10 years later and Charlie’s still number 2, but a lot of people will tell you the better financial plan is with number 2 and Charlie Ergen.” Clayton conceded Sirius had been hurt by analysts’ reports consistently depicting the company as the perennial also-ran to XM. “But that’s only because most of the analysts covering us weren’t even around 10 years to understand the dynamics of the satellite television industry,” he said. As the number 2 competitor in satellite radio, Clayton said, Sirius hasn’t gotten as much “visibility and ink” as XM, “but we do now.”
As the company has said all week, Clayton said all Sirius must do to recoup its $100 million in its fixed- cost investment over the 5-year term of the agreement with Stern is convert one million subscribers -- estimated at 8% of his total listenership. The $100 million includes “a myriad” of costs, beyond compensation to Stern, including the tab for building a dedicated studio, Clayton said. “We believe a new studio adds additional show appeal here to our facilities,” Clayton said. “Remember, too, he will continue to do some TV programs that will be broadcast from here at our studio as well.”
Responding to our question about whether Sirius is open to risks if it doesn’t meet the benchmarks needed to recoup the costs of the Stern deal, Clayton said: “I'm sitting on over $600 million in cash right now. Based on our current business plan, with Howard in there, we're fully funded.” At the same time, “this does eat into the cash cushion, there’s no question, and we'll consider going back to the market at the appropriate time to build back our cash cushion.” With very little debt, “we have the financial wherewithal to tap the financial markets if we so decide,” Clayton said.
Stern has complete freedom of expression under his Sirius contract, because “he owns the content,” Clayton said. “This is no different from HBO, Showtime or DirecTV. In fact, he will be producer of the channel.” Clayton said “no one is better at being on the edge without going over” than Stern. There are no stipulations in Stern’s contract with Sirius should he go over the edge, Clayton said. “If he says bad things about Kentuckians, he’s got a problem,” joked Clayton, himself a Ky. native.
Meanwhile, IRG Research said it promoted Sirius to a “buy” rating based on the announcement. Despite a recent report from the group questioning the company’s ability to meet 3rd quarter estimates, IRG said Sirius’s deal would create a more competitive industry and that it expects the company to serve 2.5 million subscribers by the end of 2005. The $100 million per year price cited by Sirius is “steep,” IRG said, “but well worth it, when you consider that Stern has over 12 million loyal listeners.”