Sirius XM Explores Alternatives for Life Without Howard Stern

Sirius XM Radio Inc. is exploring programming alternatives in case the satellite broadcaster and talk-show host Howard Stern aren’t able to agree on a new contract, Chief Executive Officer Mel Karmazin said.

Stern, whose five-year, $500 million contract expires in December, is continuing to negotiate with the New York-based company and a resolution will come before the end of the year, Karmazin, 67, said in an interview yesterday. Sirius XM stations, such as Raw Dog Comedy and Playboy Radio, would help retain many of Stern’s listeners if he left, he said.

“There’s no deal,” Karmazin said. “The only announcement will be when there is a deal, or there’s not a deal. And I’m hopeful there will be a deal.”

Stern is responsible for adding about 2 million subscribers to Sirius XM since he moved to satellite radio from terrestrial in January 2006, according to Tuna Amobi, an analyst at Standard & Poor’s in New York. Total subscribers may surpass 20 million before the end of the year, Sirius XM said this month.

Karmazin declined to give an estimate of how many subscribers would cancel the service if Stern leaves. Without Stern, Sirius XM would “save $100 million a year” and use the money to fill the programming gap with various types of shows, he said.

Photographer: Jonathan Fickies/Bloomberg

Mel Karmazin, chief executive officer of Sirius XM Radio Inc. Close

Mel Karmazin, chief executive officer of Sirius XM Radio Inc.

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Photographer: Jonathan Fickies/Bloomberg

Mel Karmazin, chief executive officer of Sirius XM Radio Inc.

“You don’t try to replace Howard,” Karmazin said. “I don’t think there’s a radio personality that’s out there that we would bring in and say to the Howard Stern fans ‘let us introduce you to this new talent.’”

Budget Savings

Karmazin said he would use the budget savings to “go and try to get different people who might appeal to different audiences.” Sirius XM, the only satellite radio provider in the U.S., might “expand our classical music, or maybe we would do a little more in the opera area, or maybe we would do something that we’re not doing today.”

Don Buchwald, Stern’s agent, didn’t immediately return telephone and e-mail messages seeking comment.

“Howard has a great deal of options, many options available to him,” said Karmazin, referring to reports that Stern may introduce his own online service.

Sirius XM will receive about 2 percent of its $2.8 billion in revenue this year from advertising, Karmazin said. While ads during Stern’s programs are capped to 6 minutes per hour, Sirius XM’s ad sales department insists they could sell more, he said.

“I want that subscriber to be very happy,” Karmazin said.

Karmazin said he doesn’t see any potential acquisitions for Sirius XM, which had $258.9 million in cash at the end of the second quarter.

“There’s nothing out there that fits our core competencies,” he said.

Buybacks, Dividends

The company might return cash to shareholders through buybacks or dividends, Karmazin said. Such a move will become increasingly likely as Sirius XM continues to lower its debt and build cash flow, though there’s no target date for such action, he said.

Sirius XM projects adjusted earnings before interest, taxes, depreciation and amortization to reach $575 million for 2010, compared with $463 million last year, Karmazin said at investor conference this month.

Last week, Sirius XM sold $700 million of eight-year senior notes in a boosted offering, according to data compiled by Bloomberg. The 7.625 percent notes were unsecured, and used to pay off 11.25 notes, Karmazin said.

Sirius XM was unchanged at $1.38 yesterday in Nasdaq Stock Market trading. The shares have more than doubled this year.

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.

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