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Oprah widens XM's edge in satellite war
XM shows, again, that it's more serious about making money. Winfrey's $55 million deal is a bargain compared to Stern's $500 million Sirius pact.
By Robert Walberg
I see your Stern and raise you an Oprah. In the ongoing battle for subscribers, XM Satellite Radio just raised the stakes in a big way when it announced the signing of mega-celebrity Oprah Winfrey to a three-year, $55 million deal. The new channel, Oprah & Friends, will begin airing in September.
XM Satellite (XMSR, news, msgs) is betting that Winfrey can do for it what Howard Stern -- and to a lesser extent Martha Stewart -- have done for arch-rival Sirius Satellite Radio (SIRI, news, msgs), and that is drive subscriber growth. The buzz surrounding the launch of Sterns program helped Sirius to outpace XM Satellite in signing up new subscribers last quarter. Sirius said it pulled in 1.14 million new subscribers in the fourth quarter of last year, compared to 898,000 for XM. With 5.9 million customers, XM still holds a wide lead in subscribers, easily more than the 3.3 million at Sirius. But with Stern and Stewart on board, the gap is narrowing.
However, todays move by XM should ensure its leadership position for many quarters to come. No offense to Stern and Stewart, but Winfrey is a media force like no other. Her TV show continues to post big ratings, her magazine is a success and her influence on the best-seller list remains unparalleled -- even after the James Frey embarrassment.
A relative bargain
Oprah is more than a celebrity. She is a cultural icon. And XM can expect women to sign up in big numbers to hear Oprah and her usual list of friends talk about health, home, self-improvement and Hollywood. Let there be no mistake about it, this was a major coup for XM.
Of course, the biggest coup for XM was landing Oprah Winfrey for small change, at least compared with Stern's 5-year, $500 million deal. If there was any question about which firms management team is more committed to the goal of achieving and sustaining profitability, a comparison of these two super-star deals should put a quick end to that debate.
More from MSN Money
In the first nine-months of 2005, XM posted losses of $398.4 million, while Sirius lost $551.6 million. But XMs losses were about equal with its revenues, while Siriuss losses were a whopping 3.4 times sales. It should also be noted that revenues next year were expected to jump by an impressive 77% before the Oprah signing.
Surprisingly, despite bigger losses, lower revenues and fewer subscribers, Sirius sports a considerably higher market-cap ($7.7 bln to $5.7 bln). The difference in market cap is another result of the Stern factor, as the announcement of Sterns signing corresponded with a big jump in Sirius stock value. Look for the Oprahs signing to have a similar effect on XMs stock.
Behind the wheel with Oprah
Revenues at XM, as well as Sirius, will also get a boost from more widespread distribution in automobiles, as satellite radios are being added to more vehicles every day. Just yesterday, both companies announced deals with Subaru. XM also has longstanding deals with General Motors (GM, news, msgs) and Toyota Motor (TM, news, msgs), while Sirius is tied more closely to Ford (F, news, msgs) and Daimler Chrysler (DCX, news, msgs).
Considering its growth prospects, the signing of media mogul Oprah Winfrey, more disciplined management and the relative discount in its valuations (to Sirius anyway) investors looking to play the growth in satellite radio would be wise to pick XM over Sirius. Neither will be profitable anytime soon, but with Winfrey on board, XM has improved its chances of getting there first.
Ill place my bets with Oprah and XM myself by adding the stock to my Street Patrol portfolio.
At the time of publication, Robert Walberg did not own or control shares of any companies mentioned in this column. Walberg did, however, recently become a Sirius subscriber.
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