Handicapping Howard (NYPost)

Sirius XM Radio CEO Mel Karmazin has shock jock Howard Stern right where he wants him.

Conventional wisdom suggests that with Stern’s contract coming up for renewal at the end of the year, the King of All Media has Karmazin cornered. Karmazin, the thinking goes, will have to sign Stern to a contract on par with his five-year, $500 million deal or risk losing him — and potentially, hundreds of thousands of subscribers.

However, in recent weeks there’s been growing sentiment on Wall Street that it is Karmazin who has the upper hand, thanks to Sirius XM’s improving financial health.

The company said last month it added 257,028 net subscribers in the fourth quarter, for a total of 18.8 million.
It also said it expects last year’s cash flow to total more than $100 million when it reports earnings later this month.

Sirius XM’s stock, which closed trading yesterday at $1.13, is up 87 percent since Jan. 1 and has steadily increased since last year at this time when it was saved from bankruptcy by John Malone’s Liberty Media.
Analysts see those numbers as a sign that Sirius not only can survive without Stern but might even be better off letting him go.

“Sirius XM wouldn’t disintegrate without Stern,” said Barrington Research analyst James Goss.
“Half of the company’s subscribers are from XM; they don’t get Stern and they still subscribe. Presumably, some of the people who subscribed because of Stern have found other things they like that justify the subscription costs.”

Added RBC Capital Markets analyst David Bank, Stern’s $100 million annual salary would drop straight to Sirius XM’s bottom line if he left.
“The question used to be that without Stern, would subscribers leave Sirius for XM? But since the merger, the question now is if Stern left would subscribers leave satellite radio?” said Bank. “That’s certainly possible and it is a risk, but it’s less of a risk than one might think.”
Karmazin could argue in contract talks that Stern has reached the point of diminishing returns in terms of attracting new subscribers and that protecting the company’s balance sheet is more important than doling out insanely expensive contracts.

Stern, on the other hand, is playing up rumors of potentially replacing Simon Cowell on “American Idol” to get leverage by making it seem that he has options. Such a posture could backfire on him, though, with Karmazin’s position improving every time an avenue for Stern to exit shuts down.
Analysts handicapping the standoff predict it will end in compromise, with Stern getting less money for less work.

“That way, they get to keep the Stern franchise and he doesn’t have to work as much because they can use his old stuff,” Bank said.

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