XM Satellite Radio Holdings Inc. on Thursday (Feb. 9)said it signed a three-year, $55 million deal with Oprah Winfrey to introduce a channel on the top U.S. subscription radio service, sending shares
XM Satellite Radio Holdings Inc. on Thursday (Feb. 9)said it signed a three-year, $55 million deal with Oprah Winfrey to introduce a channel on the top U.S. subscription radio service, sending shares up as much as 10 percent.
The new channel, called "Oprah And Friends," is scheduled to launch in September and will include a weekly show hosted by Oprah, as well as programs featuring other personalities from her popular nationally syndicated TV talk show.
XM's smaller rival in the U.S. satellite radio market, Sirius Satellite Radio Inc., has already signed a number of high-profile deals, most notably a five-year $500 million contract with shock radio personality Howard Stern.
"We're done with the big programming deals," XM Chief Executive Officer Hugh Panero told Reuters in an interview. "With this last piece of the puzzle, after you sign a deal with the likes of Oprah, we see nothing else on the horizon of this magnitude."
"It's a smart strategic move for XM because they need to answer the Howard Stern question," said Stanford Financial Group analyst Frederick Moran. "It's not a dirt-cheap deal. But it does help XM attract a female audience."
Oppenheimer analyst Tom Eagan called the deal economical to XM. "On a per-subscriber basis, XM can break even on this deal if they add 145,000 subscribers over the three-year period," he said. "That should be very easy for them to do.
XM shares have slid some 38 percent since October on concerns of slower growth from the auto sector, which has been the engine of growth for satellite radio, Moran noted. "This is the kind of deal that could rekindle enthusiasm and stimulate sales later this year," he said.
XM said the Oprah deal will not affect its target to break even on a cash flow basis by the end of this year. The company, which currently has more than 6 million subscribers, said its goal to reach 9 million subscribers by the end of the year was also unchanged.
Sirius, by comparison, has more than 3 million subscribers.
XM has lost some market share for new subscribers in the fourth quarter leading up to the launch of Sirius' Stern program. Coupled with the woes of General Motors Corp., XM's exclusive partner in the automotive market, some on Wall Street expressed concerns that XM's subscriber growth could slow further in the first half of this year.
"General Motors has been a terrific partner," XM's Panero said. "There will always be ebbs and flows in the auto market. But we have a number of deals with other automakers such as Honda, Toyota and Nissan.
"We expected the fourth quarter would be competitive," he added. "But it's my belief that we will return to a more normal market share in the first and second quarters. We're already seeing signs of that."
XM has an exclusive deal with Major League Baseball, whose spring training opens this month. Last year, baseball programming was a major driver of growth for XM.
Shares of XM rose $1.71, or 7 percent, to $26.32 in early Nasdaq trading after rising as much as 10 percent shortly after the market opened. Sirius shares rose 3 cents to $6.01.