Times have been tough financially for media companies across the board and satellite radio has been no exception.
On Aug. 6, Sirius XM Radio (NASDAQ:SIRI) posted a second-quarter loss and the company hasn't lived up to expectations after Sirius and XM completed a merger a little over a year ago. According to "CNBC Reports" host Dennis Kneale, part of the satellite radio's problem is shock jock Howard Stern's compensation and the company's debt.
"I feel so, bad - there's, being run by one of what I think is the best executives in media, Mel Karmazin, a great salesman," Kneale said on CNBC's Aug. 6 "Power Lunch." "But in the end, does it turn out they just overpaid for Howard Stern and they have too much debt? I wonder if John Malone bailed them out temporarily hoping that they kind of go belly-up so they can get a hold of those assets really cheap."
In 2006, Stern was granted a five-year, $400 million contract and $220 million in stock according to an article in the Jan. 10, 2007 New York Post. However, Sirius stock is way off its 2006 levels.
Julia Boorstin, CNBC's media and entertainment reporter, agreed with Kneale that the problems could be attributed to Stern's salary, but also said Sirius XM banked on a better market for auto sales.
"I think that a high-cost structure is a problem, but it's only one of their problems," Boorstin said. "This is a business model that counted on Americans going out there and buying cars and paying for this service once they got it already in their car."
She explained the company was attempting to expand its business model by offering subscriptions on Apple's iPhone, but said there was no guarantee that would bring in revenue for the company despite its early popularity.
"I think the meltdown in the auto industry has been a huge problem for Sirius XM and now they're trying to figure out another model," Boorstin continued. "They have this, this uh, application to download to your iPhone. Tons of people, I believe over a million people very quickly downloaded this application, but once you download it you have to start paying. We have heard a lot of people have downloaded it, but we don't know how many people actually paid for the service."