Ron Reuven CNBC Sirius Satellite Interview 2006

[Music] and we're going to take a break when we come back is there serious trouble in the satellite radio business are these two New Wave radio neo fights over spending on the likes of stern and Oprah and underd delivering for investors we're going to ask a new face to Squawk on the street that's next as we told you earlier in our program serus satellite radio this morning reported a loss in the fourth quarter a penny worse than analysts were looking for serious blaming higher programming costs for the shortfall take a look at the stock of pre-market trade we off nearly 5% on the news yesterday of course XM radio reported fourth quarter results the loss there also wider than expected shares got hammered after an XM director quit saying a crisis could be in the offing at the company pardon the pun but is there serious trouble ahead for the satellite radio business here with his instant analysis is Ron ruven he's an independent Trader president of ruven Enterprises and Ron uh we were hoping you'd come cuz you had some interesting analysis on this whole Howard Stern versus Oprah situation but let's just start first with Sirius you own shares of Sirius not XM uh the stocks down 5% this morning what do you think it's a buying opportunity the bottom line is is that uh these two companies have a huge opportunity there are only two companies in an entire sector it's not like the software sector or the internet there's only two companies in the entire sector there's roughly 354 million people or places that could actually have these radios That's not including Canada which is about 34 million and there's only two companies and everybody out there is predicting what they're going to do over the next 5 years which I think is wrong because between the two companies there's only about 10 or 11 million subscribers and it's just the beginning so as far as as far as the company itself is concerned we're predicting that the company is actually underestimating what they're going to do over the next year and over the next several years they should be able to get to about 7 1.5 million subscribers by the end of the year and uh the business model will allow them that once they break even once they get to approximately five or five and a half million subscribers they should be able to generate about 70% of the additional revenues after that to go to the bottom line but the the the subscriber numbers I mean first of all they don't have profits yet they're they're far from it by their own estimates but also what about the subscriber growth I mean you know some people have been telling me their cars come with XM or serious once that subscription runs out they're not renewing it so some of these subscriber growth numbers could be pretty pie in the sky well that's proven by the churn rate the ch rate is the uh number that's uh you know the loss of customers and their turn rate was only 1.5% if you look at similar industries that need subscribers like cell phones for example the average turn rate is over 4.5% this industry only has 1.5% for serus and a little bit over that for XM you did a breakdown of the you compared the cost of Oprah and Howard Stern and uh you did it a little differently than most people but what did you find explain it to us well the thing is the is that Wall Street has made every analyst have their own proprietary way of analyzing things which is very complicated for the individual investor to understand these cash flow analysis the PE ratios everything that the average investor out there whether they have money or not can't understand we did it the simple way you know howt Stern has approximately a 4-Hour show just on one of his stations not including the second one per day five days a week which is about 1,040 hours a year right he's getting paid $100 million a year for him and his crew which is about $93,000 an hour right granted it's a lot of money okay it's obviously a lot of money but because of his track recet in the past because he's already brought in at least a million subscribers that pays for it now Oprah on the other hand is getting paid $55 million for 3 years which is about $18.3 million a year okay now she's only going to do a 30 minute show per week that's it oh I don't really think that anybody is going to subscribe to just you know a little bit extra if they're a big fanatic of Oprah just for that extra 30 minutes and when you do the math 30 minutes a week is 26 hours a year which is about $75,000 an hour if it was a if she was spending just as much time on XM as how it turn is then uh har contract will be worth about $3.7 billion okay now this is not to say that the contract is a bad contract it's going to give them obviously a lot of publicity but the reality of it is it's to see that the howood stern contract technically is not as expensive as some people may PR very quickly why do you prefer Sirius over XM because percentage wise we're predicting that Sirus will go to $15 a share possibly 16 before the year is over whereas XM valuation I think uh because of the content they should be undervalued in comparison to Sirus should reach about $59 a share so it's a valuation call on Ron we appreciate you're coming in thanks so much and thanks for that interesting analysis that's why we uh that's why we found you we appreciate it thanks all right and we're going to have much more on serious later today on CNBC the CFO David frer is going to be join Bill and Sue on power lunch at 1240 Eastern you certainly are not going to want to miss that okay The Final Countdown of the opening Val already yeah it's already time to countown this show goes fast