Can SiriusXM Survive Without Howard Stern?
The satellite radio service wants to keep Stern, but faces a possible
future without its top talent behind the mic
by Felix Gillette
Bloomberg News
7:00 AM CDT
March 11, 2015
http://www.bloomberg.com/news/articles/2015-03-11/howard-stern-siriusxm-contract-doubts-come-amid-upheaval-in-radio
One day last summer, Howard Stern ripped into his bosses at SiriusXM on
his morning radio show. He accused them of gamesmanship, of treating him
like a common employee, of disrespecting his talent. “Whenever you f---
with me, I will f--- with you worse,” he said. “I always win.”
Explaining why he was so livid, Stern told his listeners that his bosses
had recently asked him if he’d like to move the start of his show an
hour later, to 7 a.m. That way everybody would get an extra hour of
sleep. It seemed like a generous offer; Stern thought it over and
accepted. It was then, he said, that management balked, insisting he’d
misunderstood. He could start his show at 7 a.m., they informed him, if
and when he renewed his contract with Sirius XM Holdings, which is set
to expire in December 2015. Stern said he was enraged by what he felt
was a strategic bait-and-switch. (A spokesperson for SiriusXM declined
to comment.) For the next several minutes, he vented. “It’s not even
clear to me who works for who,” Stern said. “I’m pretty sure if I left,
it would be very bad for the company.”
Stern is 61 years old. For 40 years he’s been rising before dawn to
entertain and titillate drive-time commuters with a kaleidoscopic,
screwball performance that’s teeming with anxiety, misfits, satire,
celebrities, profanity, pranks, and porn stars. He’s the top rainmaker
in American radio, capable of generating hundreds of millions of dollars
a year in revenue for whomever employs him and his entourage of baroque
sideshow performers known as the Wack Pack. Since 2005, Stern’s show has
appeared on SiriusXM, the nation’s sole satellite radio service, which
charges subscribers for access to some 175 channels of curated music,
live sports, and talk shows. (The price typically ranges from $9.99 to
$18.99 a month.) He anchors four hours of morning radio three days a
week. Repeats of his shows and highlights from his extensive archives
air constantly on two dedicated Howard Stern channels.
Source: Platon/Trunk Archive
Over the past decade, Stern and SiriusXM have thrived together. In 2004,
when Stern announced he was moving his hit show from broadcast radio,
where it was syndicated on 46 major markets around the country and
attracted an estimated 20 million listeners, to satellite radio, where
the majority of Americans wouldn’t hear it, lots of people thought he
was crazy. It was unclear whether significant numbers of people would
pay for satellite radio when they could listen to AM/FM for free.
But with Stern on board, Sirius’s fortunes took off, its subscriber base
swelling with acolytes incanting “Baba-Booey!” and “Hey now!” Sirius
quickly caught up with, passed, then acquired its rival, XM Satellite
Radio. After surviving a rocky patch during the recession, SiriusXM has
emerged in recent years as a growing, profitable business. It has 27.3
million paying subscribers. Last year the company had earnings of $1.4
billion before interest, taxes, depreciation, and amortization on $4.2
billion of revenue. On paper, the marriage between Stern and SiriusXM
has never been better. Yet its future remains in limbo. Stern, who
declined to be interviewed for this article, hasn’t said if he intends
to extend his contract.
“The Howard Stern Show is still the single most important piece of
content that SiriusXM has—and the most expensive,” says Barton Crockett,
an analyst with FBR Capital Markets. He estimates that Stern’s contract
costs his employer about $80 million a year. “I think he’s worth every
penny. It would be great for them if they can keep Howard Stern.”
In the past, Stern has always let his contract decisions go down to the
wire. He has nine months to entertain offers and let the drama play out
on his show. “Never think of me as a disc jockey,” he said on-air last
July. “Because the one thing that matters to me more than anything after
all these years in radio is that you treat me with respect. I’m sick and
tired of how management speaks to talent. Talent is what drives this
world. There is no Sirius without talent. Doesn’t matter how many
satellites you f---ing stick in the air.”
Stern’s looming free agency comes at a time of upheaval in the radio
business. A crowd of Internet radio and streaming music companies, such
as Spotify and Pandora Media, are competing with Apple and Google to
further disrupt the marketplace. The coming battle for Americans’ ears,
whether in the car or on a computer or smartphone, promises to be
fierce. In this unsettled territory, an exclusive deal with Stern could
be a fearsome weapon. In theory, he could do for somebody in Internet
radio what he did for Sirius in satellite radio.
“Talent is what drives this world. There is no Sirius without talent.
Doesn’t matter how many satellites you f---ing stick in the air”
SiriusXM enjoys a unique advantage in the American automobile. Satellite
radio is the only premium audio service widely integrated into cars. As
their software systems become increasingly Internet-connected via
internal modems, dashboard systems are expected to become more like
mobile devices. Once that happens, the same crush of companies currently
fighting it out on consumers’ computers and smartphones will likely
extend the battle lines into the car.
Already, Silicon Valley is eyeing the dashboard lustily. In March 2014,
Apple announced a product called CarPlay that allows drivers to project
their iPhone menus onto the dashboard screens of certain vehicles, such
as the 2015 Hyundai Sonata. In June, Google countered with a similar
product called Android Auto. Later this year, Google will roll out a
premium subscription audio service called YouTube Music Key.
On message boards, Stern’s fans are tossing out ideas. He should move to
the Internet. Or sign with Apple. Or start a podcast. The breakout
popularity of Serial, a 12-episode podcast from the makers of This
American Life, inspired more than one trend spotter to declare 2015 “the
year of the podcast.” In February a caller asked Stern what he thought
of the medium. “It’s stupid. It’s a waste of time,” he said. “If you
want to be in radio, forget a podcast. Podcasts are for losers.”
Historically, being Stern’s boss during a time of friction has been an
ulcer-inducing affair. Managers who alienate him find themselves cast as
buffoons in his skits. Battling with his bosses at WNBC in the 1980s,
Stern nicknamed one of his program directors Pig Vomit. Another time, he
got his hands on a sloppily composed memo written by a general manager
and invited an elementary school teacher on the air to grade it. She
gave it a D.
Jim Meyer, chief executive officer of SiriusXM, seems determined not to
give Stern fodder for on-air umbrage. A native of Indiana, Meyer, 60,
speaks with a slight Midwestern accent and favors metaphors involving
the Indianapolis Colts. On a Thursday morning in mid-February, sitting
in a conference room at SiriusXM headquarters in Manhattan, Meyer says
he “loves” Stern, is a “huge Howard fan,” thinks “his interviews are the
best,” and the “show has never been better.” If he had his druthers, he
says, he wouldn’t wait until December. He’d renew Stern’s deal right
now—that is, if they could agree on the right price. “I want Howard
Stern for as long as Howard Stern wants to work,” Meyer says while a
public-relations person records the interview. “I’m only willing to pay
so much. I know what that number is. But even if I was in an al-Qaeda
death camp, no one is going to know what that number is but me.”
After spending much of his career working as an executive at consumer
electronics companies, including Thomson, Meyer joined Sirius in 2004 as
president of sales and operations. A few years later, as the economy
descended into recession and sales of new cars equipped with satellite
radio slowed, John Malone’s Liberty Media helped the faltering SiriusXM
stave off bankruptcy with a $530 million loan, becoming its largest
shareholder. In 2012 then-CEO Mel Karmazin, a brash New Yorker with a
decades-long and, for the most part, warm relationship with Stern,
announced he was resigning amid clashes with Liberty. After an interim
trial period, Meyer took over in 2013 as CEO.
He’s been working to make SiriusXM a place where Stern feels
appreciated. In January, six months after his diatribe against his
bosses, Stern got his wish: The show now starts at 7 a.m. In 2014,
SiriusXM threw Stern a legacy-burnishing 60th birthday party at the
Hammerstein Ballroom in Manhattan, which featured a conga line of top
comedians and musicians paying homage to him. “If you listen to his
show, he always talks about how happy he is,” Meyer says. But “just like
your 12-year-old, he’s always happy until something else comes along.”
In 2010, the last time Stern’s contract was up for renewal, a SiriusXM
executive suggested at a media conference that Stern might have to take
a pay cut. At the time the company was shelling out a reported $100
million a year for his show. Stern proceeded to reveal the executive’s
salary on-air and demanded to know when he was taking a pay cut. At the
end of 2010, Stern signed a five-year extension with SiriusXM. The
following year he filed a civil lawsuit against it, alleging that the
company he had “put on the map” had failed to pay him stock awards tied
to hitting subscriber targets. Lawyers for SiriusXM denied the claims,
and the suit was eventually dismissed.
Meyer is betting that Stern’s love of radio will outweigh his impulse to
clash with the company. “What I’m hoping is that’s a hard drug to give
up,” says Meyer. “I’m hoping for the roar of the crowd. Why is Peyton
Manning maybe going to play another year? It’s not the money.”
Whatever happens, Meyer says SiriusXM will be fine. “Could we survive if
Howard left? Sure,” he says. “I just don’t want it.” That may sound like
a negotiating tactic, but the company has spent the past decade building
its business beyond one personality. “We have a very scalable business
model that works,” Meyer says. “In fairness, we lost $9 billion getting
here. But this hasn’t been an easy road. That’s why when I hear
everybody else is going to be in our business—well, come on!”
“Please don’t print that Howard Stern is only one piece of content.
He’ll call me the next day”
When Sirius launched its first nationwide service in 2002, subscribers
had to purchase receivers at stores such as Circuit City and Best Buy
and then get the equipment installed in their cars. Over the past
decade, however, the company has worked closely with U.S., European, and
Asian automakers to integrate SiriusXM technology into vehicles. These
days, Meyer says, of the roughly 230 million cars on the American road,
70 million are satellite-radio-enabled. And of the roughly 16 million
new cars rolled out in the U.S. this year, 71 percent have satellite
radio built into the dashboard. That could be close to 100 percent,
Meyer says, but the company chooses not to go after most low-end
vehicles, the buyers of which are unlikely to pay for radio. “By and
large, our customers tend to be a little older and a little more
affluent,” says Meyer. “They look like people who buy new cars, who on
average are 46 years old and make $100,000 a year.”
SiriusXM has proven that people will pay for radio if you offer them
something easy to use and more enticing than what’s available free,
Meyer says. What most satellite radio customers pay for, he says, is the
variety. “It’s not one piece of content,” he says. “And please don’t
print that Howard Stern is only one piece of content. He’ll call me the
next day.”
SiriusXM is constantly making additions to its programming bundle of
curated music channels, talk radio shows, and live sports, which has
meant making deals with the NFL, the NBA, MLB, NHL, and Nascar.
Recently, it added shows from Ellen DeGeneres, Jenny McCarthy, and Hoda
Kotb designed to woo female car buyers. In 2013, in a bid to attract
more Hispanic subscribers, it launched a channel anchored by Eddie
“Piolín” Sotelo, one of the top Spanish-language radio personalities in
the U.S. Less than a year later, SiriusXM dropped the channel.
“Approximately nobody would pay for him,” Meyer says. “That’s the cool
thing about Howard. People are willing to pay.” The company isn’t giving
up on the demographic. It will soon introduce a channel curated by
Pitbull, the bilingual pop star to whom big U.S. brands frequently turn
when trying to reach Latino customers.
Meyer says that over the years, SiriusXM has grown adept at converting
new-car owners into paying subscribers using free trial subscriptions.
The company is working to get better at targeting purchasers of used
vehicles, which are now more likely to have satellite radio capabilities
baked in.
Internet companies have been trying to colonize the car for years. Meyer
recalls a colleague coming into his office in 2004 in a panic because
he’d just seen a plan from BMW to add a jack allowing a driver to plug
an iPod directly into a car’s stereo system and operate it from the
steering wheel. “Every automaker said, ‘We gotta do this!’ So today
there’s not a car made that doesn’t have that jack,” Meyer says. “I’d
argue that we haven’t come a hell of a lot farther since then. Yeah,
there’s no wire anymore. Yeah, that device is a gazillion times more
powerful than the iPod was. But you’re still trying to accomplish the
same thing. Hasn’t had any impact on our business.”
Meyer says that though someday all cars will be fully
Internet-connected, the change will take place glacially. That’s in part
because car manufacturers tend to err on the side of caution when
rolling out technology—if something goes awry, customers’ lives are at
stake—and, because people hold on to cars for much longer than, say,
smartphones. As a result, new features typically take several years to
become commonplace. “So when people say, ‘Oh, I’m going to put my
technology in the car’—good luck,” Meyer says. “We’ve spent billions of
dollars and lots of time to do this. This is not going to change in
three years.”
Meyer says he’s positioning the company for that future, when all cars
are Internet-enabled. In 2013, SiriusXM paid $530 million to automotive
services company Agero for its connected-vehicle division, which makes
software embedded in cars to provide constantly updated roadside
assistance or stolen-vehicle tracking, for example. “Being on the
inside, it protects our position in the vehicle,” Meyer says.
Neither Stern nor Meyer knows exactly how much of a hit SiriusXM would
take if Stern left. Satellite radio is a one-way signal, making its
audiences more difficult to measure than, say, Internet radio. There’s
no Nielsen for SiriusXM. Meyer says subscribers who originally signed up
just to hear Stern now, after nine years, listen to other things, too.
“So if Howard goes, will all of them go?” Meyer asks. “I don’t know.”
In January 2014, Macquarie surveyed 800 SiriusXM subscribers and found
that while SiriusXM is available on the go for premium subscribers via
Web and mobile apps, 84 percent of listening takes place in cars. Of the
respondents, 12 percent said they listen to Stern—the equivalent of
about 3.2 million listeners. Five percent said they’d consider leaving
SiriusXM if Stern departed. A rough estimate suggests it could cost the
company about $240 million in lost revenue annually if he left. For a
company that generated $4.2 billion in revenue last year, that would be
a substantial blow—but hardly crippling.
Stern and SiriusXM might both be better off sticking together, analysts
say. Amy Yong, who follows the company for Macquarie, says there’s
speculation that Stern could launch his own direct-to-consumer product.
But she’s skeptical. “There’s more than just the dollar amount that goes
into these decisions,” she says. “SiriusXM makes it very nice for him to
work. Why disturb that?”
FBR Capital Markets analyst Crockett says SiriusXM is “highly likely” to
keep Stern. He points out that Stern’s alternatives come with short
steps backward in compensation, reach, or prestige. If Stern returned to
terrestrial radio, he’d find himself wrestling with government
regulators. If he launched a direct-to-consumer product, he’d have to
spend significant time and money building the infrastructure. And if he
went to Google or Apple, his show would be less accessible for U.S.
drivers. By 2017, according to estimates from IHS Automotive, Apple
CarPlay and Android Auto will be available in only 3 million vehicles in
the U.S. and Canada. By then, SiriusXM estimates that more than 100
million American cars will be satellite-radio-enabled.
In theory, Stern could decamp for a premium TV network like HBO or a
subscription streaming service such as Netflix. But so far, SiriusXM has
been willing to accommodate Stern’s extracurricular TV activities, such
as his gig as a judge on NBC’s America’s Got Talent. Maybe the company
would indulge additional ventures on the Internet. In February, the New
York Times reported that Lloyd Braun, a Los Angeles-based media
executive who was once Stern’s lawyer, had signed him as a client for
Whalerock Industries, Braun’s new company, which will create “media
hubs” for celebrities. According to the Times, the service will augment
existing deals such as Stern’s with SiriusXM rather than replace them.
Braun declined to comment.
Crockett doubts music-oriented services such as Spotify or Pandora would
have enough money to poach Stern even if they wanted to. “I don’t know
that anyone else can give him as good a combination of lifestyle and
money as he can get at SiriusXM,” Crockett says. “If you go to one of
these emerging things, it’s not going to be at the same level. SiriusXM
has finally become a big platform.”
Bob Lefsetz, a music industry analyst, says Stern, having spent a decade
building SiriusXM into a major audio platform, is reaping the benefits.
These days, he’s getting A-list celebrity guests—Larry David, Gwyneth
Paltrow, Bradley Cooper—who would have been unthinkable not long ago,
when sex workers, weirdos, and marginal celebrities typically jockeyed
for attention. The Hollywood publicists and studio execs who used to
snub Stern’s show are scrambling to get their clients a piece of his
coveted airtime. “Howard now has the cultural impact and level of
acceptance that he’s always desired and had never reached previously,”
Lefsetz says.
In January, when a caller asked about his plans, Stern called Meyer, the
CEO, a “very sweet man” and praised SiriusXM’s strategy. “It’s a great
place to be,” Stern said. “If I’m going to do some more radio, he’s the
first guy I’d talk to.” He then revealed somewhat cryptically that he’d
recently gotten an intriguing job offer. To do what and for whom, he
didn’t say. The problem, he lamented, is that there are only so many
hours in the day. Maybe he’ll just retire. “It would be kind of
interesting, not to do anything,” Stern said. “I think I’d really be
good at that.”
If he walks away at the end of 2015, Stern will be in good company. In
May, David Letterman will host his final Late Show on CBS. And at some
unspecified date later this year, Jon Stewart will anchor his final
night of The Daily Show on Comedy Central. “I always think, ‘Wow, I need
the radio, and I need to have an audience,’?” Stern told his listeners.
“Maybe I don’t.”
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