Sirius Lands Big Howard Stern Prize
Attaching such sweeping importance to the development that it labeled it “the most important deal in radio history,” Sirius confirmed speculation Wed. that Howard Stern would move to its satellite radio service after his contract with Infinity runs out in 2005.
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Stern will have a morning show on a dedicated Sirius channel throughout 2006-2010, Sirius said. The announcement came after a Sirius spokesman had said the Infinity contract was the main roadblock to “entertain[ing] the thought” of adding him to the lineup. Financial terms of the deal weren’t announced, but the company said it expected to spend $100 million per year for production and operating costs of the show, including overhead, studio construction and program and marketing development and payments to Stern, his agent and the show’s cast and staff.
In a conference call, Sirius CFO David Frear confirmed Stern’s compensation would be 80% cash and 20% stock options, with the “cash component… being relatively even” over the 5 years. He said Sirius will link the stock compensation to the number of subscribers Stern brings in. Sirius said it would only need a million new subscribers to recover its investment. “There are 12 million plus fans… [O]nly 8% of the fan base [needs] to sign up,” said CEO Joseph Clayton. Stern’s stock options will kick in once a million new subscribers added can be attributed to Stern’s arrival. Frear said the company can track subscribers interested in Stern by asking them to subscribe using a promotion code. Stern’s incentive also can kick in if “we exceed a baseline for subscribers… not unlike analyst consensus for long term” subscriber projections, he said.
The contract provides options for Stern to work with Sirius on programming for as many as 2 additional channels, said Scott Greenstein, Sirius pres. of entertainment and sports. While the content is still under consideration, Greenstein said one option is another channel with a comedy format, while another might be music-related. Except for Stern’s show, content on the first channel is still being considered, Greenstein said. While the main Stern channel will be added without a price increase or additional cost, the company hasn’t made a decision about whether the other 2 channels would be premium content commanding an extra charge, Frear said. “We will look at higher pricing when we add new services” like customized data, stock quotes and sports scores, he said, “but right now, the industry is too new to fragment it with tiering.”
Separately, a spokesman confirmed the company had no concerns its programming would come under more scrutiny from the FCC regarding indecency. While the company’s programming is regulated similarly to programming shown on cable, he said Sirius also has parental controls built in that allow individual programs to be blocked at a subscriber’s discretion. FCC Comr. Martin has said satellite radio, as a radiocommunications medium, could be regulated by the FCC for indecency, although those regulations would run into constitutional hurdles.
Meanwhile, Merrill Lynch said the Stern announcement would affect how Viacom shareholders feel more than the company’s valuation. While a new research report said Infinity would probably find a show to replace up to $15 million of about $50 million in cash flow Stern brought in, it also speculated that even without a replacement, Viacom was likely to lose only 30 cents per share.