Howard Stern's New Contract: Lie #1 - Sirius Can't Afford to Pay

As I reported in my last post, AP ran a story, blindly repeated as "news" everywhere, to explain why Howard Stern has little choice but to re-sign with Sirius/XM for seriously reduced pay when his contract expires next year. It focused on five key talking points that became a framework for every other "news" story about Howard's negotiations since. Not only are these five points incorrect and based on faulty logic but in every case the opposite is true.

Over the next week, I'll address these points one by one and show why they are wrong. Howard, today, is in a stronger negotiating position than at any time in his long, popular and profitable career. Let's begin with the first point.

1. Sirius can't afford to pay Howard what it used to. "Sirius nearly had to file for bankruptcy…" "weak auto sales…" "threats from internet radio" etc.

Sirius was actually in a worse position to pay Howard when it first signed him in 2004. At the time, Sirius had just 300,000 subscribers. It was losing money like crazy, and it was completely unclear whether people would pay for satellite radio. Moreover, if people would, it was more likely XM radio would be the winner of any competition. XM had better technology, better deals with car manufactures and several million more subscribers (before Howard).

Howard completely changed the game. Under Howard's original deal, all he had to do was bring in 1 million subscribers to get a huge bonus. Howard brought in 4 million. And then a couple million more and counting. XM rapidly lost market share as Sirius gained it. XM finally was forced to merge with Sirius when both companies hit about 9 million subscribers.

Now, the combined satellite company (run by the people who hired Howard) has 18 million subscribers. It has no competition. It's clear that people will pay for satellite radio.

Yes, it has a lot of debt (as did Sirius before it signed Howard). Yes, it's stock is in the tank (as Sirius was before it signed Howard). Yes, it's still not showing a profit (as it did before Sirius signed Howard). But the combined entity is in a much stronger financial position that it ever has been. It has a serious deep pocketed investor (Liberty Media) and tons of income. Debt can be moved around, pushed and compartmentalized.

Eighteen million people paying 20 bucks a month or more is $360 million a year. Trust me, there's plenty of money in that company to pay Howard. If they think he's worth it.

Is he? Well, Sirius/XM's main problem is it's stock price. After signing Howard in 2004, Sirius stock jumped and continued to rise as Howard publicized his move and into his first year. Gradually, after Howard stopped his publicity campaign (and after Howard sold most of his stock), the stock began to fell. But Howard had already lived up to his part of the deal. He brought in at least 4 times as many subscribers as he promised. A major new publicity campaign by a re-signed Howard could do a lot for Sirius/XM stock.

Losing Howard, would be a disaster. He's about the only good move, other than the merger, the companies have made. Don't get me wrong, Sirius/XM is not in great shape, but that's not because of Howard. It's hardware has always been second rate, it probably charges too much, and it's choices of programming, other than Howard, has been marginal to horrible.

Howard is not only the top rated draw on Sirius, but his programing is rated twice that of any other station on the channels. The second station? Music hits. Sports have not be a big success for satellite radio, or news, or other talk. They have Howard and non-commercial music and that's about it as far as what listeners are listening too.

Losing Howard would be suicide at this time for Sirius/XM. Liberty Media didn't make a huge investment in Sirius just to see it collapse, and 360 million a year in income isn't something that should be thrown away because you can't afford your main draw. Would Sirius rather pay Howard less? Sure. But there's no reason for Howard to take a pay cut just because they've overpaid for other programming no one listens too.

Sirius not only needs Howard, it needs a happy Howard. A Howard that will go on a major push to promote a revitalized, merged, and on the rise Sirius/XM. Howard is worth hundreds of millions in publicity, as he already proved at the beginning of his deal with Sirius.

NEXT UP: We explore the next pile of bullshit:

2. Because of the merger, Howard doesn't have any competing satellite network to go to. Since Sirius absorbed XM it has been reducing "on-air talent costs" and can force Howard to take a pay cut.

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