Howard Stern triumphantly resigned with Sirius XM for another five year period, and by all estimates he's the highest paid radio personality on the planet. As I mentioned in my last post, Howard's new deal is even better than his last one. But I also mentioned that for a lot of reasons, the very favorable financial terms are not being played up, particularly by Howard.
Despite the fact it's a great deal, and proved that any talk of Howard taking a pay cut was bogus, a lot of people in the press still won't give Howard credit for all the success he has earned, particularly when it comes to bringing home the bacon for Sirius XM. Recently, the Hollywood Reporter tried to dismiss Howard's importance by saying that only 1 out of 10 Sirius XM subscribers listen to Howard. (Other pundits have cited similar unverified statistics saying that only 10% of Sirius subscribers listen to Howard.)
Sirius doesn't release details about its ratings, so these numbers are pretty much guesses and my sources tell me they are at best misleading and, at worse, flat out wrong.
For starters, even 10% would mean at least two million Sirius XM subscribers representing almost $300 million a year in revenue, far beyond the $80-100 million dollar cost of the show. Two million listeners is also far beyond the supposed one million subscribers some pundits claimed Sirius would lose if Howard Stern refused to sign a new deal. The claims that Sirius would "only" lose one million subscribers (making a deal with Howard Stern a wash) seemed to be based on the false assumption that at least half of Howard's listeners would keep subscribing even if he left.
That was something Sirius XM certainly didn't want to take a chance on. Because the real test of Howard's importance to subscriptions had already played out over several years in the pre-merger battle between Sirius and XM. XM, despite having almost a ten million subscriber lead, and arguably better technology and unarguably better car deals, lost. When people had the choice of subscribing to a service with Howard, or without him, they chose the one with Howard. Even if they didn't end up listening to him, they liked having the option. That's why XM was forced to merge.
The "only 10%" number also ignores one of the harsh realities of satellite radio that "two million Howard Stern listeners" miss. The vast majority of new Sirius XM subscribers come from people who buy a new car, and choose the service as part of their car deal. Most often, they get a subscription for free. And unfortunately for Sirius XM, most often at the end of their free subscription, they don't renew. There are millions of cars equipped with satellite radio that don't work anymore because their owners stopped paying for subscriptions. Churn in satellite is quite high, not only for cars, but also amongst people who get special deals to buy radios with free subscriptions, but eventually drop the service.
The one bright spot for Sirius is Howard Stern listeners. People who regularly listen to his program continue to subscribe year after year. Many of those millions have been subscribing for over five years. So even a 10% base of loyal subscribers, augmented by a churning base of new subscribers who test out the service, is critically important.
But that 10% number isn't really accurate. The truth is, over half of all satellite subscribers, including those churning through free subscriptions, have listened to Howard at least once. So in any given year, the number of people who listen to Howard via satellite radio is about ten million, or 50%. Somewhere close to 30% of subscribers check Howard out at least once a month. Where the 10% number came from is unclear, at best it represents the number of Howard's regular daily listeners.
But Howard's day to day numbers change radically from week to week. Much more so then when he was on traditional radio. This is in a large part due to the fact that much of the audience is churning through free subscriptions (and might check him out for a while and then try other programs). Also it's important to understand that there is a great deal more choices on satellite radio. On traditional radio, Howard's show was one of maybe 10 to 20 choices a car driver had of stations that would get a clear signal. On Sirius XM, there are are over 100 channels to choose from. Howard's show has commercials, which the music channels (and many others) don't. So the danger that a subscriber might be listening to Howard, then change the channel because of a commercial, and not come back is greater than on traditional radio where all the choices had commercials. But providing choices is what pay radio is all about. If you don't have choices, why bother? So if Howard were to leave, even people who don't listen regularly would feel they were missing something.
Here's the statistic that is most important for Sirius, and the reason Howard's deal was not only re-upped, but improved. What's the most popular show on Sirius XM? HOWARD STERN. By far. Everyday, every week, every month, every year, more people listen to Howard Stern's show than ANY other program. What's the second most popular program? The number 1 music channel. (Meaning a lot of those free subscribers simply don't even bother to change the channel, or can't figure out how to find Howard.)
"Ratings" per se are not as important to Sirius as subscribers and don't translate as accurately as in traditional radio. But here's an important statistic: on average during "morning drive time hours" over one third of Sirius XM subscribers who are listening to their service, are listening to Howard Stern. The number sometimes goes as high as 50%.
The difference between the 30%-50% of Howard Stern morning listeners and the supposed 10% of daily Howard Stern listeners has to do with the fact that most of the time, a person's satellite radio is simply not turned on. People either aren't in their cars or listen to CDs or traditional radios (and troubling for Sirius XM, iPods and the internet). A lot of subscribers don't commute, and so being able to spend several hours listening to Howard isn't as compelling as spending a few minutes listening to commercial free music. But that doesn't mean they don't like having the option of listening to him if they decide to take a long drive somewhere.
During the height of his popularity on traditional radio New York, I'm sure less than 10% of New Yorkers listened to Howard Stern daily. But his influence on the radio market was much larger than 10%. On Sirius XM, his importance is even greater. Generally speaking, if someone turns on a Sirius XM radio, who has actually paid for a subscription, the single program they overwhelmingly turn on to listen to is Howard Stern.
Finally, it's important to understand that Howard's numbers go up radically whenever there is a controversy involving him (which there often is) and when he decides to do some promotion. For example, after a Letterman appearance, Howard's daily number of listeners will spike as some old subscribers remember how funny he is, or some new ones decide to check him out. This is why Sirius XM is constantly after Howard to do more promotion. But under Howard's old deal, all of his financial incentives kicked in after he reached his promised base of subscribers, which he did easily in his first year. He had no incentive to do more publicity.
Under Howard's new deal, that has changed. He has specific incentives based on how many listeners he gets off the internet, and thus he finally has a reason to try to boost his daily listenership. Based on that, this misleading 2 million listeners number is likely to be blown away. Howard has shown many times in the past, that he knows how to get people to listen to his program. I think that's what he meant when he said upon signing his new deal that he felt he wasn't finished. The next five years might see the Howard Stern publicity machine unleashed.
Tuesday, December 21, 2010
Tuesday, December 14, 2010
No Pay Cut For Howard Stern: Insider Details on the Sirius XM Contract
Howard finally announced a deal to stay on Sirius XM for another five years, ending a year of high profile speculation as to whether he would stay or go. During that year, there were more than a few rumblings from Sirius, amplified by media pundits, that he would have to take a pay cut from his loftily original $500 million deal five years ago. This despite the fact that Howard put Sirius on the map.
Long story short. Howard didn't take any freaking pay cut.
In fact, his new deal is better than the old one. This is no surprise. Sirius went from 300,000 subscribers when Howard announced his original deal, to over 20 million after it merged with XM (a merger forced by the success of Howard's program). Even the most conservative estimates put Howard as directly responsible for at least a billion to 1.5 billion in revenue during those five years with untold billions in additional revenue due to his high profile sponsorship. Sirius is also at a critical juncture as internet radio is taking off. It simply couldn't afford to lose Howard, or even worse, see Howard directly compete with it on some new internet station. Again, the most conservative estimates are that Sirius would have lost at least a couple million subscribers, but the damage to its brand would have been much much worse.
So why all the talk about a pay cut to begin with? And why isn't Howard crowing about how much better his new deal is?
Because Sirius DID overpay for a lot of other programming in the past. Howard has often pointed out that Sirius overpaid for Oprah and Martha Stewart, who don't put much time into their channels and don't get anything close to his ratings. Sirius and XM also paid huge fees for sports programming back when they were competing with each other. Sirius XM has finally become profitable, and the time for overspending on programming is over. So getting out the word that even its most high profile property has to cut back, is a message they really wanted to send to the world. Unfortunately for Sirius, Howard is the one person they can't afford to lose.
But Howard is no dummy. While publicly railing that he wasn't going to take a pay cut, and privately negotiating a great deal, he's happy at Sirius and wants the company to succeed. As a businessman, and a master PR person, he is willing to keep his mouth shut so they can get tough on other negotiations. Thus we hear that his old deal was $500 million and his new deal is only $400 million. Howard won't go out of his way to correct that. But the truth is more complicated.
One of the problems for Sirius XM during the negotiations was that Howard held all the cards. They want a pay cut? Sure, Howard would move his show to a later hour in the day. NO! We can't do that, the fans will complain. Okay, still want a pay cut? I'll make a deal to broadcast on traditional radio a better show. NO! We need you exclusive. Fine, still want me to take a pay cut, I'll stop doing any promotion, and you can't use my likeness to sell subscriptions. NO! We want you to go on Letterman again!
There are a ton of ways Sirius XM could have made a deal with Howard that would have cost them a lot less, but the truth is, they didn't dare tamper with the formula that works so well, and they desperately want Howard happy so he does additional promotion for them. Especially now when they are in a fight for their lives when it comes to internet competition. So basically, in the end Sirius XM completely rolled over. No pay cut was the very beginning. But the deal is better for Howard in a lot of other ways too.
What is the deal? Here's what I have put together from a variety of secret sources. I can't say it's 100% accurate, but it's pretty close.
First, it's important to understand that Howard's original deal wasn't simply for $500 million. It was a complicated deal with a lot of components. The most point is that under both deals (and Howard previous traditional radio deals) Howard owns his program. So in effect, Sirius simply pays him for the right to broadcast during a limited window, and Howard is free to exploit the material in other media. But, of course, Sirius also pays a huge fee for an exclusive window so Howard won't put it on competing channels during his contract term. With a few exceptions like Howard TV.
When Howard originally signed with Sirius, the idea was also that Howard wouldn't take a pay cut from what he was getting on traditional radio. Plus, if he helped Sirius get a lot of subscribers, he would get a bonus. Howard's show back on traditional radio had a budget of about $70 million a year (a large percentage of which went to Howard, something like 50 million). On Sirius, Howard's show cost them approximately $80 million a year, which included programing 24 hours on two channels. So in some ways, Sirius was getting a lot more for the dollar than traditional radios stations were. On the other hand, Howard only did his show 4 days a week on Sirius, so it could be argued he was getting more for working less (especially in terms of building up a valuable library). But the truth is, Howard put in a lot of extra hours programming the channels and promoting Sirus.
So $80 million a year over 5 years is $400 million. In addition to that, Howard received what amounted to a bonus of $100 million if he delivered two million subscribers, something he did in a heartbeat. But even that wasn't so simple. The $100 million was in stock related bonuses, and Howard got a large part of it upon signing. If Sirius had done better in the stock market, Howard actually could have gotten more. But Sirius (due to overpaying on other deals) hasn't done very well in the stock market.
Moreover, the $80 million a year in programming costs to Sirius aren't really $80 million. Sirius makes millions each year selling advertising on Howard's program, in addition to the subscriber revenue. Most of that money goes to Sirius under a complicated formula. But a lot of it is kicked back to Howard to encourage him to do on air ads, and support advertisers. On the other hand, Howard didn't tie his original deal strictly to advertising, because he didn't want pressure to put too many ads in the programming, something both he and his fans hate. (But Howard does like occasional breaks, so some advertising is alright).
Meanwhile, Howard gets almost all the money from Howard TV, Howard's cable on demand programming. While Howard TV is not as big as the radio program, this is still worth millions in revenue. Since the radio show is financed by Sirius, and the TV programming costs little to produce, Sirius is in effect proving a budget for Howard to make additional millions in television. And own the library.
So that's the old deal. What's the new one? Well, it was based on three principles: 1. Howard was happy with Sirius and didn't want to leave. 2. Howard wouldn't take a pay cut, but wouldn't ask for a huge pay hike. 3. Howard didn't want his deal tied to Sirius XM stock or overall performance.
As I've said before, Howard didn't need to take a pay cut, and Sirius was not in any position to ask him to take one. On the other hand, Howard had no real desire to leave Sirius. He was happy with the show, the facility and the freedom he has there. There are plenty of places Howard could have gone to try to get a better deal, but he never seriously explored them. It gets into a classic risk reward scenario. Howard took a huge risk in going to Sirius and it paid off in a big $100 million dollar bonus. Howard could have gone to an internet radio company, or formed his own, and made even more money. But it would have been a lot of risk and a lot of work.
Instead, Howard agreed to basically continue at Sirius under the old deal for $80 million a year. It's actually a little bit of a bump. The old deal was a little under $80 million and the new deal is a little over $80 million to account for inflation. Howard's profit sharing deal in regard to advertising also has some bumps, again, primarily to encourage him to do on air spots.
But, in exchange for not asking for a huge pay increase, Howard did ask for a big piece of any new revenue related to the internet. Howard's show hasn't been on Sirius XM's online offerings, and in exchange for allowing it to be streamed, Howard will get a big piece of revenue from that, under a very complicated formula. Howard also gets an even bigger piece if Sirius offers an internet only subscription.
In the meantime, Howard has more freedom to make money on his television deal. The biggest hold back on Howard TV has been that the cable companies take a huge piece of any revenue Howard gets for his on demand service. As part of Howard's new deal with Sirius, Howard has the option of making his video programming available over the internet, or Apple iTunes' downloads. This gives him the option of abandoning the cable companies, or forcing them to make a better deal. Howard can also make a deal for a syndicated "best of show" like his old E! network show or his late night CBS show.
Lastly, for the first time, a formula has been worked out that will allow Howard to make some of his older programming and best of shows available on iTunes for downloads, with Howard getting most of the revenue for that. And as always, Howard controls all his merchandising and is non-exclusive in terms of movie, music and book deals.
So in the end, no pay cut, a little bump, and more freedom to make lots more money if Howard wants to put the effort into it. This is why the fact that Howard's deal isn't tied into Sirius stock is so important. While Howard has made a ton of money thanks to Sirius, Sirius has made a lot more thanks to Howard. If Sirius isn't in a position to pay Howard more money, mostly due to wanting to keep their deals cheap with everyone else, Howard shouldn't be limited in the money he can make elsewhere, provided it doesn't hurt Sirius.
For several decades, Howard has been very careful not to oversaturate the public (as if 5 hours of radio show a day wasn't enough). He hasn't allowed much merchandising, and has been selective about movies, books and other cross promotion. It's an open question whether this was a good call, adding to his longevity and bargaining position, or a missed opportunity to cash out. Regardless, it's the way he wanted it. But if he is serious that this is his last five years on the air, there is little reason for him to be as selective as before.
Instead of that $100 million dollar stock bonus, Howard could make much, much more by releasing a History of Howard Stern boxed set, downloads, DVDs, syndicated shows, etc. His new deal gives him all those options and more.
Pay cut? Hardly. Howard cut an amazing deal, worthy of a unique and valuable talent.
Long story short. Howard didn't take any freaking pay cut.
In fact, his new deal is better than the old one. This is no surprise. Sirius went from 300,000 subscribers when Howard announced his original deal, to over 20 million after it merged with XM (a merger forced by the success of Howard's program). Even the most conservative estimates put Howard as directly responsible for at least a billion to 1.5 billion in revenue during those five years with untold billions in additional revenue due to his high profile sponsorship. Sirius is also at a critical juncture as internet radio is taking off. It simply couldn't afford to lose Howard, or even worse, see Howard directly compete with it on some new internet station. Again, the most conservative estimates are that Sirius would have lost at least a couple million subscribers, but the damage to its brand would have been much much worse.
So why all the talk about a pay cut to begin with? And why isn't Howard crowing about how much better his new deal is?
Because Sirius DID overpay for a lot of other programming in the past. Howard has often pointed out that Sirius overpaid for Oprah and Martha Stewart, who don't put much time into their channels and don't get anything close to his ratings. Sirius and XM also paid huge fees for sports programming back when they were competing with each other. Sirius XM has finally become profitable, and the time for overspending on programming is over. So getting out the word that even its most high profile property has to cut back, is a message they really wanted to send to the world. Unfortunately for Sirius, Howard is the one person they can't afford to lose.
But Howard is no dummy. While publicly railing that he wasn't going to take a pay cut, and privately negotiating a great deal, he's happy at Sirius and wants the company to succeed. As a businessman, and a master PR person, he is willing to keep his mouth shut so they can get tough on other negotiations. Thus we hear that his old deal was $500 million and his new deal is only $400 million. Howard won't go out of his way to correct that. But the truth is more complicated.
One of the problems for Sirius XM during the negotiations was that Howard held all the cards. They want a pay cut? Sure, Howard would move his show to a later hour in the day. NO! We can't do that, the fans will complain. Okay, still want a pay cut? I'll make a deal to broadcast on traditional radio a better show. NO! We need you exclusive. Fine, still want me to take a pay cut, I'll stop doing any promotion, and you can't use my likeness to sell subscriptions. NO! We want you to go on Letterman again!
There are a ton of ways Sirius XM could have made a deal with Howard that would have cost them a lot less, but the truth is, they didn't dare tamper with the formula that works so well, and they desperately want Howard happy so he does additional promotion for them. Especially now when they are in a fight for their lives when it comes to internet competition. So basically, in the end Sirius XM completely rolled over. No pay cut was the very beginning. But the deal is better for Howard in a lot of other ways too.
What is the deal? Here's what I have put together from a variety of secret sources. I can't say it's 100% accurate, but it's pretty close.
First, it's important to understand that Howard's original deal wasn't simply for $500 million. It was a complicated deal with a lot of components. The most point is that under both deals (and Howard previous traditional radio deals) Howard owns his program. So in effect, Sirius simply pays him for the right to broadcast during a limited window, and Howard is free to exploit the material in other media. But, of course, Sirius also pays a huge fee for an exclusive window so Howard won't put it on competing channels during his contract term. With a few exceptions like Howard TV.
When Howard originally signed with Sirius, the idea was also that Howard wouldn't take a pay cut from what he was getting on traditional radio. Plus, if he helped Sirius get a lot of subscribers, he would get a bonus. Howard's show back on traditional radio had a budget of about $70 million a year (a large percentage of which went to Howard, something like 50 million). On Sirius, Howard's show cost them approximately $80 million a year, which included programing 24 hours on two channels. So in some ways, Sirius was getting a lot more for the dollar than traditional radios stations were. On the other hand, Howard only did his show 4 days a week on Sirius, so it could be argued he was getting more for working less (especially in terms of building up a valuable library). But the truth is, Howard put in a lot of extra hours programming the channels and promoting Sirus.
So $80 million a year over 5 years is $400 million. In addition to that, Howard received what amounted to a bonus of $100 million if he delivered two million subscribers, something he did in a heartbeat. But even that wasn't so simple. The $100 million was in stock related bonuses, and Howard got a large part of it upon signing. If Sirius had done better in the stock market, Howard actually could have gotten more. But Sirius (due to overpaying on other deals) hasn't done very well in the stock market.
Moreover, the $80 million a year in programming costs to Sirius aren't really $80 million. Sirius makes millions each year selling advertising on Howard's program, in addition to the subscriber revenue. Most of that money goes to Sirius under a complicated formula. But a lot of it is kicked back to Howard to encourage him to do on air ads, and support advertisers. On the other hand, Howard didn't tie his original deal strictly to advertising, because he didn't want pressure to put too many ads in the programming, something both he and his fans hate. (But Howard does like occasional breaks, so some advertising is alright).
Meanwhile, Howard gets almost all the money from Howard TV, Howard's cable on demand programming. While Howard TV is not as big as the radio program, this is still worth millions in revenue. Since the radio show is financed by Sirius, and the TV programming costs little to produce, Sirius is in effect proving a budget for Howard to make additional millions in television. And own the library.
So that's the old deal. What's the new one? Well, it was based on three principles: 1. Howard was happy with Sirius and didn't want to leave. 2. Howard wouldn't take a pay cut, but wouldn't ask for a huge pay hike. 3. Howard didn't want his deal tied to Sirius XM stock or overall performance.
As I've said before, Howard didn't need to take a pay cut, and Sirius was not in any position to ask him to take one. On the other hand, Howard had no real desire to leave Sirius. He was happy with the show, the facility and the freedom he has there. There are plenty of places Howard could have gone to try to get a better deal, but he never seriously explored them. It gets into a classic risk reward scenario. Howard took a huge risk in going to Sirius and it paid off in a big $100 million dollar bonus. Howard could have gone to an internet radio company, or formed his own, and made even more money. But it would have been a lot of risk and a lot of work.
Instead, Howard agreed to basically continue at Sirius under the old deal for $80 million a year. It's actually a little bit of a bump. The old deal was a little under $80 million and the new deal is a little over $80 million to account for inflation. Howard's profit sharing deal in regard to advertising also has some bumps, again, primarily to encourage him to do on air spots.
But, in exchange for not asking for a huge pay increase, Howard did ask for a big piece of any new revenue related to the internet. Howard's show hasn't been on Sirius XM's online offerings, and in exchange for allowing it to be streamed, Howard will get a big piece of revenue from that, under a very complicated formula. Howard also gets an even bigger piece if Sirius offers an internet only subscription.
In the meantime, Howard has more freedom to make money on his television deal. The biggest hold back on Howard TV has been that the cable companies take a huge piece of any revenue Howard gets for his on demand service. As part of Howard's new deal with Sirius, Howard has the option of making his video programming available over the internet, or Apple iTunes' downloads. This gives him the option of abandoning the cable companies, or forcing them to make a better deal. Howard can also make a deal for a syndicated "best of show" like his old E! network show or his late night CBS show.
Lastly, for the first time, a formula has been worked out that will allow Howard to make some of his older programming and best of shows available on iTunes for downloads, with Howard getting most of the revenue for that. And as always, Howard controls all his merchandising and is non-exclusive in terms of movie, music and book deals.
So in the end, no pay cut, a little bump, and more freedom to make lots more money if Howard wants to put the effort into it. This is why the fact that Howard's deal isn't tied into Sirius stock is so important. While Howard has made a ton of money thanks to Sirius, Sirius has made a lot more thanks to Howard. If Sirius isn't in a position to pay Howard more money, mostly due to wanting to keep their deals cheap with everyone else, Howard shouldn't be limited in the money he can make elsewhere, provided it doesn't hurt Sirius.
For several decades, Howard has been very careful not to oversaturate the public (as if 5 hours of radio show a day wasn't enough). He hasn't allowed much merchandising, and has been selective about movies, books and other cross promotion. It's an open question whether this was a good call, adding to his longevity and bargaining position, or a missed opportunity to cash out. Regardless, it's the way he wanted it. But if he is serious that this is his last five years on the air, there is little reason for him to be as selective as before.
Instead of that $100 million dollar stock bonus, Howard could make much, much more by releasing a History of Howard Stern boxed set, downloads, DVDs, syndicated shows, etc. His new deal gives him all those options and more.
Pay cut? Hardly. Howard cut an amazing deal, worthy of a unique and valuable talent.
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