Howard Stern Gets Sirius

Given free-rein to say "fuck," not to mention a guaranteed $500 million over five years, it isn't difficult to see why Howard Stern is making the move from FM to satellite radio.

What's unclear is whether this marks a watershed in satellite broadcasting and whether the gambit will pay off for Sirius, the satellite radio company that lured him from his cozy digs at Infinity. Satellite radio, if you're unfamiliar, is just what it sounds like: rather than beaming a signal from a terrestrial transmitter, the signal is sent from the company's private satellites orbiting the Earth. Sirius equipment costs anywhere from $100-$600 (and up -- though a series of contracts with auto makers mean that new cars increasingly come equipped) and $12.95 per month for the service thereafter.

The next cable TV or the next Betamax tape

When the self-proclaimed King of All Media migrates to the Sirius "dial" in January, it'll be far from the beginning of the story. To hear Stern tell it, the move follows a period of intense dissatisfaction and frustration under heightened FCC scrutiny and jacked up fines: "I literally can't be funny the way I want to be ... I can't even get a thought out," he told the Washington Post last October.

Believe what you will about Stern's ability to get a thought out, but he was dropped from Clear Channel's roster after the broadcasting giant faced a number of indecency charges -- only some of which involved Stern's program directly. The parting was anything but sweet sorrow, with Stern snarling: "I just want to bury Clear Channel. I want to make every one of their radio stations worth 3 cents. ... I will bury you." And that's the question. Will Stern, and satellite radio, bury Clear Channel and the traditional format? Or, considering the way corporate entities gobble each other up these days, will it even matter?

For Stern, this is biblical. The well-compensated shift of venue provides both liberation narrative and a chance to play messiah. He's at once delivered from the tyranny of FCC-controlled "terrestrial radio" (satellite is unregulated) while being hailed as something of a savior to a company perpetually overshadowed and out-marketed by its competitor, XM Radio. Before the announcement of Stern's arrival, XM had 2.5 million listeners to Sirius' 600,000. Since then, Sirius has shot up to over 1.5 million.

The gravy would seem to be that Stern's nemesis, Clear Channel, just happens to be a minor investor in, and a "strategic partner" of, XM. Two birds, one stone, right? Only if you ignore the fact that Stern had, at one time, reportedly been in negotiations with Clear Channel's "strategic partner" before getting with Sirius [This paragraph has been corrected. The first sentence originally, and incorrectly, identified Clear Channel as a "major" investor. In fact, they've largely divested and currently own somewhere in the neighborhood of 2% of XM -- ed.].

Stern's "sound and fury" aside, the real questions surround Sirius' decision to cover the volatile star's astronomical price tag. Was it a good move? Can they make the money back? Is satellite radio the future? Media veteran Rory O'Connor says no: "Satellite isn't the future -- it's (at least part of) the present, and growing rapidly."

Noting that the resume of Sirius' CEO Mel Karmazin includes having "essentially created an entire business -- Infinity Broadcasting -- on the back of Stern alone," O'Connor believes that, "Whether or not they actually recoup [the money] is basically immaterial." He insists that "they will get some actual return," but that the attention and the free promotion will compensate for the rest.

It's important to point out that Stern isn't the only major addition to the Sirius family; he's just the most high-profile. Over the past year or so, Sirius has also added NASCAR broadcasts, NFL, and Martha Stewart in an aggressive bid to become the premier satellite broadcaster.

As others have commented, the size of Stern's price tag (not to mention his mouth) has surely netted the struggling Sirius many millions in free advertising. From the moment speculation began as to whether Sirius would recover the money, whether the fans would follow, or whether this marks a new era for satellite radio, the ticker started. This article that you're reading right now, in fact, could conceivably be considered part of the payback for Stern's acquisition.

A good but desperate move

Rather than ask whether or not acquiring Stern was, as Infinity CEO Joel Hollander says, "fiscally irresponsible," the better question may be whether Sirius even had a choice. Though most analysts agree that Stern is destined to be a profitable pickup, some, like Paul Porter, co-founder of Industry Ears, think of today's satellite radio as "parallel to cable in 1980: it's gonna happen but I think it's gonna happen later than sooner."

If Sirius' pot of gold lies at the end of a particularly long rainbow now, things were even worse before Stern's arrival. Porter notes that, "Sirius was in a serious hole, which was why they went over the top with Howard Stern."

The media landscape looked quite a bit different when the satelliters first hatched their plans. Beginning in the '80s, rapidly increasing media consolidation led to bloodless, homogenized radio. By the late '90s when Sirius and XM received their FCC licenses, radio was a stagnant and rigidly formulaic medium. Little has changed of course but other challengers have moved into the neighborhood.

"Radio's bad, but with the creation of iPods," says Porter, "you've got another level of competition the satellite pioneers hadn't factored in."

Add internet radio to the pile and you've got a number of emerging media competing for the attention of a finite customer base. In fact, it's beginning to look like Sirius is on a bit of a hamster wheel. Porter notes that, "Sirius has cut back close to 10 channels getting ready for Howard Stern; some subscribers have already been cheated out of the content they expected when they signed up." The result, he says, is that, "[the] product [has become] so similar to commercial radio ... [the] idea was supposed to be variety, but they've cut the variety so much that it's back to the familiar formatting."

You see the problem. In trying to provide a product that corrects the mistakes of commercial radio, satellite appears to be headed back to that stale format, staying afloat by shelling out the big bucks for radio's few success stories -- like Stern or XM's shock-jock knockoffs, Opie and Anthony.

And the cutbacks haven't been without their own problems. African-American ministry and gospel broadcaster, The Word Network, one of the channels cut since Stern's arrival, is suing the company for "racial discrimination and breach of contract." Of course, Sirius has also dropped its folk channel and others but whether race has anything to do with the cancellation of The Word Network's contract isn't really the issue here. The point is, the very quality meant to differentiate satellite from terrestrial, its variety and specificity, appears to be suffering.

The future starts in January

The worst-case scenario for Sirius would, of course, be for Stern's shtick to fail. Some, like Wonkette's Ana Marie Cox, raise the possibility that Stern's show thrives on the cultural tension that FCC dustups provide: "Stern could wind up like Lenny Bruce, caught up in a solipsistic loop, reading his own court transcripts and struggling to generate controversy in a culture that's gotten over it. Or at least over him."

In fact, though his show is still free of charge, there are early indications that Stern's already losing some of his audience. Paul Farhi reports in the Washington Post that in D.C., the nation's 8th largest market, "Stern's share of radio's most lucrative audience (adults age 25 to 54) fell by nearly one-third during the July-September period." In New York, the nation's largest market, Stern lost 15% of his listeners.

However, most believe, and I'm inclined to agree, that rather than any abandonment issues or outrage over the possibility of paying, the dwindling audience is more likely due to the dramatic shift in the program's focus. Farhi writes:

"Almost from the minute he announced last October that he would leave conventional radio for Sirius Satellite Radio, Stern has been a) railing against alleged censorship by his employer, Infinity Broadcasting, and by the Federal Communications Commission; and b) promoting his move to satellite radio, which is free of FCC restrictions on 'indecent' speech."

Both of which he'll ostensibly quit doing the minute he slips on the Sirius headphones. As savvy a showman and marketer as Stern is, he's never quit being a stinker. It's entirely believable that his unpopular tirade is, at least in part, a spiteful consolation prize awarded directly to his employers at Infinity.

And speaking of Infinity, it finally announced Stern's replacements this week. In most markets Stern's slot will be split between B-list comedian Adam Carolla and former Van Halen lead singer David Lee Roth, best known as the man whose voice interfered with Eddie Van Halen's anthemic guitar riffs. If only by comparison, this bodes well for satellite.

On the business side, there are some positive signs. The cost of acquiring new subscribers has gone down each of the past three years while the amount of revenue brought in per subscriber has risen. The announcement of Stern's acquisition sent Sirius stock up 60% while its subscribers have nearly tripled, closing the gap with XM.

Most encouraging for Sirius, considering the success of the iPod, is its highly anticipated portable player combining a satellite radio with mp3 compatibility, which goes on the market this month. In addition, agreements with Ford and other auto manufacturers are getting satellite radios into more and more new cars, normalizing the medium and upping the envy factor. If some Sopranos-like show were to catch fire that, as they say, would be that. But as I said earlier, the fact that you're reading this article is exactly why Sirius picked up Howard Stern. And in that light, the answer as to whether it was a smart move or not has to be: fuck yeah.