Sirius XM has been paying radio star Howard Stern more than $100 million per year under a five-year contract that expires next year. So, the next few months will bring some interesting bargaining as Sirius XM CEO Mel Karmazin tries to balance his balance sheet against a desire to keep the self-proclaimed “King of All Media” behind a mic.
First off, while it was Karmazin who negotiated numerous contracts with Stern and his agent, Don Buchwald, when Stern was at Infinity/CBS Radio, the deal with what was then Sirius Satellite Radio was struck before Karmazin came onboard. CEO Joe Clayton was willing to pay Stern big bucks to lock-down major league programming that rival XM Satellite Radio couldn’t duplicate as the two battled for subscribers.
Now, though, Sirius and XM are one company. But Stern is still a big subscriber draw, which is important at a time when new car sales have dropped and it is harder than ever for Sirius XM to sign new subscribers. In fact, subscriber numbers have been dropping.
At a Reuters Media Summit last week, Karmazin was asked about the upcoming contract renewal talks. He told reporters that the bargaining would begin with Stern complaining that he was working too hard, doing too many shows and not making enough money. Management, on the other hand, would ask him to do more for less money. But Karmazin said he hoped the result would be a new deal to retain a star he called “a talent like no other in radio.”
One reporter asked whether Stern or Oprah Winfrey was the tougher talent to negotiate with, since Karmazin had done deals with both. “I’ll tell you who was the worst negotiator: It was always Mel because they got all that money from me,” Karmazin quipped at the Reuters gathering.
“Can you afford to keep continuing to pay top dollar for people like Howard Stern or Martha Stewart giving the economics of this business?” asked Susie Gharib last week when she interviewed Karmazin for PBS’ “Nightly Business Report.”
“Over my entire career, I’ve always heard that content is expensive. Well, yeah, contempt is very expensive and if you want to have great content, whether it be the NFL or whether or not it be Howard Stern, you have to pay for it. And my business model is always that I’d rather figure out a way to make money with the talent rather than not have them and compete against them,” Karmazin answered.
The Sirius XM CEO said he would do whatever he could to come to terms with Stern, so long as the financial arrangements are in the best interests of his shareholders.
RBR-TVBR observation: The conventional wisdom on Wall Street is that Stern is way too expensive for Sirius XM under his current contract. Maybe so, but he delivered the goods under the original deal and got $200 million in stock for hitting subscriber target bonus levels. So, while Mel may not be willing to pay Howard another $700 million over five years, Sirius XM can afford to pay quite a bit to keep him on satellite radio. After all, the big difference now is that, unlike back when the current deal was struck, Sirius XM is actually a positive cash flow business.
