Howard Stern's Unlimited Value

Joel Hollander is the former Chairman and CEO of CBS (NYSE: CBS  ) Radio Network (formerly Infinity Broadcasting). Hollander succeeded the legendary Mel Karmazin at Infinity/CBS, the longtime home of Howard Stern. Previously, Hollander served as CEO of Westwood One. Hollander is currently the President of 264 Echo Place Partners. Along with his wife, Joel Hollander is the founder of the CJ Foundation for SIDS.

I recently had an opportunity to talk with Hollander about the future of Howard Stern and the future of radio.

In this excerpt, Hollander talks about the difficulty in replacing the Sirius XM (Nasdaq: SIRI  ) radio icon. This transcript has been edited for clarity.

Mac Greer: In 2006, shortly after Stern started on satellite radio, CBS sued Stern for misusing CBS broadcast time to promote his satellite radio show. Now, that suit was settled, but I think it's fair to say that CBS, your then-company, and Howard Stern had a pretty bad breakup. Looking back, are there things that you would have done differently?

Joel Hollander: It's hard to say. The bottom line is Howard left for two reasons. He couldn't do the radio show that he wanted to do because of some FCC constraints. We never really got to the batter's box even to take a swing to renew him. He was the highest-paid personality by a country mile already, at the company and in the industry. And Sirius gave him a deal that was just not to be duplicated, obviously, by anyone. He was a pioneer in something that was new, and he has proven again that he has done very well in mining that business.

Greer: And Joel, CBS Radio has tried some other things since Howard Stern, and no one has achieved anywhere near his success. In hindsight, do you think CBS undervalued Howard Stern?

Hollander: No, no, no, no, no, CBS didn't undervalue Howard Stern. Howard went in a different direction. I was in the seat at the time, and it was like replacing Babe Ruth; it isn't so easy. There are a lot of talented on-air personalities and people and media, but Howard is one of a kind. But life goes on, and CBS is doing well. They have changed a number of formats, but the talk radio format and the sports format are doing quite well on a lot of the radio companies.

Greer: And let me ask you about Howard Stern today. He's got a smaller audience now on Sirius XM, and for the first time, he has no boundaries. He doesn't have to do that dance that he does with the FCC. From a programming perspective, do you think Howard Stern needs boundaries? Do you think he needs something to rebel against to be at his best?

Hollander: You know, those types of questions are really vanilla and chocolate. Some people like vanilla. Some people like chocolate. What I mean by that is, Howard wanted to go and do something else. He got paid an incredible amount of money to do it. Was his show different on terrestrial radio? Absolutely, because there were constraints. Was it different in a different time? Yes. Five years ago, you just didn't have the choices that you have today, whether it be music or online or pay radio or sites like Pandora. We are living in an on-demand world, so it's very hard to compare what happened then and what happened now.

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Read/Post Comments (18) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 29, 2010, at 11:34 AM, bridgesafe wrote:

    no way to compare what happened 5 years ago to all the options available for both siri and Stern in todays enviroment

  • Report this Comment On September 29, 2010, at 12:37 PM, jamf92 wrote:

    I've been a Sirius and XM subscriber for more years than I can remember. I can say that in all those years I have never even tuned into the Stern show on Sirius. I know MANY do but for me his staying or leaving Sirius will have zero effect on my support and enjoyment of the service.

  • Report this Comment On September 29, 2010, at 1:44 PM, JamesRobertDobbs wrote:

    Strange. On first impression, one would think that this article is stating that Sirius will have a difficult time if Stern leaves. (See headline: "Howard Stern's Unlimited Value", and prelude "Hollander talks about the difficulty in replacing the Sirius XM (Nasdaq: SIRI) radio icon".)

    And yet, in the end, the article states nothing of the sort.

    Strange.

  • Report this Comment On September 29, 2010, at 2:00 PM, doubting wrote:

    Very funny article. Confusing. I am still trying to figure out what the author wants to say. Is it bad or good for siri that HS may leave. In my view, HS has become practically irrelevant for siri business success. Siri + XM, one indivisible company, is no longer what the individual components used to be. This is a reality and HS and its supporters need to deal with it. Let us always remember that siri is a BUSINESS and a PUBLIC COMPANY where profit and shareholders' value come first. If HS can further contribut to both, he has strong arguments for negotiation. I assume siri management can figure out without our help how to proceed with HS. I do not believe that his departure could have any significant long-term impact on siri profitability although it would be great if he could stay on mutually beneficial and shareholder friendly terms. Previous terms were far from friendly for company. Siri is here to stay and to prosper for many years to come.

  • Report this Comment On September 29, 2010, at 3:56 PM, ItAintCool wrote:

    "But life goes on, and CBS is doing well." Ha, ha, ha! Nice Spin Joel. CBS television is doing well, CBS radio on the other hand is in the toilet. Thanks to you, Joel Hollander; the man who thought that hiring David Lee Roth to replace Howard was a stroke of genius.

    How long did Roth last on-air? Your star pick lasted 5 months, and took their flagship station and entire radio network down with them. The CBS stations never recovered from the loss of ratings and ad revenue, with the loss of Howard. Despite the constant programming and format changes, your creative genius forced the sale of many of the smaller CBS stations to cover their losses. You and Les Moonves destroyed CBS radio.

    Howard would have stayed on terrestrial radio if the network that carried him actually stood behind him when the FCC was selectively targeting him. I say "selectively" because when Howard would talk about sexual acts on the air, it was deemed "indecent", but when Oprah talked about the same sexual acts on her TV show, it was considered OK. You were afraid to stand up to the FCC. The man was left hanging in the wind and Sirius offered him a venue without the government riding his back. He won, you lost. Sirius went from an obscure distant second place Sat Radio station, to a monopoly that has pummeled terrestrial radio to the ground (I'm not just talking simple ratings I'm talking ratings and ad revenue). With Sirius-XM radios now factory standard in most new cars, terrestrial radio has become obsolete.

    I don't know if Sirius would do as well or better without Howard. History has shown that whatever station he leaves, ends up in a bad place. I just know I would prefer that Sirius didn't try to find out.

  • Report this Comment On September 29, 2010, at 5:22 PM, cantbefoolish wrote:

    doubting, why do think that Howard's contract wasn't shareholder friendly? It now only takes SIRI one quarter to make back what they've paid Howard, for his entire 5 years. The contracts that weren't shareholder friendly, were Oprah, Martha, Mad Dog, and probably MLB.

    JamesRobertDobbs, Motley Fool has had a long history of writing misleading and/or negative articles about SIRI. I'll never forget this one.... http://www.fool.com/investing/high-growth/2009/03/04/the-pre...

  • Report this Comment On September 29, 2010, at 8:39 PM, doubting wrote:

    You cannot spend more than a quarter of your programming cost that is about $370M/year on one person no matter how good he or she is. At the time sirius got him, they were competing for survival with xm. In some way, this was justifiable because they did not have much choice. As the result both comapnies almost went under. Today, the situation has reversed 180 degreeas in favor of siri. There are about 16M consistent subs at siri. Let us say that 2M are HS fans. This is still 1/8th. How would you justify 100M to HS in market where there is practically no other true competion to siri. One has to be crazy to offer this much knowing that no one else can offer him anything else close. We are in a market and this is purely a business decision based on market demand and supply conditions.

  • Report this Comment On September 29, 2010, at 8:43 PM, doubting wrote:

    Cantbefoolish,

    You are absolutely right that the contract that xm signed with MLB is horrendous at $640M for eleven years. This is the worst contract either of them has ever signed and they will be stuck with it for a number of years.

  • Report this Comment On September 29, 2010, at 9:20 PM, cantbefoolish wrote:

    If they are now on pace to make over $2.8 b per year, then what's $100 mil to Howard? In the first few years of his contract, Sirius gained about 8 mil subs. So, I would think he has much more than 2 mil fans. That justifies giving him even more. Plus the fact that he had the biggest part in forcing the merger. If SIRI can get rid of Oprah and other useless media, they can use that savings for share buybacks and paying down more of their debt. Then it would be very shareholder friendly.

    I doubt that most of Howard's fans would cancel their subs to follow him elsewhere. I'm not going to, but if 2 mil subs were to leave.... that would be a net loss of around $15 mil per month, based on his current contract.

  • Report this Comment On September 29, 2010, at 9:39 PM, cantbefoolish wrote:

    Btw doubting, where did the "$370M/year" number come from? Later in the same paragragh you more accurately wrote "100M".

  • Report this Comment On September 29, 2010, at 9:43 PM, cantbefoolish wrote:

    ..... and Howard was actually offered $100M recently to do a podcast. So, don't forget there is competition.

  • Report this Comment On September 29, 2010, at 10:18 PM, doubting wrote:

    Cantebefoolish,

    $100M is Hs's contract per year. $370M overall is siri's overall programming costs per year, that is all contracts combined, which is a huge amount of money. Let us not look at $2.8B revenue that they project for this year but rather at EBIDTA and cash flow that are still quite low for a significant stock valuation. Plus siri has about $3B debt to pay in the next five years. Siri is pursuing a bunch of wyas to get to substantial profitability, one of such ways is cocutting fat from hugely expensive contracts like Howard's. If you cut Hs's contract to, say, $60M per year, which is still a lot of money for anyone, your five year savings equal $200M. Same relates to football, baseball (much later unfortunately), etc. Siri could reduce its programming costs by about $100M per year to about $270M/year within the next 3-4 years. Every penny counts and will go to the bottom line to pay off debt and eventually start buying back shares. There is no one on the radio or internet market today who could pay HS even $60M unless HS is crazy and wants to go into his own business at the age of 56. His only true choice to siri is to retire.

  • Report this Comment On September 30, 2010, at 12:39 AM, cantbefoolish wrote:

    Okay, but first you said "$370M/year on one person". Now you're saying it's the overall cost of programming. That was a bit confusing.

    If they try to nickel and dime Howard for less than what he knows he's worth... they could end up making the same mistake that CBS did, and all the other radio companies, who failed when he left.

  • Report this Comment On September 30, 2010, at 7:48 AM, doubting wrote:

    Howard Stern may think whatever he wants about his value. The market will determine how much he is worth rather than his emotions. There will be NO bidding war for his services.

  • Report this Comment On September 30, 2010, at 10:05 AM, cantbefoolish wrote:

    He will definitely have less bargaining power, because there is now only one sat. rad. company. But let's say he's unhappy with his next offer and leaves. Sure, SIRI will save $8.33M / month on his current salary, but if just 2M subs cancel, who pay an average of $12 / month... that would be a net loss of over $15M / month.

  • Report this Comment On September 30, 2010, at 3:57 PM, JamesRobertDobbs wrote:

    cantbefoolish - "Just" two million? I seriously doubt anywhere near that number of subs would cancel.

  • Report this Comment On September 30, 2010, at 6:30 PM, cantbefoolish wrote:

    I hope THAT many wouldn't cancel. I'm just using the 2M fans number that doubting came up with. Although, I do believe a lot more than that subscribed, mainly to hear Howard. So, many of those loyal fans would cancel their subs and follow him wherever he goes.

  • Report this Comment On October 01, 2010, at 4:05 PM, karlrock wrote:

    First of all, everyone is getting carried away with the "experts" who claim that only 2 million people listen to Howard. Although that number has been thrown around for months, absolutely none of the so called experts have ever explained where they got the number. More than likely, the number is much higher than that.

    The undisputed facts are that when Howard first got signed, there was roughly 600,000 SIRI subscribers. Before the merger occurred with XM, MILLIONS had suddenly been added (if I recall correctly, about 6 million total subscribers for SIRI at time of merger) and by that point XM could not keep up and had to merge with SIRI to survive.

    Anyone who does not agree that Howard was the cause of all these events is either blind or simply has an anti-Howard agenda.

    Second, all of these experts who claim that Howard fans will stay if he leaves are forgetting that if Howard decides that podcast is the way to go, millions will decide to pay for the podcast alone rather than pay for his podcast AND the SIRI subscription.

    What is the proof of this? Past history. As noted above, every station that Howard left tanked after he left because the people that listened to him followed him.

    In this economy, the SIRI subscribers who decide to pay for Howard will not want to pay for two services. They will choose Howard over paying for Howard AND SIRI together (especially with SIRI prices going up in the next year or so after the FCC takes the handcuffs off).

    Mel Karmazin knows the score and does not seem to understand that if Howard leaves for his own service he will take millions with him that will no longer pay for SIRI. Not only that, SIRI will be left without the one voice on SATRAD which is talked about in the news and internet (constantly and for free).

    As a fan, who will cancel 4 subscriptions if SIRI does not resign Howard, I can tell you that when he makes his podcast available, I will be paying for that and SIRI can kiss my 50 bucks per month goodbye.

    Think carefully Mel. Otherwise you are going to end up like Joel Hollander....spin spin spin.

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