HOWARD STERN'S BOSS GETS AN EARFUL
Howard Stern tapes paper over the windows of his New York studio to prevent curious staffers from gawking at him while he broadcasts. The way things are going, his boss, Mel Karmazin, may want to borrow Stern's tape for his own office.
Until recently, Karmazin had mostly avoided the controversy over Stern and his bathroom-wall jokes about everything from Pee-wee Herman's sex habits to the crisis in Somalia. Now, though, the unassuming president of Infinity Broadcasting Corp. is in a high-stakes showdown with the Federal Communications Commission over whether Stern violated its decency rules.
On Dec. 10, the FCC was set to slap Infinity with several hundred thousand dollars in fines for allegedly indecent remarks made by Stern on three of its stations. Even more serious, the commission was to warn Karmazin that if Stern steps over the line again, it could move to revoke some or all of his stations' broadcast licenses. Karmazin plans to appeal, and observers expect the case to become a litmus test for what "shock jocks" such as Stern can get away with. "We would certainly like to see this go away," says Karmazin wearily.
It's all very distracting for the 49-year-old former ad salesman, who has doggedly built Infinity into an industry giant. With 18 FM and AM stations, Infinity is the largest U.S. company devoted exclusively to radio (table). And Karmazin is the only entrepreneur who has seized on the FCC's recent decision to boost the number of stations one company may own. He just plunked down $113 million for stations in Chicago, Boston, Atlanta, and Philadelphia.
JOCK LOCK. But Stern's smutty mouth could jeopardize all that painstaking work. Industry experts say the FCC rarely threatens to revoke broadcast licenses. And losing any of them would be a body blow to Infinity. The company went public in January, and its stock has risen steadily, to a recent 25, from its offering price of 17 1/2. Still, investor confidence in Infinity could be sorely weakened if the dispute escalates.
One thing Wall Street certainly applauded was Karmazin's purchase of WFAN-AM in New York for $70 million in April. The all-sports station is home to acid-tongued radio personality Don Imus. Along with Stern, he gives Karmazin a lock on the two most celebrated jocks in New York radio. And that enabled Karmazin to boost WFAN's ad rates by 15%. "Mel is one of the best operators in the radio business, if not the best," says Herbert McCord, who runs a radio group backed by Kohlberg Kravis Roberts & Co.
Millions of listeners thrill to Karmazin's brand of radio. When Stern joined Infinity's WXRK-FM in New York in 1985, it was No. 21 in the morning ratings. By last fall, it was No. 1. At Los Angeles FM station KLSX, where Stern is syndicated, his show is No. 1 though it airs on tape delay and his remarks about Angelenos are not always generous. In November, 1991, for example, Stern said he wanted to "strip and rape" the DJs at a rival L.A. morning show.
For Karmazin, Stern is the centerpiece of a remarkably simple strategy. He buys only stations in major markets because they have high profit margins. And he pays top dollar for big personalities. Otherwise, Karmazin runs an exceedingly lean shop: His entire corporate staff consists of seven people. As a result, Infinity boasts an operating margin of 45%. Drew Marcus, a radio analyst at Alex. Brown & Sons Inc., estimates that Infinity will earn operating income of $68 million on revenues of $150 million in 1992. That's an 11% earnings gain in a still-depressed industry.
UNKIND CUT. These days, though, Karmazin worries more about lowbrow remarks than high finance. He stoutly defends the inflammatory Stern, who commands premium ad rates. As for his brand of humor, "we believe it is O. K. to be outrageous," Karmazin explains. "But we're not looking to thumb our nose at the FCC." Even he winced, though, when he recently heard Stern say on the air that he prayed that the prostate cancer of FCC Chairman Alfred C. Sikes would spread. Sikes insists the remark had no influence on the FCC's ruling, though at least one other commissioner is furious at Stern.
No wonder Karmazin is determined to put the dispute behind him. He pledges to abide by FCC rules so long as he knows exactly what the commission prohibits. But he draws the line at censoring Stern: "That's why they make on-off buttons," he says. For now, Karmazin is betting that Stern's blue humor is still worth pure gold.INFINITY'S BROAD HORIZONS
18 FM and AM stations in top markets such as New York, Los Angeles, Chicago,
Philadelphia, and Boston
Popular radio personalities such as Howard Stern, Don Imus, and Doug Tracht
No. 4 after CBS, Group W, and ABC
Revenue: $150 million Income: $68 million
*Estimates; income represents earnings before interest, depreciation, and
amortization of debt
DATA: COMPANY REPORTS, ALEX. BROWN & SONS
Mark Landler in New York, with Mark Lewyn in Washington