Clear Channel's Hogan says his company is the logical choice for the shock jock. Sirius XM may not be able to afford another $500 million contract
Let the tussle over Howard Stern begin. Just weeks into the last year of his contract with Sirius XM Radio (SIRI), the shock jock kicked off speculation about where he'll work next. "I actually have an offer," Stern said during a Jan. 21 broadcast. "Well, not a bona fide offer, but people have been making them." Stern didn't say who reached out, but the largest U.S. radio broadcaster made a public overture the following day. Clear Channel Communications Inc. told Bloomberg BusinessWeek that it may be interested in signing Stern, whose five-year contract expires at the end of 2010. The interest hinges on whether Stern, whose on-air profanities resulted in fines from the Federal Communications Commission, would be willing to work "within the limitations" of free over-the-air radio, said John Hogan, chief executive of the radio division of San Antonio-based Clear Channel. "We clearly have both the willingness and the financial wherewithal to consider high-profile talent," Hogan said in an e-mailed statement Jan. 22. "We would be the most logical company for him to optimize his exposure and financial return." Sirius XM, which averted bankruptcy last year after John Malone's Liberty Media Corp. bought a 40% stake in exchange for $530 million in loans, may not be able to afford to renew the radio talk-show host's existing contract, worth $500 million, said Tuna Amobi, an analyst at Standard & Poor's. "Even if (a new contract) were half of what it was before, it would still be a major financial burden for Sirius," Amobi says. "It's a totally different game." Changed Landscape
The radio landscape has changed substantially since 2005, when Stern struck an agreement to work for what was then Sirius Satellite Radio. At the time, competition between Sirius and XM Satellite Radio, the only two satellite radio providers, drove up the value of Stern's contract. The two companies have since merged and growth in satellite radio plummeted amid the recession. In 2006, the first year of Stern's contract, Sirius attracted 2.7 million new subscribers. Last year, the enlarged company had a net subscriber loss of 231,098. Terrestrial radio stations have faced challenges, too, amid declining demand for on-air advertising and increasing competition from digital music and online radio. "I'd be very surprised if any of these guys gives him a mega contract," Amobi says. In December, Citadel Broadcasting filed for Chapter 11 bankruptcy protection. Many radio companies have been signing up talent to shorter, one- to two-year deals, says Eric Weiss, who manages radio personalities such as Casey Kasem and Dave Koz. "Some older, better-paid people migrate out of the business," says Glenn Goldstein, who manages regional radio talent. "Younger, hungrier people are coming in." Stern has other options, Weiss says. He could found his own radio network, which could distribute its content online or through terrestrial and satellite radio stations, Weiss says. He could partner with an online radio provider, as well. Clear Channel: We Can Afford It
Hogan says Clear Channel's recent addition of such personalities as Rush Limbaugh and Ryan Seacrest is a sign it can afford high-profile talent. At the same time, public overtures could also drive up the cost to Sirius XM of renewing Stern's contract, undermining the company's ability to add other expensive personalities. Stern left CBS Corp.'s (CBS) radio division in 2005, citing pressure from the FCC, which imposed fines and other penalties for violations of rules against the use of profanity. In 2004, Clear Channel removed Stern's show from stations in six cities to curb on-air use of sexually explicit and other indecent material. Stern's agent, Don Buchwald, didn't respond to requests for comment. Stern would have to abide by FCC rules if he were to rejoin terrestrial radio, Hogan said. "The question is: Can Stern generate significant audience, and do [so] within the limitations placed on free over-the-air broadcasters by the FCC?" Hogan said in his e-mail. Patrick Reilly, a spokesman for New York-based Sirius XM didn't respond to requests for comment. In a December interview with Charlie Rose, Sirius XM CEO Mel Karmazin called Stern "an absolutely incredible moneymaker for us as well as for himself." He indicated he'd like to keep Stern on Sirius. "He's a great partner and my hope is (that we can) figure out a way to keep him," Karmazin told Rose.