Howard Stern: The $500 Million Man

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Stern during his "victory lap" bus tour in New York's Times Square after his last syndicated radio broadcast Friday

Howard Stern calls himself the King of All Media, but in his three decades of radio broadcasting he has also earned a more dubious crown: the King of All Fines. Stern, who hosted his last FM-radio show on Friday, has cost stations that carry his program nearly $3 million in FCC penalties for indecency. He didnt help his cause when in 1992 he infamously declared on the air that he hoped the prostate cancer of an FCC commissioner would spread through his body. When I get angry and really fired up... I will say vicious things, he told 60 Minutes recently, allowing that now, at 51, he might not be so cavalier. But part of Sterns lure for the estimated 12 million Americans who tune in to his show has always been seeing how far hed go. Which raises the question: will his act wear thin if he doesnt have the FCC watching over him like a Victorian grandma intent on washing his mouth out every time he lets a fart joke fly?

That, in essence, is the $500 million gamble for investors in Sirius Satellite Radio, Sterns broadcaster come January. Sirius, as you may know, is one of two satellite radio services (the other is XM) over whose content the FCC has no jurisdiction. Each service charges $13 a month for dozens of channels of commercial-free music, talk, sports and a variety of other content. Sirius has about 2.2 million subscribers, XM boasts 5 million (as of the end of September) and both are elbowing each other to sign high-profile talent. Besides Stern, Sirius is trumpeting a Martha Stewart channel while XM recently landed Bob Dylan for a weekly show and owns satellite radio rights to Major League Baseball. Neither company has earned a dime in profits— both forecast that theyll break even within a year or two. In fact, what really separates them is Stern, whose $500 million deal with Sirius is either a stroke of programming genius or a colossal waste of money—the biggest gamble on an entertainer in any field, be it film, television, sports or radio.

In one sense, the Stern math is fairly simple. Assuming he brings in 2 million listeners, who pay $13 a month, he more than pays for his $100 million a year in operating expenses, which also goes toward production costs for his show and two 24-hour channels he plans to program. Throw in ad revenues and hes raking in profits for his corporate parent. Indeed, Sirius boss Mel Karmazin aims to generate $100 million in ad revenues by 2007, up from less than $10 million now. Stern is essential to that equation. Karmazin, after all, has long had faith in the nations premier radio bad boy to bring in the bucks, going back decades to their days at Infinity Broadcasting, where Karmazin steadfastly defended Stern from the FCC and refused to kick him off the air.

But Wall Street isnt entirely convinced by Karmazins math. No one can say how many listeners Sirius would bring in without Stern, or precisely how many listeners he's responsible for attracting. XM, after all, expects to add nearly 1 million subscribers in the fourth quarter without a blowout personality in its lineup. Which leaves Wall Street flummoxed as to Stern's true value. Howard will be big but [his] actual impact remains unknown, Bank of America analyst Jonathan Jacoby wrote in a recent research note.

What concerns Wall Street is that Sterns act is showing its age. In his home market of New York City, his ratings are down about 26% from the fall of 1999, according to Arbitron, and his ratings declined over this summer in just about every major market. Part of the slide may be a result of Sterns relentless self-promotion, pitching his move to Sirius so often that he at times sounded liked a satellite radio infomercial. In recent interviews, he also admitted to being in a professional slump.

His game plan, it seems, will be to ramp up the raunch: he aims to broadcast a woman having late-night phone sex with a listener on one of his channels, and hes talking about airing a parody of the ABC show The View, called Crack Ho View and featuring drug addicts discussing politics. The risk with getting more outrageous: that Stern turns off more listeners than he lures. As he closes in on his mid-50s, moreover, no one knows if the young guys who form his core audience will stay loyal, especially since there are so many other ways to get a fix of bathroom humor—on the Internet, of course, but also on XM, which broadcasts the shock jocks Opie & Anthony.

If anythings certain its that Stern wont have the FCC to kick around anymore (and vice versa). Of course, while the FCC may have cost Sterns broadcasters buckets of cash, the content police created a brilliant comedic foil, allowing Stern to portray himself as an anti-establishment crusader, fighting uptight Washington bureaucrats with his renegade style. Will Howard Unbound be as funny as the guy who could always pull some boundary-skirting stunt to keep his audience amused? Stay tuned for The King of All Medias answer.