Big stars always have tough negotiations when it comes to signing a new deal. Howard Stern finds himself in that position now. He has been a staple in radio for decades and is at the end of his five year deal with satellite radio. Whether or not you like Stern is not material. The fact is that he is a radio star that generates revenue for whomever he is working for. Talent like this can not be dismissed lightly.
This week in an interview Sirius XM's David Frear stated that Stern may need to take a pay cut in order to stay on board with Sirius XM. This opened a floodgate of Internet comments and Stern even addressed the issue on his show. His first deal with Sirius is likely the most oft confused deal in the short history of satellite radio with many thinking that Stern pockets $100 million per year. The reality is that the $500 million deal encompassed construction of the studio, the entire staff, and every stitch of programming on the Howard 100 and Howard 101 channels. Howard did not take kindly to Frears comments. He feels that he is an integral part of the company and deserves fair compensation.
Time is now getting short. The last live show is scheduled for December 16th. The reality of what a new Stern deal may shape up to look like is that there will be less guaranteed money and more incentives. One key shortcomings of the current deal is that Stern's show is not available on the mobile phone apps. This is a point that gives Stern negotiating power. More and more people are shifting to apps on smart phones for audio entertainment. Stern is a shrewd negotiator, but then again Karmazin is as well. It creates an interesting dynamic.
The reality of the situation is that Stern and his show staff are all on vacation from December 16th until after the New Year. It is during this period that details of a new deal may be worked out between Sirius XM and Stern. Yes, Stern can leave, but realistically speaking he has a good thing on satellite radio. Why leave? That news does not make satellite radio retailers happy, but what choice is there. Stern has power in holding out. He knows this, and will use it to his advantage.
For Sirius XM the trick is keeping Stern on board while at the same time proving to the investment community that they are being cost conscious. It is often said that the best and most reasonable deals are those which neither party feels like they won and neither feels like they lost. This is the dynamic that needs to be sought out. It is important that both Stern and Sirius XM are able to save face in this deal.
The way I see it the company will need to be creative. They need to lower the guaranteed money while at the same time allowing Stern to earn the type of money he wants. One method is giving him a revenue share of some nature. His channels command the highest ad rates, and perhaps that is a way to get the deal done. Another incentive could be a cut of the streaming side of the business on apps and the Internet. Sirius XM got creative on the latest Martha Stewart deal, it should not be a surprise that they will need to get creative on this one.
Personally I feel the real negotiations will not start until after Christmas with an announcement as late as the first week in 2011. I know this is not what people want to hear, but realistically speaking it is where the Stern situation is. While Stern has had some moments of "negotiating on the air", he has for the most part handled this whole situation in a stand up manner. The same can not be said for Bubba The Love Sponge who is on Sterns channels in the afternoon. Bubba seems to slam satellite radio far too much. It is like he takes it all too personally, and is burning bridges he shouldn't be burning. If he is not careful he could wind up being a casualty of these negotiations.
As for Sirius XM. They need to stop fueling the fire and simply work on a fair deal. When the time comes a press release letting everyone save face will be issued. Then we wont have to worry about this for five more years.
Position - Long Sirius XM Radio