Hiring great people is important, we all know that. In fact, if you have to overpay for anything in business, it should be on the absolute best people, as they will have more of an effect on a company’s success than anything else.
But, like anything in life, it can go too far. Too much dependence, too much financial commitment to a single person – particularly without the right agreement in place – can essentially allow a single employee to hold the rest of the company hostage.
And that’s exactly what’s happening at SiriusXM Radio. And it’s causing them major league problems.
Good thing for them, I have a major league solution to fix it.
On Oct. 6, 2004 Sirius Satellite Radio (the company has since merged with XM) made huge waves when they signed talk show host Howard Stern – the self-proclaimed king of all media – to the largest contract in the history of radio. All told, Sirius committed $100 million a year for five years to Stern for Stern’s salary and to run the production of two Stern-centered radio channels, Howard 100 and Howard 101.
Stern is the most popular host on the radio, particularly among the coveted 18-to-49-year-old demographic. The move was well-received by analysts, as the stock price jumped from 2.32 on Aug. 1, 2004 to 7.62 on Dec. 1, 2004.
The actual number of listeners Stern brought over is hard to calculate, as Sirius does not release its ratings for their shows. But it is fair to say he is by-far the company’s largest draw, along with live sports.
For evidence, look no further than the company’s pricing page:
Notice there are four pieces of content specifically called out: three forms of live sporting events and, you guessed it, Howard Stern. Also, it is worth noting that Stern is on top of the list.
Okay, so Sirius paid a lot of money for a guy and it appears to have worked out. What’s the problem?
Well, here’s the Stern problem Sirius is facing: they are dependent on keeping him, but his contract is up at the end of the year. And, despite paying him truckloads of money (he reportedly makes $80 million a year now), he’s unhappy.
As an example, here’s something Stern said on-air last year, according to Yahoo:
Never think of me as a disc jockey. Because the one thing that matters to me more than anything after all these years in radio is that you treat me with respect. I’m sick and tired of how management speaks to talent. Talent is what drives this world. There is no Sirius without talent. Doesn’t matter how many satellites you f—ing stick in the air.
That’s just one of many quotes he’s had about his company (another: “Whenever you f—with me, I will f—with you worse. I always win.”). Why so annoyed?
His rifts with management are trivial in nature: arguments over what time his show should start; other trifles over pay. But complaints are to be expected when hiring Stern: his whole image is soaked in anti-authority, and that has equated to fights with management throughout his entire career.
So what’s the problem SiriusXM is facing, in a nutshell? Their powers-that-be are dependent on keeping a man who is notoriously unpredictable and loves to rail against the powers-that-be. They have all their eggs in one basket, but the basket is exceptionally fickle.
So What’s The Solution?
The obvious solution is to create other forms of appealing content and try to have other reasons for people to subscribe besides Stern. The problem is aside from sports (which is very expensive in its own right), SiriusXM has tried doing that several times – most notably giving Oprah Winfrey $18 million a year to appear on their station for 30 minutes a week! – and has mostly failed.
The fact is, Stern is the best in the business and has an incredibly loyal following. If he leaves, he’ll take the following with him, and the business will suffer.
So here’s the radical solution I promised: Stern loves railing against the powers-that-be. Want to fix that? Make him a power-that-be.
Yes, I know, they have given Stern a ton of stock options. But I mean beyond that. Give him a legitimate ownership stake in the company, where he has real decision-making power over the product.
Why? Three reasons.
1. Giving the most popular guy on the radio control over how a radio station runs is probably not the worst idea in the world. Granted, just because someone is good at something doesn’t mean they’ll be good at running a company that does it (look no further than Michael Jordan’s failed career as an NBA owner), but I’d like to think that Stern knows a thing or two about making a successful radio station.
2. It would closer align Stern’s ambitions with the company’s. Yes, right now, Stern has stock options, so if the company does well, he’ll do well. But that is more nebulas, and really Stern is still seeing SiriusXM as his employer and he as an employee. And, like any employee, he’s doing one thing: trying to get as much money as he can from them.
If he was part of running the radio station, his ego would go towards trying to make a really successful radio station, instead of just trying to get as much money as possible. Not saying he wouldn’t care about making money, but he’d also care more about the overall success of the station, since he’s in charge of running it.
3. Whether SiriusXM likes it or not, he’s already a partner anyway. He has an incredibly effect on the state of the business – perhaps more so than even the company’s CEO – so they might as well treat him as such.
Stern is a very rare talent. While he isn’t completely irreplaceable, he’s as close to irreplaceable as one can get, and therefore needs to be governed by a separate set of rules.
Giving him an ownership stake is risky, but so is the prospect of losing him. And, if Sirius wants to avoid the sort of uncertainty investors hate each time Stern’s contract is about to expire, they need to do something to address it.
Fundamentally, I believe Stern is a man driven by his ego (as are most men) who has a habit of getting what he wants. As an employee, what he wants is a lot of money, an incredibly popular show and complete freedom, and he’s gotten it.
If he was made an owner, what would he want? Sure, he’d want a lot of money. But he’d also want the absolute best radio station ever, because his ego would be on the line.
And, like I said before, he’s pretty good at getting what he wants. And that’d be a good thing for SiriusXM.
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