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Fri Oct 8 11:57:34 PDT 2004

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 Stern's Move to Satellite Radio Is a Signal Event

 By Frank Ahrens

  Though Howard Stern's defection from broadcast to satellite radio is still 16 months off, the industry is already trying to figure out what will fill the crater in ad revenue and listenership that he is expected to leave behind.

 Stern -- who has about 12 million listeners a day -- has been one of the radio's top earners for several years. He is responsible for about $100 million in annual ad revenue for his syndicator, Infinity Broadcasting, owned by media giant Viacom Inc. 

 In January 2006, he plans to take that revenue machine, and probably many listeners, to Sirius Satellite Radio, where his often raunchy show won't be constrained by the decency standards of the Federal Communications Commission. 

 Some radio executives counseled calm yesterday, saying that although Stern is talented, Viacom has the resources to replace him.

 "What did it mean to late-night TV when Johnny Carson left?" said David J. Field, chief executive of Entercom Communications Corp., which owns 100 radio stations. "The reality is, that was not the demise of late-night TV."

 But others said the AM and FM industry will be hit hard, not only because of the loss of one of its most popular broadcasters, but also because AM and FM are at a perilous point.

 The nation's two satellite radio companies, XM and Sirius, have about 3.1 million paid subscribers between them. They charge $9.95 and $12.95 a month for access to more than 100 largely commercial-free stations on special receivers that cost around $150.

  The Stern deal, according to one of its architects, could transform the industry.

 "This deal has the potential to turn FM into AM and AM into shortwave," said Walter Sabo, president of Sabo Media and a consultant to Sirius. Sabo was a member of the Sirius team that lured Stern.

 Sabo compares AM and FM vs. satellite today to AM vs. FM 30 years ago. 

 Until the late 1960s, AM was king and FM was a backwater. Station owners who had both AM and FM signals put their high-profile deejays and music on the AM stations and used the FM signals for brokered programming -- selling time to advertisers -- or simply handed them over to youthful underground deejays to play music. FM was not considered a viable revenue-maker and station owners largely ignored them.

 But rock music started sounding better. On AM, Jimi Hendrix was tinny. On static-free FM, he was a revelation. Young listeners began streaming to FM stations and owners realized they could be profitable.

 Owners of AM stations, satisfied with their profits, were afraid to take the risks necessary to compete with the growing FM industry. Eventually, almost all music left AM for FM. AM stations struggled until the '80s, when Rush Limbaugh's show caught on and AM stations thrived with talk formats. 

 Now, Sabo said, many of the top FM stations are constrained by the same mentality, because of the quarterly profit demands of the publicly traded companies that own them. He said that when he pitched a new radio format aimed at young women, a demographic that forms the backbone of successful daytime television shows, "I couldn't get one [radio executive] to put it on."

 At the annual radio show held by the National Association of Broadcasters in San Diego, radio consultant Holland Cooke said Stern's move is Topic A.

 "We want to think [satellite radio] will never catch on and Stern's going to fall off the map," Cooke said. "There's a tremendous comfort in the radio establishment in dissing this, but there is a dazed look in the eyes of the enlightened with whom I've spoken here."

 Cooke said Stern's move to satellite radio is only a symptom of a larger problem: "Radio is losing content to new media," he said.

 A Clear Channel Communications Corp. radio station program director, who declined to be quoted by name because Clear Channel is in a legal dispute with Stern over the company's decision to take his show off of six Clear Channel stations in February, said: "I have never witnessed anything as cataclysmic as this. This is a wake-up call to everyone in [AM and FM] radio."

 Most troubling about Stern's exit from traditional radio is his desire to escape FCC scrutiny, the Clear Channel program director said. If a talented young personality wants to do a radio show but doesn't want to deal with the FCC, he or she could take the show to satellite radio rather than to AM or FM, much in the way that many television producers and directors have chosen HBO and Showtime instead of broadcast networks, which face FCC scrutiny, the program director said.

 Jeffrey H. Smulyan, chief executive of Emmis Communications, which owns 27 U.S. radio stations, said Stern's departure to satellite radio "is probably the best resolution to the situation," given the likelihood that Infinity would continue to rack up FCC fines while he stays in its employ. 

 However, even if both Sirius and XM satellite radio hit "their wildest dreams" of total subscribers -- 40 million -- "295 million people will still be listening exclusively" to AM and FM radio, Smulyan said.

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