Many said that the $500 million wager that Sirius paid for Howard Stern?s services for the next five years was a ridiculous amount?far beyond his worth.
What I've gone too far? You don't agree?
Let me set the stage. With satellite radio you are talking about a fledgling industry with some unique advantages over the more mainstream competition. The possibility that satellite radio was ever going to achieve mass adoption was far from a sure thing.
Okay so we've established the industry backdrop, lets look at the industry reality. The advent of personal home video recorders is most similar to satellite radio. To anyone not over the age of twenty-five, I am not talking about Tivo, but video cassette recorders, or as we like to call them -- VCRs (this is important). The similarities between satellite radio and the VCR are based on a commitment. Back then when there was a choice. You either purchased a VHS format or something many of you young folks never heard of: a Betamax recorder (pronounced BAY-ta). Then as now whatever choice you made, you were stuck with. You couldn't play Beta on a VHS machine or vice versa. So if you chose Beta you were a Beta person without exception. The VHS format was overwhelmingly more popular.
The same applies to satellite radio. Once you select either the Sirius or XM system, you purchase equipment that only allows you one of either system. So once the consumer makes the choice it is costly to switch and even more expensive in terms of marketing dollars to compel them to switch.
Before Howard Stern, Sirius was well on its way to "Beta-ville." They were the third choice in a two-horse race. The equipment for those early and second-tier adopters of satellite radio were buying, was the XM system. So Sirius was facing a death sentence. We estimate the marketing cost to build their customer base, and convince people to pay for their service, and then buy from the industry second fiddle, would be around a gazillion bazillion dollars.
How much do you think Sony lost on Beta? How many advertising dollars do you think it would have cost them to reverse the VHS's dominance in the market? Was there any way that would have even been possible? The Beta experience--which by the way was the superior video cassette format--must have caused nightmares for of all those navigating the Serius ship
So that's the landscape in which you must place the mere $500 million that is going to Howard Stern.
Look at the media that Mr. Stern has generated. It would not be too much hyperbole to say that Sterns pre-switch publicity might just be one of the most successful media plans that a brand has undertaken. Newsweek, New York Magazine, daily newspapers across the country, 60 Minutes, Letterman and The O'Reilly Factor, are just a few highly read and watched media outlets. Not to mention his own daily show which has to go out of its way not to mention Serius so much to the point that it actually promotes it more!
Its not just the amount, it's the sheer variety. Stern's media blitz has crossed almost every demographic, ideological subset of the media. He has not only become an entertainment story, but a business story, human interest story, appealing to both liberal democrats, conservative republicans. And what has he taken with him to all these reaches of the media? The Sirius brand.
Beyond the amount, and the variety of media, Sirius has received a huge marketing benefit out of Stern as a marketing symbol. With marketing satellite radio, the big trick is to convince people to pay for a service, that since Marconi, they have received for free. This is a difficult but not impossible task. The biggest obstacle is that nobody wants to be the first in line. No one wants to be the schmo who jumps into the "pay for radio" pool first, only to find out the water is frigid and no one else is swimming. That's a pool that creates more than one kind of shrinkage, and is the reason why its so difficult to market people into taking that leap
Because Howard Stern is one of the most successful radio personalities ever, coupled with the fact that he made the switch by his own choice, he actually positions himself as his own early adapter. What Stern stands for is the guys who decides not only to put a toe in to test the water, but walks right up to the diving board and takes a belly flop into the deep end. Howard is first in the pool and through the media he has been able to yell to listeners throughout the country "Come-on in--the water is great. By now the pool is already getting more and more crowded.
Most frustrating to Stern foes, is that all their efforts to thwart him actually make him the ideal icon for what satellite radio is all about. What are you actually paying for when you buy satellite radio? You are paying for choice. Howard Stern is the epitome of choice. Like him or hate him, his move into satellite radio absolutely represents a performer doing what he wants, with a low degree of limitations. And consumers having the ability--with similar low limitations--choose to listen, or not to listen. That's something greater than radio, and a reason to begin to pay for it. It is a message that will be pointedly clear for Stern fans, but also for non-Stern fans. Consumers will be able to separate Stern from the message of choice. They will realize that its not all about Howard Stern, its about being able to hear what you want to hear whenever you want to hear it. Stern is the perfect satellite radio poster child.
Sirius gets all this plus it saves itself from a one way ticket to Betaville, reaches every type of audience, sends a key message to the entire country, and picks itself up off the competitive mat. And this doesn't even include the listeners that will surely sign on with Sirius just to listen to Howard. $500 million too much money? It should be his tip.
Eric Yaverbaum is author of Public Relations For Dummies (Wiley), Leadership Secrets of the Worlds Most Successful CEO (Dearborn), and president and founding partner of Jericho Communications