A Decade After Leaving Traditional Radio, Howard Stern Is Vindicated

On Wednesday, two of the biggest remaining names in traditional radio announced they will be joining forces to try to compete in the digital age.

CBS Corporation CBS will be spinning off CBS Radio, which will then merge with Entercom Communications Corp ETM. The combined company will control 244 radio stations and have a presence in 23 of the 25 largest markets in the country. The deal includes broadcast rights to 45 professional sports teams and 100 local sports talk shows.

An Uphill Battle

It has been an uphill battle for traditional radio in the past decade. CBS and others have been hit by unprecedented competition from podcasts, streaming services and satellite competitors. The battle scars are evident, as the new CBS/Entercom is expected to start its marriage with more than $1.8 billion in debt on its books.

Traditional radio rival iHeartMedia is trying desperately to get a portion of its massive $20 billion in debt restructured before it comes due in 2018. Parent company iHeartMedia Inc IHRT owns 850 domestic radio stations and reported a net loss of $402.4 million in the first three quarters of 2016.

The CBS/Entercom merger represents the next stage of traditional radio’s fight to stay relevant in an increasingly digital world. On his satellite radio show this week, Sirius XM Holdings Inc. SIRI talent and self-proclaimed “King of All Media” Howard Stern reflected on his decision to make the jump from traditional radio in 2006.

Breaking The Mold

Breaking new ground in the radio business certainly hasn’t been an easy road for SiriusXM. The company appeared headed for bankruptcy during the heart of the financial crisis in 2009. Shares of SiriusXM stock dipped as low as $0.0581/share in February 2009 before the company secured a last-minute $530 million loan from Liberty Media Group LMCA LMCB.

After surviving the closest of calls, SiriusXM began gaining traction and had turned profitable by early 2010. In the past four quarters, Sirius reported net income of $742.8 million.

While Sirius’ income has been consistently trending up, CBS’s income has been steadily on the decline in recent years. CBS and Entercom expect annual EBITDA of $493 million for the combined company.

Streaming giants Pandora Media Inc P and Spotify still haven’t found a way to translate their popularity into profits. Pandora reported a net loss of $272.3 million over the past four quarters.

Vindicated

Back in 2004, Stern’s decision to leave CBS for SiriusXM was met with criticism and skepticism. However, the numbers now show his vision for the future of radio has been vindicated.

CBS was once the dominant force in radio. Based on the terms of the new merger, CBS Radio’s market cap is now roughly $1.5 billion.

SiriusXM’s market cap stands at $22.2 billion.

Private Parts

As for Stern, he signed a new five-year deal with Sirius in 2015. Although the terms of the deal were not disclosed at the time, analysts estimate that the King of All Media is now raking in roughly $90 million per year.

Perhaps Stern’s appropriately candid comments at the time of the signing best sum up his thoughts on the past and future of radio.

“I happen to think that its best days are ahead,” Stern said in 2015. “So, if you are not listening to SiruisXM and The Howard Stern Show, then you are really more like a zombie, a rotting corpse monster, living half a life, deadened and blackened inside. It’s as if you were still watching black and white television while shopping in actual stores on your way to the post office to fax a memo.”

Image: Bill Norton, Flickr