Howard Stern’s Audience: One Group or Two?


Howard Stern is a wealthy man, but he sought to be some $300 million richer after his radio employer, Sirius, doubled his audience by acquiring rival XM. Stern thought his contract said as much but a court disagreed. Businesspeople and lawyers alike can take a lesson from the deal, presented here in one of my three-part series this week on the unruliness of words–and numbers. Following on my accounts of whether the attack 14 years ago today on the WTC was one occurrence or two and whether The Hobbit film trilogy released by New Line Cinema was one film or three, here’s the Stern story.

Play Quizzes 4

The Howard Stern Show is a popular off-color program long aired on traditional radio. But in 2004, one of the leading satellite radio companies, Sirius Satellite Radio Inc., persuaded Stern to move his program to its service. Performance compensation under the resulting licensing agreement called for Sirius to pay Stern’s production company up to five separate awards of common stock in Sirius—each worth $75 million—if a series of ever-rising subscriber thresholds was met.

To implement this deal, the parties included in their formal written contract an exhibit setting out the company’s estimated number of subscribers as of year-end for each of the ensuing five years. The agreement then provided that the company would pay a stock bonus if at any year-end the actual number of subscribers exceeded the target by a specified amount: a first bonus for exceeding the target by two million; a second for exceeding it by four million; a third for exceeding by six million; a fourth for exceeding by eight million; and a fifth by ten million.

Exodus Point Outperforms As Rates Trading Profits Jump [Exclusive]

Value Bin Default RatesMichael Gelband’s Exodus Point launched in 2018 with $8.5 billion in assets. Expectations were high that the former Millennium Management executive would be able to take the skills he had learned at Izzy Englander’s hedge fund and replicate its performance, after a decade of running its fixed income business. The fund looks to be proving Read More

There was no dispute about what happened the first two years: at 2006, actual subscribers exceeded estimated subscribers by more than two million and Sirius promptly delivered $75 million worth of its stock to Stern; at 2007, actual subscribers did not exceed the target by more than four million, and therefore no bonus was due. A complication arose in 2008, however, because in that year Sirius acquired a rival, XM Radio, which had nearly ten million subscribers. So the parties disputed whether those subscribers counted as Sirius subscribers under the bonus provisions of the licensing agreement.

Resolution depended on determining the intended meaning of their contract in light of the specific terms of Sirius’s acquisition of XM. Before the acquisition, Sirius and XM were separate rivals of about equal size (Sirius had more than nine million subscribers)—and both had been wooing Stern to join them. After the acquisition, Sirius changed its name to Sirius XM, but the two continued to operate separately with their own subscribers, although subscribers could buy a premium package to add the other company’s offerings. About one million XM subscribers signed up for the Sirius package.

Counting only original Sirius subscribers, at year-end 2008, actual subscribers did not exceed target subscribers by more than four million contemplated for a second bonus award. Even adding the one million XM subscribers who bought access to Sirius, the target was not so surpassed. But if also counting the nearly ten million XM subscribers that Sirius acquired in the acquisition, then the target was exceeded by more than ten million, triggering all the bonuses and meaning Sirius owed Stern another $300 million worth of stock.

The agreement did not define the term “Sirius subscriber,” though used it often; it defined “Sirius” as “Sirius Satellite Radio Inc.” Both sides thought the agreement was clear and unambiguous. Stern said it clearly included all subscribers to operations managed by Sirius as a corporate entity, including all those of its subsidiaries, whether through organic growth or acquisition; Sirius countered that Sirius subscribers meant people signing up for the Sirius radio service, not others such as those who subscribed to the XM service.

In addition, Sirius pointed to another term of the licensing agreement, which anticipated Sirius acquiring its rival. It called for Sirius to pay Stern $25 million if it acquired XM and to broadcast all of Stern’s shows to “all subscribers of the surviving company.” Sirius, which paid that $25 million, argued that the words “all subscribers of the surviving company” were telling: rather than say “Sirius subscribers,” as done elsewhere throughout the agreement, this phrase was used to denote the broader population containing both Sirius subscribers and XM subscribers.

Stern thought this a bit too technical, explaining that Sirius and XM competed aggressively in recruiting him and the bonus devices and fixed merger fee were intended to reflect his considerable value to whichever firm succeeded in wooing him. Both knew he would enhance the winner’s business substantially. The phrase “all subscribers of the surviving company” in the merger fee provision was used more because Sirius XM did not exist than to distinguish various subscriber bases. Nothing in logic or law makes the two fees mutually exclusive but were intended as cumulative—$25 million upon the merger expanding the subscriber base and bonuses from measurable growth in that base that resulted.

The court saw it as a relatively easy case, granting Sirius’s motion for summary judgment (no need for a trial to resolve disputed facts). The court stated the law concisely:

Unless a material term of the Agreement is ambiguous, the Court need not resort to use of extrinsic evidence to interpret the contract. A contract must be enforced as the parties made, understood and intended it at the time of its execution, with consideration given to the entire contract and the relationship of the parties and circumstances under which it was executed.

As applied, the court explained:

While it may be true that Stern … hoped and expected to reap the benefits from any significant growth that Sirius experienced after they entered into the Agreement, that subjective expectation cannot suffice to override the clear, unambiguous language of the Agreement.

The licensing agreement opted for the expression “Sirius subscriber” and used it throughout in a manner denoting those who subscribe to the Sirius radio system; the subscribers added as a result of the XM acquisition were subscribers to the XM system—only one million of the nearly-ten million subsequently also signed up to the Sirius system.

Stern may have been correct that Sirius’s ownership of XM entitles it, as a corporate parent, to the fruits of those subscriptions, making them “Sirius subscribers” in some sense. But that does not make them subscribers to the Sirius service, which is what the contract’s use of the phrase Sirius subscribers clearly intended to capture, the court said.

And the parties did distinguish subscribers accruing organically from those added by acquisition in the separate merger fee provision and expressed their intention by using the phrase “subscribers of the surviving company.” To hold for Stern would be to ignore the words chosen to express the parties’ agreement.

One solution would be to define “Sirius subscriber” expressly to mean “customers who pay a fee in exchange for receiving access to the services of the Sirius satellite radio service.” Another approach would clarify that the bonus provisions concern subscriber counts that grow organically through the incumbent operations of the business and not count subscribers added by acquisition of other radio services or businesses. Either way, cases and circumstances like this help to explain the length and intricacy of many contracts.

Stern appealed but lost on appeal too. Litigation risk from contractual imprecision leads deal lawyers to careful expression. In hindsight, we may agree with the court about the plain meaning of the phrase Sirius subscriber, particularly when conjoined to the merger fee provision. But you can be sure that when negotiating a similar deal, the next lawyer will strive to add clarity.

Lawrence Cunningham is a professor at George Washington University whose forthcoming books include the second edition of Contracts in the Real World: Stories of Popular Contracts and Why They Matter, which includes this story and fifty more.

Case: One Twelve, Inc. v. Sirius XM Radio Inc., 2012 WL 10007771 (N.Y. Sup. Ct. 2012), affirmed, 961 N.Y.S.2d 916 (App. Div. 1st Dept. 2013).

Updated on

Larry is a professor of law at the George Washington University Law School. He joined the GW Law School faculty in 2007, having previously taught for 6 years at Boston College (where he served a 2-year term as Academic Dean) and for 8 years at Cardozo (where he served a 5-year term as Director of the Heyman Center on Corporate Governance). He also taught courses at many other schools in the US and abroad, including Central European University, Columbia University, Hebrew University, University of Navarra, and Vanderbilt University. Before entering academia, he practiced corporate law for 4 years at Cravath, Swaine & Moore. He earned his BA from University of Delaware and his JD magna cum laude from Cardozo. Larry writes extensively in corporate and securities law, with a special emphasis on law and accounting and investor perspectives. He teaches courses in those fields as well as Contracts. He has published a dozen books and 50 law review articles. His recent books include: Contracts in the Real World: Stories of Popular Contracts and Why They Matter (Cambridge University Press 2012), The AIG Story (Wiley 2013), The Essays of Warren Buffett: Lessons for Corporate America (Carolina Academic Press 2013), and Berkshire Hathaway’s Value of Values (Columbia University Press 2014). Areas of Interest: Accounting, Auditing, Contracts, Corporate Law, Finance, Investing, Legal Education, Securities Regulation
Previous article iPad Pro vs Surface Pro 3 – The Tablet Fight
Next article Life Is Uncertain And So Are Interest Rates

No posts to display


  1. I started listening to his most recent shows, where he does interesting interviews with superstars, and then started exploring his earlier shows. They both have their appeal, but I think his latter work is a natural evolution of the show. He can’t have desperate porn stars doing something disgusting with the wack pack for 30 years without it going stale. I do miss Artie, though.

  2. I had Sirius for about 5 years. I was a Stern fan but due to the lack of competition, The Stern Show became the same old boring radio show. The same bits Richard and Sal’s gay antics, Ronnie’s arrogance, and JD fumbling for words. Aside from Stern, Sirius blows. The sound quality is junk…tinny and weak. The stations seem to play the same old deep tracks on a regulator basis. There still are some good variety of music genres and shows but for the cost… JUNK!

    Stern brought me to Sirius and is the reason I’m gone. I heard him talking about how great he is and he’s the reason satellite exists. He’s just a narcissistic ass. I can’t even watch AGT. Hurry up and retire already!

  3. His parents did a show MAYBE 2 times and they did it on another channel(101)No one ever fillled in for Howard. He did a live show 4 days a week on channel 100 for the first couple of years. I guess you were not actually listening or maybe just have a really bad memory.

  4. without the stern signing by sirius, they wouldn’t have been able to crush their competition – XM, thus inevitably leading to the merger. Bonus or no bonus, he should still be credited.

  5. I enjoy my Sirius radio, and love that I can get it on the app on my cellphone or iPad.

    My beef with Howard is that, wow, he really takes just way way too much time off. I can barely catch his show live anymore.

    But hey, if he is tired and done, then say so and sign off. He gripes about it when is on, how he wants more time to do what he wants….but he was also saying that a few years ago and then he jumps into doing the AGT show, and then soon he is bitching about that too.

    He should just go off and paint, and have fun with his wife and all his new celebrity friends he hangs out with all the time now.

  6. The show was awesome from 2006-2008, the best Radio that Howard ever did. Then he lost interest. But I still like Sirius, I just don’t waste my time on perpetual reruns.

  7. I don’t listen. Didn’t even know ETNM was dead until Friday. Howard is actually the best boss ever. He gave a bunch of no-talents, a five-year severance package.

  8. If you don’t like ETM or BJ then don’t listen.
    The majority of his long term fanbase didn’t latch on for interviews with Adam Levine.

    His talent for spotting interesting eccentricities in people is spot on, and it’s clear you just don’t get it.
    Go watch Ellen.. much more your speed.

  9. Sounds like Stern’s business agent screwed up, Don Buchwald. Or the lawyers who assisted on the contract. They were responsible for the contracts language. Am I right or wrong on this one? Feedback please.

  10. I bought a ugly looking Sirius receiver and a account for 12 months to listen to Stern his first year on Satellite radio. Within the first year I stopped listening and I never renewed my account with Sirius. I got turned off because Stern would have his mom and dad do his radio shows instead. If Stern decided he wanted a day off or more. Oftentimes Stern would tell the audience the day before his dad or mom and dad would fill in for him. What a pile of s Sterns was to his parents sit in for him! Maybe doing this once would of been a novelty. But after a few weeks of listening to his dad ramble was enough to turn me off completely. Screw Stern and I am glad he lost!

  11. watch the subscribers flee when he retires…short term gains for sirius in this one
    mailing it in or not he is entertaining.

  12. Stern has been mailing it in for the past eight years. He should walk away at the end of this year, when his contact is up. He already gave his employees a five-year severance, while giving the subscribers a substandard, three day a week product.

  13. I fully admit to not reading the (entire) article, but at one time, due to the content of the show, listeners had to opt in to the channel to be able to listen, not sure if it’s still the case or not but if it was at the time of the merger then an easy way to tell if he should be entitled to the bonus could be based on the number of listeners who opted in after the merger.

Comments are closed.