Contract Management Lessons from Howard Stern and SiriusXM Negotiations
Throughout March 2015 the negotiations between Howard Stern and SiriusXM got pretty intense.
And for good reason.
There are estimates that Stern brings in $200 million of the $4 billion that Sirius gets in annual revenue. Analysts are trying to figure out how many of SiriusXM’ subscribers would bolt if Stern were to leave. While negotiations continue to unravel in the next couple of weeks, here are three contract management lessons that you can gather from the Howard Stern-SiriusXM negotiations.
1. Establish and Measure Benchmarks
One major obstacle in the negotiations between the two parties is the lack of specific numbers in terms of subscribers. For example, back in 2004 when Stern announced his move from syndicated radio to paid satellite radio, analysts could determine that Stern was reaching about 20 million listeners.
Fast forward to 2015 and there are no exact numbers on how many people are listening to Stern. There are also no clear numbers as to how many people would stop subscribing to SiriusXM if Stern were to leave. Most analysts are only hanging on to an 800-people survey that says that 12% of respondents listen to Stern on a regular basis and that 5% of respondents would consider leaving Sirius XM if he was gone.
Because satellite radio is a one-way signal, it is very difficult to measure audiences. On top of that there is no ratings service, such as Nielsen, for SiriusXM. In your contracts, there shouldn’t be such ambiguity. Establish clear benchmarks and measure them on a regular basis. This way you can have negotiations that focus on objective data. These benchmarks can be included in the dashboard of your contract management system to provide contract managers quick access to key metrics.
2. Determine Your BATNA
First coined by Roger Fisher and William Ury in their 1981 bestseller, Getting to Yes: Negotiating Without Giving In, BATNA stands for “Best Alternative To a Negotiated Agreement”.
According to estimates from analyst Tuna Amobi, back in 2004 SiriusXM had a cost of acquisition per user of $200 per ad and now that number is down to just $30. This means that SiriusXM could determine a value at which paying Stern doesn’t make sense anymore. After all, the satellite radio company has been able to survive price hikes without serious subscriber defection. If Sirius is able to pocket in the money that it pays to Howard (about $80 million per year), the company could transfer the savings to its subscribers.
Just like SiriusXM, you have to determine a point at which it no longer makes sense to sit at the negotiation table. Cutting ties with difficult and, more importantly, with potentially difficult customers is one of four bad business habits to quit today.
3. Don’t Put All Your Eggs in One Basket
It is not that SiriusXM hasn’t tried to put all of its eggs in one basket. After all, at one point it had Martha Stewart and Oprah Winfrey on its roster of celebrity stars. However, it seems like analysts are having a hard time naming other famous hosts from Sirius XM.
There are Lance Bass, Dr. Laura Schlessinger, Ellen DeGeneres, and Jenny McCarthy just to name a few. Still, the focus of the media on Howard Stern shows how much he can overshadow all of the other hosts.
This is a situation that you have to avoid in your negotiations. Just as important it is to determine your BATNA, it is to have a plan B, a plan C, or even a Plan D! That way you won’t have more options than just taking a deal or leaving the negotiation table.
Three important lessons to learn from the negotiations between Howard Stern and SiriusXM are to establish and measure benchmarks, to determine your best alternative to a negotiated agreement, and to avoid putting all your eggs in one basket.