04.04.10

Should Charlie Sheen Get a Raise?

Like $100 million man Howard Stern, he’s threatening to walk if he doesn’t get one. Peter Lauria crunches the numbers to show why both men deserve more money.

Like $100 million man Howard Stern (that's more than $120,000 for every hour on the air!), Charlie Sheen is threatening to walk if he doesn’t get more money. Peter Lauria crunches the numbers to show why both men deserve more.

UPDATE: Howard Stern responds to the Daily Beast article on his contract

Howard Stern agrees with us that he's underpaid (surprise!). On today's broadcast, referencing a Daily Beast article arguing that Stern deserved more money, the King of All Media all but said that he planned to leave Sirius XM if they don't pay him a ransom fitted for royalty.

"I know I'm underpaid, I know the numbers," Stern said after his colleague Steve Langford quoted figures from The Daily Beast estimating that the shock jock has generated close to $1 billion in revenue for Sirius XM since joining in Jan. 2006.

Sounding like a man who has been disrespected, Stern says he's out the door once his 5-year, $500 million contract expires on Dec. 31.

Video screenshot


Howard Stern reacts to The Daily Beast's coverage

"I live for the 8 months to be up," he said. "Goodbye! Who's gonna laugh now? Now I'm gonna laugh."

Former employer Infinity Radio--now CBS Radio--got the brunt of Stern's venom, however. While the lesbian-loving loudmouth says he has no negative feelings towards Sirius XM, he added that he was treated unfairly by Infinity, whose CEO during Stern's day at the company, Mel Karmazin, is now the top dog at Sirius XM, and thus the guy across the table from Stern in contract negotiations.

"All the years I worked for Infinity, I was grossly underpaid," Stern said. "I was as responsible as anyone else for the success of Infinity. I was not treated fairly there. They must've had a good laugh."

Then, ending the segment, Stern played a recording of a sinister laugh--a hint, perhaps, to Sirius XM that he plans on getting the last one.

Charlie Sheen and Howard Stern share more than a love of lesbians. Both men also have a penchant for controversy, whether it be Sheen's alleged Christmas Day knife attack on wife Brooke Mueller, or Stern's recent verbal attack on Precious star Gabourey Sidibe's weight. Sheen and Stern, little-known to most people, also grappled with obsessive-compulsive disorder in the past. And Sheen has been responsible for some of the most enduring moments on Stern's show with his legendary tales of drug-fueled sexual exploits with Heidi Fleiss' harem.

The two entertainers also share a keen sense of how to use the media for leverage in contract negotiations, as evidenced by Friday's report in People magazine that Sheen is considering leaving his starring role on the hit comedy show Two and a Half Men after this season. For his part, Stern had pundits perspiring for weeks at the prospect—bogus, it turned out —of replacing Simon Cowell as a judge on American Idol next season.

A back of the envelope calculation suggests that Two and a Half Men is a more than $500 million franchise.

While neither star is likely to leave their current shows, they are both raising the possibility of doing so as a tool to renegotiate their contracts—Sheen's is already expired; Stern's is up at the end of the year. If it's true, as Syrian slave poet Publilius Syrus wrote in the 1st century BC, that "everything is worth what the purchaser will pay for it," then Sheen and Stern believe they are more valuable than their current contracts suggest.

That sounds ridiculous given Sheen's current rate of $825,000 per episode and Stern's nearly $500,000 per show, but a closer look at the numbers reveals that both performers might actually be underpaid relative to what their shows generate. For Warner Bros. and CBS, which produce and air Two and a Half Men respectively, and Sirius XM Radio, the King of All Media's broadcast home, losing Sheen or Stern could mean losing hundreds of millions—if not billions—of dollars in revenue.

Two and a Half Men has been television's highest-rated comedy ever since Everybody Loves Raymond went off the air in 2005 and regularly ranks among the top five most-watched shows on all of television. This season, its seventh, the show has averaged 13.9 million weekly viewers, according to Nielsen, not that far below its peak audience of 16.5 million viewers for the 2004-2005 season.

Two and a Half Men acts as the anchor show for CBS' Monday night comedy lineup, which ranks as one of the network's most-watched nights of the week. According to Brad Adgate, senior vice president for research at Horizon Media, without Sheen not only would Two and a Half Men suffer, but so would Big Bang Theory, How I Met Your Mother, and Rules of Engagement.

"The strength of Two and a Half Men is Sheen, viewers like him," says Adgate. "Those other shows got on track by riding the coattails of Two and a Half Men and, by extension, Sheen."

Financially, revenue from the show is divided between Warner Bros. and CBS. As producers, Warner Bros. gets an undisclosed licensing fee from CBS as well as all of the syndication and DVD revenue. CBS makes its money from selling the advertising inventory on live and repeat broadcasts, plus a portion of online and digital revenue. Precise figures are hard to come by, but a back of the envelope calculation suggests that Two and a Half Men is a more than $500 million franchise.

According to trade magazine Advertising Age, a 30-second spot on Two and a Half Men costs $226,635. A typical half-hour show has around 6-7 minutes of commercial time, or 12-14 commercials, per episode. That equates to between $2.7 million and $3.2 million in advertising revenue per episode for CBS, or between $60 million and $70 million a season, for 22 original episodes. Those figures do not include an unspecified number of repeats CBS is allowed to run per season. While advertising rates were likely cheaper when the show began and rose in price along with its popularity, those figures equate to a raw total of between $420 million and $490 million in advertising revenue alone for first-run broadcasts of the show over the course of seven seasons.

Warner Bros.' take from Two and a Half Men is murkier still because the studio doesn't disclose syndication and DVD sales figures. According to a recent Variety report, however, Warner Bros. is estimated to collect $4 million per episode for the show since it began airing in syndication in the fall of 2007.

Thus, even in the midst of a domestic-abuse scandal and trip to "prehab," as Sheen's handlers are calling a preemptive visit to alcohol and drug counseling the actor took last month, Sheen evidently feels empowered to turn down a $1 million per episode offer from Warner Bros. (For more on Sheen's legal issues, check this out.) Given the above numbers, Sheen's reported asking price of $1.5 million per episode for the next two seasons, or $66 million in total, appears downright reasonable.

To be sure, as large as Sheen's legal problems are—he faces up to three years in prison on charges of felony menacing and misdemeanor third-degree assault and criminal mischief—CBS and Warner Bros. would be faced with a bigger problem of producing Two and a Half Men for two more seasons without its lead character if he were to leave. Sheen is due to stand trial on July 21, and part of the reason why reports about him possibly leaving the show are coming out now is to pressure Warner Bros. and CBS into inking a new contract quickly.

If Sheen's salary is reasonable, then Stern's is flat-out cheap by comparison. CBS didn't need saving before Sheen arrived, and his show didn't save the network. Before Stern arrived, however, Sirius' business was in serious trouble.

Five years ago, on the brink of bankruptcy, in desperate need of big-name talent, and prior to its merger with XM, Sirius made the bold move of signing Stern, the single most identifiable personality in all of radio, to a five-year, $500 million contract. After accounting for a four-day work week—eight weeks of vacation, and 10 standard federal holidays, according to a source who's seen his contract—Stern only works 166 days per year.

With a four-hour show length, that equates to just 664 hours per year of new programming, though Sirius XM supplements the live show with specials like The Wrap-Up Show, Superfan Roundtable, and other shows hosted by Stern sidekicks that allow the company to capitalize on the Stern name without actually featuring the shock jock himself.

Put another way, using Stern's $80 million in annual cash and stock compensation—$20 million of his $100 million yearly salary goes to production costs for the show and staff salaries, according to Wall Street analysts—the shock jock makes more than $120,000 for every hour on the air.

Stiil, David Kestenbaum, a radio industry analyst for Morgan Joseph, says that Stern's contract is worth every penny.

"Of all their major content deals, his was the one that we consider to be money well spent," says Kestenbaum.

Added Walter Sabo, a veteran of ABC and NBC radio and founder of consulting firm Sabo Media: "He made the medium. Howard's hiring was the single most important event in satellite radio's history. It's difficult to overstate what Howard's presence means to Sirius XM. A lot of the company's subscriber base is highly dependent on him being there."

While its impossible to determine the precise number of people who subscribe to Sirius XM solely because of Stern, analysts put the number at between 2 million and 2.5 million. The real number may be higher. At the end of 2005, the year before Stern began infiltrating the satellite airwaves with his raucous brand of lesbian-loving humor and cadre of castoff characters, Sirius has 3.3 million subscribers. By the end of 2006, it had 6 million subscribers, and a year later that number had grown to 8.3 million.

But even using the conservative estimates of Wall Street analysts, Stern is still clearly a revenue rainmaker for Sirius XM. Using the basic subscription price of $13 per month, or $156 per year, Stern loyalists account for gross annual revenue of between $312 million and $390 million, respectively. Kestenbaum estimates that 40 percent of that revenue goes to operating expenses, meaning Sirius banks 60 percent of the revenue Stern generates. That means between $187 million and $234 million of Sirius XM's bottom line is directly attributable to Stern. Using those figures, Stern will have generated between $935 million and $1.2 billion in revenue for Sirius XM by the time his contract is up on Dec. 31.

More importantly, after signing Stern, merging with XM in 2008, weathering last year's auto industry collapse and receiving a $540 million loan from Liberty Media, Sirius XM is finally on stable if not solid financial footing. The company expects to generate $2.7 billion in revenue this year and add 500,000 subscribers for a total of more than 19 million, which, for some perspective, is more than DirecTV and Time Warner Cable.

Stern doesn't appear to be angling for more money in contract talks. Newly married and closing in on 60—he turned 56 in January—he's been hinting that he might want to slow down a bit. Conventional wisdom on Wall Street is that Stern will ink a new deal to work less hours for less money.

Sabo, however, thinks Stern could work less and get paid the same or more than he does now. He uses Sheen's salary to illustrate his point. Sheen, Sabo notes, makes $18.2 million a year for 11 hours of programming—22 half-hour episodes—that he doesn't write and whose staff he isn't responsible for.

"Howard does 10 hours of programming in two days, most of which he writes himself," says Sabo. "He does his job better than anyone out there. That's the kind of guy you reward."

Indeed, Sabo says the best way to judge Stern's value is not in terms of hourly wage or subscriber numbers, but by this simple observation: "He's the only person on satellite radio that anybody wants to talk about."

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Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post.