In effect, CBS says that Stern used its air time to promote his move to SIRIUS Satellite Radio.
Something went right because in January, 2006, SIRIUS gave Stern and his agent 34 million shares of stock worth $220 million dollars for passing subscribership goals.
Question: when Stern was promoting his move on the air – knowing he would gain financially for new subscribers - did he tread into a gray area of payola?
The Communications Act and the FCC’s rules require that:
Any broadcast station employee who has accepted or agreed to accept payment for the airing of program material, or the person making or promising to make the payment, must disclose this information to the station prior to the airing of the program...The information must be provided up the chain of production and distribution before the time of broadcast, so the station can air the required disclosure...These rules apply to all kinds of program material aired over radio and television stations. -FCC Web site
CBS maintains Stern didn’t disclose the details of his stock incentive clause with SIRIUS.
SIRIUS did disclose the following in a Securities and Exchange Commission filing dated October 1, 2004:
We are also obligated to make substantial stock-based incentive payments under the agreement if we significantly exceed agreed upon year-end subscriber targets during the term of the agreement, or acquire material amounts of subscribers during the term directly and trackably through Stern's efforts. In addition, upon reaching an agreed upon number of subscribers, we will share a portion of the revenue we derive directly from advertising on the Stern channels, and the revenue we derive from subscribers acquired during the term directly and trackably through Stern's efforts. - Securities and Exchange Commission Web site
Notice the wording "during the term of the agreement" which in the agreement is stated as January 1, 2006 through December 31, 2010. Well, on face value it simply appears to be a legitimate incentive plan for performance - based on performance beginning with the agreement and not promotion prior to it.
But, Stern was promoting his move on terrestrial stations before this agreement kicked in. Besides: this is SIRIUS' disclosure to a federal agency - not Sterns' disclosure to listeners.
Since I'm sure most of his listeners don't read SEC filings on a regular basis, was Stern under any obligation to disclose to them or CBS that he stood to benefit in SIRIUS stock shares if listeners ran out, bought a SIRIUS receiver, signed up and it was trackable to his urging or promotion?
Chris, a visitor to this site told me, "I am a huge Howard fan and I listen everyday to every second. He never revealed anything of any detail about his contract to any listeners, in fact it took a fan to have him reveal he was not working Fridays. Howard is notoriously quiet about the millions he has." Of course, that's just one listener's recollection.
When it comes to payola, the key is disclosure. If McDonalds gives me $1,000 dollars to pump up their Egg McMuffins on my radio show, it’s not illegal - as long as the listeners are informed I’m taking money from the home of the Hamburglar to talk about their breakfast food.
Radio is a powerful motivator and air time is valuable. If not from a legal sense than from an ethical one, shouldn't radio performers always disclose their interests in products or services they promote and benefit from?
Think what you may, but I think this is an interesting issue to ponder.
