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A shock to radio profits?
Tougher rules to rein in Howard Stern and other shock jocks could hit radio earnings long-term.
February 27, 2004: 9:40 AM EST
By Chris Isidore, CNN/Money Senior Writer

NEW YORK (CNN/Money) - As Congress and the FCC turn up the heat on obscenity and indecency on the air, investors have to ask if defanging radio shock jocks will produce a shock to broadcasters' bottom line.

Clear Channel Communications, the nation's largest radio broadcaster, pulled popular radio personality Howard Stern's show from its six stations that air his syndicated program Thursday morning, a move that analyst David Miller of Sanders Morris Harris estimates will cost the company about $12.4 million a year.

Howard Stern  
Howard Stern

Banc of America analyst Jonathan Jacoby estimates that the hit to Clear Channel will be even less because the replacement programing will see some kind of revenue stream of its own, and because Stern's show was a relatively expensive one to buy in syndication.

But Jacoby said that the move to tighten the rules on what can be said on the radio could have some important long-term consequences for the broadcasters.

"If shock jocks are really going to be limited, what would happen is you'd have to think some of these guys would start making their way to satellite radio," he said. "The shows would also be worth less to advertisers if there are less listeners.

"This (tightening up rules on obscenity) is not what the radio companies were looking for right now, but they're going into defense mode," he added. "It's become a political issue in a very political year."

Of course even a $12 million earnings hit won't lower analysts' forecasts for a company the size of Clear Channel (CCU: Research, Estimates), which has more than 1,200 radio stations and just reported 2002 earnings of $726 million, excluding special items on revenue of $8.9 billion.

But the company did just miss fourth-quarter earnings per share forecasts of 33 cents a share due to weaker than expected radio results when it reported EPS of 30 cents, the same as year-earlier results.

Stern does not work for Clear Channel though, he works for Infinity Broadcasting, a unit of Viacom (VIA.B: Research, Estimates), which also owns television networks CBS and UPN and cable networks such as MTV, in addition to movie studio Paramount.

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If the often volatile Stern were to quit doing his show or have it pulled altogether, it would likely cause analysts to cut earnings forecasts even for a company as large as Viacom, said Guzman & Co. media analyst David Joyce. But he said he's not sure that a milder version of Stern would necessarily hurt results.

"I don't think there will be a significant drop off in listenership," he said. "Even if the raciest of stations get too mild for some listeners' tastes, what would the alternative be for people when they're driving? It might bring some advertisers back who were tentative about applying their dollars to programs with racier materials."

Even with Clear Channel pulling the plug on the show, Stern can be heard on 35 other stations. Stern objected to the Clear Channel action on his show Thursday. He and his spokesmen were not available for comment after the show.

Joyce said that Clear Channel could afford to give up the Stern show more easily than could some of the smaller broadcasting companies that now air the show.

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"For smaller operators, having a show like Stern's can be the difference between profit and loss," he said. Jacoby said that Clear Channel pulling Stern could offer real earnings boosts to those companies if they pick up the Stern show in vacated markets.

Infinity has stood behind Stern in the past, paying a record $1.7 million fine from the FCC in 1995 for various comments he made on the air.

But the company fired two other New York-based shock jocks, known as Opie & Anthony, after it and other stations airing the show were hit with $375,500 in fines for a show that broadcast the description of a couple having sex in St. Patrick's Cathedral in New York. Sirius Satellite Radio is now reported to be considering adding the pair to its lineup.

Under current law, fines are only assessed against station owners, not the people who make the comment, and each violation is subject to a fine of no more than $27,500. Satellite radio is not currently covered by the same rules on obscenity, although FCC Commissioner Kevin Martin suggested at a conference Wednesday that the FCC should have more oversight of its content as well.

In addition Congress is expected to pass a tenfold increase in those fines early this year.

Clear Channel's suspension of Stern's show followed its firing of its own shock jock, Bubba the Love Sponge, whose show had been aired on four Florida stations. Last month Clear Channel was hit by a $755,000 fine by the Federal Communications Commission over Bubba's show.

The company, which saw its radio unit CEO John Hogan called to testify on obscenity in front of the House Energy and Commerce telecommunications subcommittee, announced new moves to reign in their on-air performers, saying any DJ would be suspended if the FCC proposed a fine, and would be fired if the company was found guilty of violating obscenity rules. It also said it would demand changes in all its DJs' contracts so that they share financial responsibility for any fines.

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