Mel Karmazin is no longer talking about satellite radio as an industry – he says Sirius XM, with $2.4 billion in annual revenues, is the second largest pure play radio company, behind only Clear Channel. And with anticipated growth, he expects to soon be number one. “Sirius [he forgot the XM part] is the best positioned company in the radio industry,” the Zen Master declared.
The CEO of the newly merged company says almost everyone has benefited from the completion of the long-delayed merger – subscribers, auto companies who sell the OEM receivers and talent. That’s pretty much everyone except shareholders, who have seen their share value sink. But Karmazin insists better days are ahead.
The CEO took note of shareholder concerns over the pricing of the $700 million in XM debt that was refinanced just prior to the closing in a difficult market. “We took the best deal [in the financing markets] to get the [merger] deal closed,” Karmazin said. Rather than wait and try to negotiate better terms, he said the company wanted to get the closing done right away after FCC approval, for fear that some opponent would get a court injunction to block the merger.
“We have no plans for a reverse split,” Karmazin insisted, although Sirius XM is now trading at a buck plus change. He said he didn’t see how a reverse split for the stock would add any value.
Addressing concerns about the impact of declining auto product on satellite radio growth, Karmazin laid out how Sirius XM would still gain three million new subscribers from the OEM side in the next model year. He said 12 million was the lowest estimate he’s seen of auto production. About 50% of those will be sold with satellite radio receivers in the dash. Of those six million cars and trucks, the blended conversion rate for XM and Sirius is also about 50%, so that’s three million new OEM subscribers “in a horrible auto production scenario,” Karmazin said.
In compliance with terms of its deal with the FCC to get the merger approved, Karmazin said new interoperable radios capable of receiving programming from both the Sirius and XM satellites will be available in retail stores this fall. Those interoperable receivers will be the only way for consumers to select a la carte programming, a favorite objective of FCC Chairman Kevin Martin. Karmazin said it will be up to automakers whether they want to offer interoperable receivers as OEM equipment, but “that’s many years away.”
RBR/TVBR observation: There has been no shortage of criticism of Clear Channel management in this publication, but at least that radio company has produced positive cash flow for every year of its existence. No one in subscription satellite radio has ever done so. Mel has promised that Sirius XM will accomplish that feat next year. That seems to us far more important than whether or not the company takes in more money on the top line than Clear Channel or anyone else in the free-to-consumers AM and FM radio business.