Mel Karmazin insists Internet radio is no big threat


Sirius XM CEO Mel Karmazin isn’t buying the idea that broadband Internet in the dashboard of cars is going to put his company out of business. In fact, he insists that Internet radio is a bigger threat to AM and FM stations than to satellite radio.

“Make no mistake, this does represent competition, but we’ve lived with and grown tremendously despite intense competition since our inception,” Karmazin said of broadband Internet in his quarterly Wall Street conference call. “After all, how could we ignore the free competition from terrestrial radio, which represents 100% of the radio market when we launched service back in 2001? But over the years we’ve provided a superior product that consumers were willing to pay for and I don’t see wireless Internet radio having more impact on us than terrestrial radio has had,” he insisted.

“In fact, if you think about it, how will Internet radio generate revenue in the car? Presumably through subscription fees or through advertising. I challenge anyone to show me an Internet company or a collection of companies that provide the depth and breadth of content that we do at the same or better price point. I don’t think a subscription-based competitor is a viable concept in the near future, particularly with the advent of consumption-based wireless data plans. Alternatively, if they need to generate revenues through audio advertising, because we all know people aren’t going to be reading banner ads on their iPhones while they’re driving, then I have a hard time understanding why that’s any more potent a competitor than the ad-laden terrestrial radio that we’ve always competed against,” the satellite radio CEO said.

“To date satellite radio has gained share against terrestrial radio to constitute roughly 15% of the total radio revenue market. Internet radio today represents another 5% or so. So, therefore, terrestrial radio is still the behemoth in the marketplace with 80% market share and the most endangered by our future growth as well as that of Internet radio. We believe in the years ahead satellite radio will grow and IP-delivered radio will grow. This growth will take share from terrestrial radio. And don’t forget, Sirius XM is not standing still. We are continuing to innovate and expect to improve the value proposition to our subscribers over the years. Given all of this, I’m confident that we have significant potential to continue delivering strong operational and financial performance in the years ahead in spite of some of the risks that I mentioned,” Karmazin concluded.

RBR-TVBR observation: We respectfully disagree. Subscription satellite radio is a niche player – and that niche is proving to be much smaller than the founders of Sirius and XM (long before Karmazin got into the business) had pitched to the investment community. Once broadband is in the dash, fewer people will have any incentive to subscribe to satellite radio for its specialized music channels, since the Internet will offer numerous alternatives in every genre.

That leaves live sports and truly unique content like Howard Stern as the draws to keep people paying for subscription satellite radio. Will that niche be big enough to justify the continuing expense of keeping satellites aloft?

Not that we are predicting that Sirius XM will go out of business. Just like AM and FM stations, it is establishing a broadband foothold. A few decades out the company now called Sirius XM might well exist, but no longer use satellite delivery of its content.

And yes, Mel, AM and FM radio has been losing market share to satellite and Internet radio. When you start with 100% it is pretty difficult to increase your market share. So your point is correct, but meaningless.