He’s heard all the hoopla about Pandora – in fact, Sirius XM CEO Mel Karmazin told a Lazard Capital Markets Technology and Media Conference in Boston Tuesday (3/15) that he’s been approached for investment by just about every would-be “Pandora-killer” start-up – but the satellite radio guy isn’t worried about Internet radio. AM and FM radio stations still dominate the market – and that’s who he is targeting.
As Karmazin explained it, even in the New York City market, with so many stations, there is no country station, while Sirius XM has several Country offering. And in small markets with fewer stations, satellite radio offers many formats that don’t exist locally. “And we think that the big opportunity for us is to tap into terrestrial radio’s audience. The radio industry – terrestrial radio – is the big factor,” he said.
So while terrestrial radio had about $16 billion in revenue last year, Sirius XM is expecting $3 billion in revenues this year “and then you have all of this Internet stuff,” Karmazin said, putting Internet radio at around $1 billion. So he calls his company’s $3 billion “a very small piece of the pie.”
“90% of the people are listening to terrestrial radio today. We think that we have a value proposition because of the content that we have. When you think about it…their business model in terrestrial radio is ‘we will provide it to you with no cash payment, but you’ve got to pay us by listening to the commercials’ and a lot of people would rather pay us 50 cents a day and not have to hear all of those commercials,” Karmazin told the investor conference.
Now that Sirius XM is profitable post-merger and throwing off lots of free cash flow since it is not currently having to launch any new satellites, cash is piling up in the corporate coffers. Having passed on Internet radio investments, the company’s board is evaluating options to return cash to shareholders at some point. But what about the idea of buying a terrestrial radio company?
“I believe that the multiples of where radio is selling today are not warranted based on the likely growth rate,” Karmazin said.