Sirius CEO Karmazin Hosts Q&A on Stern
This morning, Sirius CEO Mel Karmazin stopped by the Howard Stern show for nearly an hour. The Stern staff and callers asked him questions regarding plans for the merger.
He said that merger Talk began nearly two years ago. XM passed on it then, but talks have been ongoing since. The companies’ lower stock prices combined with greater external competition has made the deal more appealing to both sides.
Click here to listen to the interview (54 minutes)
22MB // MP3 Audio // Credit: Guins
Monthly Price
When asked if rates will increase:
Mel: Sirius charged $12.95 when they started, and still charge $12.95 after signing Howard and Nascar. They’re not in a price war with XM, they’re in a price war with free radio.
He hinted the tiered programming plan may allow some subscribers to pay less than they do now. The pricing and the subscriber packages are still vague at this point, but pointed out there have been no rate hikes since he’s been CEO.
In response to Artie’s concern about vending machine prices increasing:
Mel: I don’t know how long we can keep the current pricing on our vending machine. Our service, we’re not going to raise the prices on our service, but I never said anything about the vending machine.
Mel: I wish I heard the good argument as to ‘why not [approve the merger]?’. If the argument is higher prices, I’m convinced that I can give people reason to believe that’s not going to happen.
Robin: If they don’t approve it [at first], could they say if you do this, this, and this…?
Mel: For example, if someone said ‘we’re concerned about pricing, is there something you can do to guarantee prices won’t increase’?. I mean, there are a number of things we’re prepared to do or trade off in this event.
Shared Content
Stern: What will happen after the merger?
Mel: “Your Sirius satellite radio […] will not become obsolete, and you’ll still be able to get all your Sirius programming. Our hope would be that as we negotiate through existing contracts from the partners that we’ll be able to add content like Baseball to the Sirius system so our subscribers would be able to get some of that desirable content.”
It looks like in-house talent could be on both services without a hitch. However, 3rd-party content providers may require some negotiations to be available on both services. No final word at this time.
Robin: Let me ask Mel about that. Do you see any value in sharing your talent with Free Radio?Mel: I haven’t seen any value in that. We compete with free radio. The fact that you have to pay for our service… the more different our content is, the better it is. I never saw any advantage with sharing our talent with terrestrial radio.
Regarding Opie & Anthony’s contract with Free FM to broadcast on both FM and XM, Mel says he’ll continue to honor any deals that have been made.
Technological Compatibility
Robin: But there’s no compatibility between the two systems?
Mel: Correct, and the same thing would be true of XM. If you have an XM radio currently, [that radio will not] be obsolete; we’d make our content available on those receivers as well.
Mel: Anyone planning to buy a radio during this time should feel free to do it. They’re not going to lose anything and if the deal is off, they won’t be any worse off.
Regulatory Approval
Mel: The benefits for the consumer, in my opinion, are very clear. There’s a general sense in Washington that ‘big is bad’; a merger is bad before anyone has a chance to look at it. I’m confident that when they take a look at the advantages, they’ll approve it. Both the R&D departments will be combined.
Without a merger, […] we could not come up with a way of sharing content. There are exclusive agreements that exist with these two companies today” Car companies don’t want two OEM tuners, the content providers are contractually obligated to one company over the other.
Stern: Give me odds. What’re the odds of this going through for real?
Mel: I will tell you what I told our board when I asked them to vote on the merger. I told them there were certainly anti-trust issues, so we’d go through the Justice Department. I think the chances of this getting passed is very good, and they can realize satellite radio is competing in a bigger market. At the FCC, there is a public standard question. At this point, we hope we can make the argument it’s in the public interest, but you’re dealing with these 5 commissioners.
Stern: So what’s the odds?
Mel: Certainly better than 50%, in my opinion. I know this is in the consumer’s best interest, and it’s not anti-competitive. I can’t see how they can go the other way, but it is a possibility.
Stern: I read in the paper that if it isn’t approved, all one company has to do is declare bankruptcy and the other one can acquire it. Can that ever happen?
Mel: Looking at the financial situation of both Sirius and XM, I can’t see that happening today.
Advertising
Mel: We have a little over 6mil subscribers today, they have 7.6 million subscribers. Each of us go to advertisers and compete with all these other companies. The ability to go into and talk to 13 million subscribers is much better. The advertising is not a very important part of the content, but it is a second revenue stream […] that makes it desirable.”
Merger Planning
Stern: So when you start getting close on this deal, were you nervous that someone was going to leak information that it was coming out? How do you keep something like this quiet?
Mel: Well you keep it private by having meetings in private places. We met in my apartment for a couple of the meetings as it was getting much more fluid so we had the bankers and representatives of XM visiting me in my apartment. We continued to work on what the advantages were to the shareholders at the end of the day. We knew we’d have to face regulatory approval…
Stern: Were there snags in the beginning? Was there an argument, like it almost didn’t work out?
Mel: Yeah, it didn’t work out for a long period of time, and most of the reason had to do with who gets 55% and who gets 45%. The XM argument was that they have more subscribers, they are worth more money than Sirius. They would argue that they have more relationships with car companies that produce more cars. We made the argument that we had far better content, our brand was stronger, and we are growing faster over the last couple years, and that we are narrowing the difference. At the end of the day it was better to be 50/50.
Stern: How did you get to be CEO?
Mel: The boards of both companies decided that would be in their best interest. I would have been happy to step aside if that would have made it work better. There was never any discussion for another CEO.
Stern: So how do we get this on the fast track? Robin: They say it’ll take a year or more Stern: A year, Mel! Come on.
Mel: We announced the merger on President’s Day because the market was closed. Tuesday morning we had a conference call with the investors and the press. At 10:30, we went over and met with each of the FCC commissioners and by 1pm we had met in person with all 5.
Stern: And what was that like? What was the vibe there? That must be a fun party.
There was a general skepticism, because a lot of media mergers have taken place, there’s a general sense against media mergers. We talked about why this is different, how these companies compete in a very big universe of audio services, how we’re not making money, we explained the argument about having these two different services.
Stern: Did they seem to buy into this?
Mel: I’ll let you know when they vote.
Mel: The one thing that I’ll feel good about is that I tried to make it happen. I have done everything possible to make it happen. If it doesn’t happen, we’ve tried, and we go back to business as it was before.
Mel: I’ll give you an example that wasn’t ever contemplated at the time of our licenses being issued. Virtually every car company is putting a jack in their cars so that people can put their MP3 player and plug it in so they can get their iPod choices in addition to the radio. I think that’s great for the consumer, and in no way did we lobby against getting those things done. I remember when they first came out with cell phones, the NAB didn’t want there to be cell phones in the car because it competes with being able to listen to radio. Those are the kinds of political issues that people raise.Stern: When is the earliest we’ll have a decision on this?Hopefully it’ll go through the process and a politician won’t stand up and try to kill the deal. We hope the political people are concerned about their constituents because it is in their best interest. I’m testifying in the house judiciary committee on Wednesday; testifying again next weekStern: This quickly? It goes down this fast?Mel: Tuesday, the day after the announcement, two congressional committees asked me to come down to Washington and testify.
Robin: What is the process? Who do you have to have approve this?
Mel: The justice department and the FCC. That’s it.
Stern: Some things they don’t care about. Why are they so concerned about this story?
Mel: Firstly, media. Clear Channel can own an unlimited number of radio stations in the US. People regard all media mergers the same and don’t realize Satellite radio is a really effective competitor to the Clear Channels of the world.
Stern: Do we have some sort of lobbyists representing this thing too?
Mel: We have people representing us with congress and with the FCC.
Robin: Are they any good?
Mel: If we get the deal, it’s good.
Stern: When you testify, will it be televised anywhere that I can watch?
Mel: I don’t know if C-SPAN will be covering it or not. When I got asked to speak in front of congress, I sort of relished it. It gives us the opportunity to get the story out. I’m really proud of what the companies would look like afterwords.
Stern: This is about the future of Satellite Radio and its success.
Mel: I believe that satellite radio, if allowed to combine, will be able to effectively compete down the road with all the technology that’s out there. If it’s not approved, i’m less confident, but I’m also optimistic that we can.
Dominic Barbara (on Phone): Hi, Mel. There’s supposed to be a rational basis if they don’t allow it. You can go to court about it, correct?
Mel: The process of going to court is so time consuming, and you tend not to go to court. You’re talking about years. The cost and distraction of it mean it’ll get approved or the deal will get killed.
Stern: One of the things I like about this deal is it’s got me pumped-up. I’ll have a bigger audience in a flash, which also adds to the show. The more listeners you have, the more action there is. I’m excited about this, and I think in some way I’m gonna feel deflated.
Stern: Let’s get to Omar in San Jose
Omar (on phone): Are you going to retain CEO title?
Stern: Yes!
Omar (on Phone): Oh, so you are going to retain it. After this is approved, are you going to acquire such talents as Adam Corolla, maybe?
Stern: That’s what this whole thing is about. Mel confided in me that this merger would enable us to get Adam Corolla, perhaps.
Bill in New York: My question is ‘what’re they going to call it?’
Mel: We haven’t committed to a name, as we get closer to it we will announce what it will be.
Stern: Would you switch to a new name or assume XM’s or Sirius’ name?
Mel: I couldn’t imagine changing it to a new name, but I’d be open to hearing why we should do that.
Wack Pack Name Submissions:Wendy: Jessica - It’s a pretty name
Blue Iris: Howard Stern - He’s the man
Riley Martin: SiriuM! - Hehehah. Like a serum, a healing type of a power that’s bringing everything together.
King of All Blacks: Surge - Like Power Surge. That’s the new name.
Jeff the Drunk: I don’t give a [care].
Mel: Within the next month we’ll file the applications with the regulators.
Robin: How long does that take?
Mel: If they see the world as we do, it can take 3-4 months. It could take between 6-9 months and hope to have regulatory approval by the end of the year.
Mark in Boston (on Phone): I’ve been through a media merger The only people who benefit are the guys on the top.
Mel: It’s a good point, but that holds true for only aged companies. We don’t have a lot of un-necessary employees.
Stern: Mel, don’t do any kind of ecstasy or amphetamines before you go to congress to mess this thing up.
He said that merger Talk began nearly two years ago. XM passed on it then, but talks have been ongoing since. The companies' lower stock prices combined greater external competition has made the deal more appealing to both.
The following were created to the best of my ability; Sirius Backstage and I are not responsible for any inaccuracies.
<h3>Monthly Price</h3>
<span style="font-style: italic">When asked if rates will increase:</span>
Mel: Sirius charged $12.95 when they started, and still charge $12.95 after signing Howard and Nascar. They're not in a price war with XM, they're in a price war with free radio.
<p style="margin-left: 40px">He hinted the tiered programming plan may allow some subscribers to pay less than they do now. The pricing and the subscriber packages are still vague at this point, but pointed out there have been no rate hikes since he's been CEO.</p>
<hr width="50%" />
<p style="margin-left: 40px; font-style: italic">In response to Artie's concern about vending machine prices increasing:</p>
Mel: I don't know how long we can keep the current pricing on our vending machine. Our service, <strong>we're not going to raise the prices on our service</strong>, but I never said anything about the vending machine.
<hr width="50%" />Mel: I wish I heard the good argument as to 'why not [approve the merger]?'. <span style="font-weight: bold">If</span> the argument is higher prices, <span style="font-weight: bold">I'm convinced that I can give people reason to believe that's not going to happen</span>.
<hr width="50%" />
<p style="font-style: italic">Robin: If they don't approve it [at first], could they say if you do this, this, and this...?</p>
Mel: For example, if someone said 'we're concerned about pricing, is there something you can do to guarantee prices won't increase'?. I mean, there are a number of things we're prepared to do or trade off in this event.
<h3>Shared Content</h3>
<em>Stern: What will happen after the merger?</em>
Mel: "Your Sirius satellite radio [...] will not become obsolete, and you'll still be able to get all your Sirius programming. Our<strong> </strong>hope would be that as we negotiate through existing contracts from the partners that we'll be able to add content like Baseball to the Sirius system so our subscribers would be able to get <strong>some of</strong> that desirable content."
<p style="margin-left: 40px">It looks like in-house talent could be on both services without a hitch. However, 3rd-party content providers may require some negotiations to be available on both services. No final word at this time.</p>
<hr width="50%" />
Robin: Let me ask Mel about that. Do you see any value in sharing your talent with Free Radio?Mel: I haven't seen any value in that. We compete with free radio. The fact that you have to pay for our service... the more different our content is, the better it is. <strong>I never saw any advantage with sharing our talent with terrestrial radio.</strong>
<p style="font-weight: bold">Regarding Opie & Anthony's contract with Free FM to broadcast on both FM and XM, Mel says he'll continue to honor any deals that have been made.</p>
<h3>Technological Compatibility</h3>
<em>Robin: But there's <span style="font-weight: bold">no compatibility</span> between the two systems?</em>
Mel: <span style="font-weight: bold">Correct</span>, and the same thing would be true of XM. If you have an XM radio currently, [that radio will not] be obsolete; we'd make our content available on those receivers as well.
<hr width="50%" />
Mel: Anyone planning to buy a radio during this time should feel free to do it. They're not going to lose anything and if the deal is off, they won't be any worse off.
<h3>Regulatory Approval</h3>
Mel: The benefits for the consumer, in my opinion, are very clear. There's a general sense in Washington that 'big is bad'; a merger is bad before anyone has a chance to look at it. I'm confident that when they take a look at the advantages, they'll approve it. Both the R&D departments will be combined.
Without a merger, [...] we could not come up with a way of sharing content. There are exclusive agreements that exist with these two companies today" Car companies don't want two OEM tuners, the content providers are contractually obligated to one company over the other.
<hr width="50%" />
<p style="font-style: italic">Stern: <span style="font-weight: bold">Give me odds</span>. What're the odds of this going through for real?</p>
Mel: I will tell you what I told our board when I asked them to vote on the merger. I told them there were certainly anti-trust issues, so we'd go through the Justice Department. I think the chances of this getting passed is very good, and they can realize satellite radio is competing in a bigger market. At the FCC, there is a public standard question. At this point, we hope we can make the argument it's in the public interest, but you're dealing with these 5 commissioners.
<p style="font-style: italic">Stern: So what's the odds?</p>
Mel: Certainly better than 50%, in my opinion. I know this is in the consumer's best interest, and it's not anti-competitive. I can't see how they can go the other way, but it is a possibility.
<p style="font-style: italic">Stern: I read in the paper that if it isn't approved, all one company has to do is declare bankruptcy and the other one can acquire it. Can that ever happen?</p>
Mel: Looking at the financial situation of both Sirius and XM, I can't see that happening today.
<h3>Advertising</h3>
Mel: We have a little over 6mil subscribers today, they have 7.6 million subscribers. Each of us go to advertisers and compete with all these other companies. The ability to go into and talk to 13 million subscribers is much better. The advertising is not a very important part of the content, but it is a second revenue stream [...] that makes it desirable."
<!--more-->
<h3>Merger Planning</h3>
S<em>tern: So when you start getting close on this deal, were you nervous that someone was going to leak information that it was coming out? How do you keep something like this quiet?</em>
Mel: Well you keep it private by having meetings in private places. We met in my apartment for a couple of the meetings as it was getting much more fluid so we had the bankers and representatives of XM visiting me in my apartment. We continued to work on what the advantages were to the shareholders at the end of the day. We knew we'd have to face regulatory approval...
<em>Stern: Were there snags in the beginning? Was there an argument, like it almost didn't work out?</em>
Mel: Yeah, it didn't work out for a long period of time, and most of the reason had to do with who gets 55% and who gets 45%. The XM argument was that they have more subscribers, they are worth more money than Sirius. They would argue that they have more relationships with car companies that produce more cars. We made the argument that we had far better content, our brand was stronger, and we are growing faster over the last couple years, and that we are narrowing the difference. At the end of the day it was better to be 50/50.
<em>Stern: How did you get to be CEO?</em>
Mel: The boards of both companies decided that would be in their best interest. I would have been happy to step aside if that would have made it work better. There was never any discussion for another CEO.
<em>Stern: So how do we get this on the fast track? Robin: They say it'll take a year or more Stern: A year, Mel! Come on.</em>
Mel: We announced the merger on President's Day because the market was closed. Tuesday morning we had a conference call with the investors and the press. At 10:30, we went over and met with each of the FCC commissioners and by 1pm we had met in person with all 5.
<em>Stern: And what was that like? What was the vibe there? That must be a fun party.</em>
There was a general skepticism, because a lot of media mergers have taken place, there's a general sense against media mergers. We talked about why this is different, how these companies compete in a very big universe of audio services, how we're not making money, we explained the argument about having these two different services.
<em>Stern: Did they seem to buy into this?</em>
Mel: I'll let you know when they vote.
<hr width="50%" />Mel: The one thing that I'll feel good about is that I tried to make it happen. I have done everything possible to make it happen. If it doesn't happen, we've tried, and we go back to business as it was before.
<hr width="50%" />Mel: I'll give you an example that wasn't ever contemplated at the time of our licenses being issued. Virtually every car company is putting a jack in their cars so that people can put their MP3 player and plug it in so they can get their iPod choices in addition to the radio. I think that's great for the consumer, and in no way did we lobby against getting those things done. I remember when they first came out with cell phones, the NAB didn't want there to be cell phones in the car because it competes with being able to listen to radio. Those are the kinds of political issues that people raise.<em>Stern: When is the earliest we'll have a decision on this?</em>Hopefully it'll go through the process and a politician won't stand up and try to kill the deal. We hope the political people are concerned about their constituents because it is in their best interest. I'm testifying in the house judiciary committee on Wednesday; testifying again next week<span style="font-style: italic">Stern: This quickly? It goes down this fast?</span>Mel: Tuesday, the day after the announcement, two congressional committees asked me to come down to Washington and testify.
<p style="font-style: italic">Robin: What is the process? Who do you have to have approve this?</p>
Mel: The justice department and the FCC. That's it.
<p style="font-style: italic">Stern: Some things they don't care about. Why are they so concerned about this story?</p>
Mel: Firstly, media. Clear Channel can own an unlimited number of radio stations in the US. People regard all media mergers the same and don't realize Satellite radio is a really effective competitor to the Clear Channels of the world.
<p style="font-style: italic">Stern: Do we have some sort of lobbyists representing this thing too?</p>
Mel: We have people representing us with congress and with the FCC.
<p style="font-style: italic">Robin: Are they any good?</p>
Mel: If we get the deal, it's good.
<p style="font-style: italic">Stern: When you testify, will it be televised anywhere that I can watch?</p>
Mel: I don't know if C-SPAN will be covering it or not. When I got asked to speak in front of congress, I sort of relished it. It gives us the opportunity to get the story out. I'm really proud of what the companies would look like afterwords.
<p style="font-style: italic">Stern: This is about the future of Satellite Radio and its success.</p>
Mel: I believe that satellite radio, if allowed to combine, will be able to effectively compete down the road with all the technology that's out there. If it's not approved, i'm less confident, but I'm also optimistic that we can.
<hr width="50%" />
<p style="font-style: italic">Dominic Barbara (on Phone): Hi, Mel. There's supposed to be a rational basis if they don't allow it. You can go to court about it, correct?</p>
Mel: The process of going to court is so time consuming, and you tend not to go to court. You're talking about years. The cost and distraction of it mean it'll get approved or the deal will get killed.
<p style="font-style: italic">Stern: One of the things I like about this deal is it's got me pumped-up. I'll have a bigger audience in a flash, which also adds to the show. The more listeners you have, the more action there is. I'm excited about this, and I think in some way I'm gonna feel deflated.</p>
<hr width="50%" />
<p style="font-style: italic">Stern: Let's get to Omar in San Jose</p>
<p style="font-style: italic">Omar (on phone): Are you going to retain CEO title?</p>
<p style="font-style: italic">Stern: Yes!</p>
<p style="font-style: italic">Omar (on Phone): Oh, so you are going to retain it. After this is approved, are you going to acquire such talents as Adam Corolla, maybe?</p>
<p style="font-style: italic">Stern: That's what this whole thing is about. Mel confided in me that this merger would enable us to get Adam Corolla, perhaps.</p>
<hr width="50%" />
<p style="font-style: italic">Bill in New York: My question is 'what're they going to call it?'</p>
Mel: <span style="font-weight: bold">We haven't committed to a name</span>, as we get closer to it we will announce what it will be.
<p style="font-style: italic">Stern: Would you switch to a new name or assume XM's or Sirius' name?</p>
Mel: <span style="font-weight: bold">I couldn't imagine changing it to a new name</span>, but I'd be open to hearing why we should do that.
<hr width="50%" />
Wack Pack Name Submissions:Wendy: Jessica - It's a pretty name
Blue Iris: Howard Stern - He's the man
Riley Martin: SiriuM! - Hehehah. Like a serum, a healing type of a power that's bringing everything together.
King of All Blacks: Surge - Like Power Surge. That's the new name.
Jeff the Drunk: I don't give a [care].
<hr width="50%" />Mel: Within the next month we'll file the applications with the regulators.
<p style="font-style: italic">Robin: How long does that take?</p>
Mel: If they see the world as we do, it can take 3-4 months. It could take between 6-9 months and hope to have regulatory approval by the end of the year.
<hr width="50%" />
<p style="font-style: italic">Mark in Boston (on Phone): I've been through a media merger The only people who benefit are the guys on the top.</p>
Mel: It's a good point, but that holds true for only aged companies. We don't have a lot of un-necessary employees.
<hr width="50%" />
<p style="font-style: italic">Stern: Mel, don't do any kind of ecstasy or amphetamines before you go to congress to mess this thing up.</p> by jeff94
Fixed code. Please merge with other thread. by jeff94
Something tells me he won't be going in blackface! by geosync
Absolutely no substance yet to make any kind of decision, I'm still against it. Hopefully the FCC will get more substance out of Mel so we can all get an idea how this is going to affect us. Howard is a pussyfoot for not asking the hard questions but I guess he won't bite the hand that feeds him. He kinda offended me when he said he and ALL his listeners were behind the merger. by D0TC0M
Absolutely no substance yet to make any kind of decision, I'm still against it. Hopefully the FCC will get more substance out of Mel so we can all get an idea how this is going to affect us. Howard is a pussyfoot for not asking the hard questions but I guess he won't bite the hand that feeds him. He kinda offended me when he said he and ALL his listeners were behind the merger.
Jeff, I agree, great, and accurate, recap.
I agree with you too D0TC0M. Also, Mel was a salesman, and a very good one. But I still don't think this buyout will be approved. by HomieG
I think they'll raise it just to the point where not too many will bolt. by geosync
Absolutely no substance yet to make any kind of decision, I'm still against it. Hopefully the FCC will get more substance out of Mel so we can all get an idea how this is going to affect us.
Stern sidekick Artie Lange only concern was that his voracious appetite would be impacted by a rise in prices for the vending machine cupcakes, cookies and poptarts he consumes in great quantities. Mel was unable to assure Artie that the vending machine prices would not be raised, much to Artie's chagrin. by Jgatie
In this case, these merger details may not be fully hashed out or ready to be made public.
As far as consumer benefit, I have to be skeptical at the idea of a monopoly on satellite radio being a good thing in any way. Theres no competitive pressure of price, content, or technology. by drdank
So far as competitive pressure in satrad, XM would have probably never gone to commercial free music channels had Sirius not forced their hand. I think most XM subscribers would have no problem thanking Sirius for putting that pressure on XM.
The fact that XM overburdened their bandwidth with "duplicate" channels after CC forced them to run commercials on a few music channels shows how intense the competion is. This spawned a new raft of SQ complaints from XM listeners, so I'm not sure they would thank competition for that. However, most that understand the situation blame CC for the poor SQ, not competition with Sirius.
My take on the proposed merger? As a dual sub, merger would benefit me if they produce the interoperable receiver they should have been selling for a couple years. Other than that, details are too hazy to determine whether I will benefit or lose. I'm already paying a lot to be a dual sub, maybe it will go down, maybe it will go up. Can't tell yet. Sometimes I want a tighter playlist (most Sirius) sometimes I want to hear more variety (most XM). I do feel that Lee Abrams is a programming genius and will be a big asset if he stays and a great loss if he leaves. This guy knows and lives music and will improve all kinds of music channels by focusing the programmers on us, the audience.
As a dual sub who currently hears both "sides", I hope, with a merger, we don't lose what makes each side great. If they can do that, I'm on board. If merged satrad becomes the disaster that the terrestrial radio mergers produced, or if it becomes the sea of infomercials that cable TV has become, I guess I'll be looking elsewhere. by tps