November 30, 2015

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Mel Karmazin: The “Zen Master” Speaks Out (09/15/08)

In February 2007, Sirius Satellite Radio and XM Satellite Radio announced plans to merge into one operating company — and battle lines were drawn throughout the broadcast industry. Controversial from the start, the merged company was considered a monopoly by many.

The roadblocks were enormous. The NAB, as well as others, threw their substantial weight behind trying to block the merger’s approval by the FCC. More than one industry watcher doubted that the deal would get done. After all, in an effort to ensure competition, the FCC had only granted two licenses in 1997, and had further stipulated that one licensee could not acquire the other. The hurdles appeared insurmountable.

But Mel Karmazin is a man to be reckoned with — a master at the art of making the deal, and making it work. At the helm of Sirius since 2004, his track record of success began in New York radio. As head of Infinity Broadcasting and, later, Viacom/CBS, Karmazin has often been referred to as a Wall Street darling because of his uncanny ability to drive up a company’s value. Radio host Don Imus dubbed him “The Zen Master.” With the Sirius/XM merger now accomplished, it’s a sure bet that combined company’s shareholders will now be looking to him to perform that same magic in the satellite world.
Following the FCC’s July 29 approval of the merger between XM and Sirius, Radio Ink asked Karmazin to reflect on the battle to complete the deal and his thoughts about the future of both terrestrial and satellite radio.

Radio Ink: Why do you think the NAB fought so hard against the XM-Sirius merger?
Mel Karmazin:
They fought so hard because a merged company makes satellite radio a stronger competitor, accelerates our growth, and makes us even more attractive to national advertisers. The NAB has a track record of fighting innovation. They fought because it’s clear more and more people every day decide to pay for radio, and are incredibly satisfied when they do. The merger eliminates confusion in the marketplace, and the NAB knows that makes us an even better competitor.

RI: If you'd been in broadcast radio when the satellite merger was announced, would you have fought it?
I would have fought it, but differently.

RI: What would have been different?
MK: For that, you’ll have to buy the book.

RI: As Sirius and XM's services are combined and new bandwidth opens up, can you share some of the programming plans?
There are lots of exciting new things coming, so stay tuned. Rest assured, we will deliver subscribers the best radio on radio.

RI: Before the merger, some groups suggested that bandwidth be released for a free, ad-supported satellite service. Is there any possibility of such a service in Sirius XM's future?
MK: That’s always possible. You will be hearing about many exciting plans in the months and years ahead.

RI: What will Sirius XM Radio look like in five years — in terms of subscriptions, advertisers, and revenues?
We have not given public guidance that far out, but I think in five years Sirius XM Radio will be a very profitable company with lots of free cash flow, and will reach much more than the 20 percent of the households that currently love satellite radio. And I hope we will be viewed as the best media company in the world.

RI: Having spent time in terrestrial radio, what is your perspective on that part of the industry now? Where do you think terrestrial broadcasters are missing the boat? What are they doing right?
I think terrestrial radio is a good business. It generates a significant amount of free cash flow, but it is a business that is not growing. Where they are missing the boat is by not investing in content and people. Some are doing it right, and they are the stations that are super-serving their local communities.

RI: What does the future look like for terrestrial radio?
Unlike in the ’80s and ’90s, terrestrial radio is no longer a growth story. It is not going away, and it will be a competitor for years to come, but there is no growth or any apparent catalyst to change that.

RI: If you weren't at Sirius XM, would you accept an offer to head a terrestrial radio company now? What would be your first priority?
A number of private-equity companies wanted to put up the money for Sirius to buy Clear Channel. I had no interest. I started a terrestrial radio company with two partners in 1981, and ultimately sold that company to Viacom for $20 billion as part of the $44 billion CBS Sale.

If I was in terrestrial radio, my first priority would be to sell more advertising.

RI: Some contend that satellite radio is a transitional technology that will last only until Internet radio is available in every car. What is your response to that argument?
You can talk as much as you like about technology, but it’s all about the content. There will always be lots of competition in audio entertainment, but I like our prospects. Six years after we started Infinity, we had about $100 million in revenue and $20 million in EBITDA. Six years after Sirius got its first subscriber, we had $2.4 billion in revenue, close to 19 million happy, paying subscribers, and in ’09 we expect to have $300 million in EBITDA. We love our chances of being a winning company. Though it is very competitive, I can’t think of an Internet radio company or a terrestrial radio company better positioned for the future than Sirius XM Radio.

RI: Who do you see as Sirius XM's competition?
Our competition is everyone in audio entertainment and everyone in old and new media, from terrestrial radio to TV to video games to websites to Internet radio. Our competition is everyone and anyone who wants the attention of our subscribers.

RI: You've had a long and successful career in a tough business. What advice can you offer young managers from the Mel Karmazin Playbook?
Work hard, surround yourself with the best team, focus on generating revenue and controlling expenses. And, oh yeah, have fun doing it.

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