Mel is Sirius!

Michael Hedges November 19, 2004

Speaking to the NAB/Europe Radio conference Mel Karmazin gave no hints he was taking Sirius seriously.

“I took Infinity Broadcasting and Westwood One to leadership positions in the industry and am confident that Sirius will become a market leader in short order.”
Mel Karmazin

Sirius Satellite Radio announced (November 18) after Wall Street had closed for the day that former Viacom COO Mel Karmazin would join the company as CEO. Sirius stock price jumped immediately, almost 20%, in after hours trading.

It was the second jump in its stock price in just a few weeks. In October, New York shock jock Howard Stern put the US radio business in shock announcing he would be off FM and on to the bird at the end of his contract in 2005. Karmazin reportedly had a hand in negotiating the deal for Stern, worth $500 million over 10 years. 

Karmazin has been resting since parting company with Viacom Chairman Sumner Redstone in June. All reports indicated a difficult relationship between Mel – who prefers beer with the sales staff – and Sumner – who prefers champagne in Hollywood.

In his NAB/Europe keynote address in Lisbon that seemed oddly out of place to an audience of European radio broadcasters Karmazin spoke of the importance of more, not less ownership consolidation to attract more money from investors. Owning 20 stations in New York City, he said, would not create a monopoly as large as Microsoft’s in the software sector.

Karmazin has been skeptical of the subscription business model that powers Sirius and its healthier rival XM Satellite Radio. Selling ads and controlling costs made him rich and famous.

In an interview with the New York Times, Karmazin said he would not have considered working for Sirius seriously before the deal with his friend Stern.

Announcing his new job, he said he had studied the business plan and "I definitely think it works. I think that the programming on Sirius is compelling and I think at the end of the day people listen to compelling programming."

“I took Infinity Broadcasting and Westwood One to leadership positions in the industry and am confident that Sirius will become a market leader in short order.”

US media watchers attempting to read Mel’s mind suggest he will drop subscriptions and start selling ads, give away satellite receivers and cut deals with Ford and Chrysler or cast more exclusive franchise programming, like Howard Stern and US football. Any or all of these are possible.

Sirius lags behind XM in subscriptions by a factor of four. XM, which carries Major League Baseball in addition to 100 music channels, has 2.5 million subscribers.

The effect on Wall Street is clear: Karmazin “validates” satellite radio. For American terrestrial radio broadcasters it is just another problem. Audience shares have dropped since the consolidation fury and ad revenues have stagnated. Media buyers have again warmed to the Internet and cooled on radio’s over-commercialization, felt also in Europe. Several US radio companies announced plans to cut the number of commercial minutes per hour, finally yielding to both audience and media buyer pressure.     

Sirius Chairman Joe Clayton steps down from the CEO job but remains on board in the board meetings, certainly watching the stock price.