Karmazin Brings Sirius Starpower to Radio

Sirius Satellite Radio's hiring of former Viacom President Mel Karmazin as its new chief executive is its most aggressive move yet to steal market share away from larger rival XM Satellite Radio. It's also the clearest signal so far that the satellite upstarts intend to be real competitors in the media world.

The move is being closely watched by Wall Street and traditional broadcasters, which could lose listeners and money as subscription-based radio continues to grow with new star power in its talent and executive ranks. For Sirius, it's the second major coup in a month after it hired shock jock Howard Stern away from Viacom's Infinity Broadcasting. XM, of course, still boasts more than double the subscribers, but who's to say how long that will last.

Radio companies take note: "It almost rhetorically sends the signal that Karmazin actually thinks that terrestrial radio is dead," Sanders Morris Harris analyst David Miller told the New York Times. "For him to sign on with Sirius is a validation of the technology."

"Sirius and the entire nascent satellite radio industry got a giant boost with the appointment of Karmazin, a hard-driving executive credited with building Infinity Broadcasting into a radio powerhouse," the New York Post reported. The New York Times explained that "Karmazin's new charge is to establish the fledgling medium of pay radio as a significant competitor to commercial broadcast radio, which puts him in direct competition with his former employer, the owner of the country's second-biggest radio division."

The Wall Street Journal also gave Sirius the upper hand. "The signing of Mr. Karmazin to a five-year contract again demonstrates Sirius's aggressiveness in gaining traction for its burgeoning service, and its desire to compete hard with rival satellite provider XM Satellite Radio Holdings Inc."
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From The Washington Post: "[It is the] second high-profile coup for New York-based Sirius, which has nearly 800,000 subscribers but stunned the industry last month with a five-year, $500 million deal to lure radio shock jock Stern from Viacom at the start of 2006." Stern's leap from traditional radio to Sirius had a lot to do with Karmazin's decision. "When they made that decision to hire Howard, it truly transformed satellite radio," he told The Washington Post's Howard Kurtz. "He also cited Sirius's deal to carry National Football League games."
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Washington-based XM Satellite is still trouncing Sirius when it comes to subscribers, but Wall Street is already giving Sirius more credibility. Shares of Sirius climbed 20 percent in after-hours trading on the news.

"Karmazin's announcement had almost as much impact. It added more than $1 billion to Sirius' market value. Its stock, which had closed at $4.72, soared almost 20% in after-hours trading," USA Today reported. "This is a one-two punch," SG Cowen Securities analyst Tom Watts told the paper. "Up to now, Sirius has been more of a technology company. Seeing Howard come over, and now Mel, is transforming it into show business."
• USA Today: Sirius Hires Karmazin As CEO

The Second-Brightest Star in the Sky

"Sirius, which airs 120 channels of mostly commercial-free sports, news and music, has about 800,000 subscribers, and expects to close the year with about 1 million. Still, it trails the 2 million subscribers at rival XM," the New York Post said. "But the combination of Karmazin and Stern, who is also believed to have an equity stake in the company, could go a long way toward catapulting Sirius ahead of XM." The Post wrote that Karmazin is netting $120 million and a 2 percent stake in Sirius. The New York Times gave more details on his pay package: "Karmazin's five-year contract will pay him $1.25 million annually, plus 30 million stock options, with 20 percent of that vesting each year. Mr. Karmazin succeeds Joseph P. Clayton, who will remain as chairman."

Karmazin is undoubtedly bullish, but Sirius is still the little Dog Star when it comes to subscribers. "Sirius has added nearly 200,000 subscribers since announcing the Stern deal, and Karmazin seemed undeterred by the challenge of persuading more people to pay for a medium of music, sports and entertainment that has always been free. At some point in the future, he said, ‘I can't imagine there will ever be a car sold without satellite radio.'"