Sirius XM chief: Yes, we will be profitable
Many on Wall Street have already given up on the costly business of satellite radio. But as head of the newly merged Sirius XM, Mel Karmazin says that the company is on the right track.
NEW YORK--He made it past the Federal Communications Commission. But Sirius XM Radio CEO Mel Karmazin now has to deal with Wall Street.
In his keynote interview Tuesday at the Media & Money Conference, a joint production of Dow Jones and Nielsen, Karmazin wasn't in humility mode. "We're probably one of the top 25 media companies today," he said of the newly merged Sirius XM, which brought together the world's only two satellite radio companies. "I think it's very clear that we will be the most successful company in the audio entertainment industry. I know certainly, as ranked by revenue, we'll be there soon. Now we just need to grow our free cash flow and demonstrate that."
As so many have argued in recent weeks, Karmazin's mantra was that Wall Street is misguided, myopic even. "You need to make money, and in this particular environment, with Wall Street being what it is today, I think the companies that get rewarded today are companies that have an awful lot of cash flow, that make a great balance sheet. And that's not us today."
Sirius XM is in a tight spot. The merger was long and costly, both companies have shelled out extraordinary amounts of money to secure personalities like Howard Stern (who cost $500 million alone), and the credit crunch has dealt a blow to the most lucrative base of new satellite radio subscribers--car buyers. Sirius XM also has to refinance about $1 billion in debt, something else that won't be easy considering the volatile market.
Karmazin, a veteran of Viacom and CBS (which publishes CNET News), joined Sirius pre-merger in 2004, and acknowledged that he was brought onboard to accomplish a very difficult task of making the company profitable. "Before Sirius got its first dollar of revenue, which was in 2002, we had billions of dollars invested in the company," he said, explaining that the company had to launch three satellites before a single subscriber could sign up. That was a billion-dollar project.
"The day I joined the company, we had revenues of $67 million, and with revenues of $67 million the company had announced five months before that it had signed Howard Stern for $500 million," he said.
Today, Sirius XM has 19.5 million subscribers, which Karmazin said makes it the second-biggest subscriber base in the cable-satellite space behind Comcast, and is slated to keep growing. Sirius cut back its net losses last quarter, its final quarter before the merger. But the downturn in car sales is making Wall Street and the rest of the world less confident about Sirius' growth projections.
Karmazin said that if the auto market does poorly, there will still be millions of new satellite radio subscribers. "(Let's say) in 2009 there were only 12 million cars sold. That could happen, but no one has forecast that number as low," he speculated. "Of the 12 million, 6 million will leave the assembly line with satellite radio installed. So that would get us 6 million gross adds, and then there's a conversion rate. About 50 percent of those people choose to keep satellite radio...That would mean we're going to add about 3 million new subscribers just from that OEM (original equipment manufacturer) platform.
It was an optimistic pitch to the suit-clad audience, especially considering the widespread belief that satellite radio has been an overpriced, failed experiment.
But the good-ish news? The coming advertising downturn won't shoot down satellite radio. Karmazin said that between 94 percent and 96 percent of Sirius XM's revenue comes from monthly subscription fees, not advertising.
A typo was corrected: Sirius first pulled in revenue in 2002, not 2022.