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Get Four
|  | NOVEMBER 29, 2004
By David Kiley The Zen Master's Sirius Move As new CEO at the satellite-radio company, Viacom vet Mel Karmazin sees plenty of potential, and his old pal Howard Stern is a key It's not often that the mere naming of a CEO can drive up a company's stock by 36% in less than week, but that's what happened to Sirius Radio (SIRI ) after former Viacom (VIA ) executive Mel Karmazin signed up to take the top job Nov. 18. Dubbed "The Zen Master" by radio jock Don Imus, who watched Karmazin build Infinity Broadcasting before its sale to Viacom, Sirius' new CEO is widely regarded as one of the premier "sales guys" in the communications business. That's the first of his credentials. The second is the one most highly valued by temperamental talents like Imus and Howard Stern: They see him as a player who understands how to deliver good product without letting internal politics spoil the show. SOARING STOCKS. Most subscribers to satellite radio need only a few months to conclude that it's simply a matter of time before the upstart medium does to terrestrial broadcasting what cable-TV outfits have been doing to the networks. Both Sirius and XM Satellite Radio (XMSR ), the two contestants in this game, have had to shoulder huge startup costs, and this has made their stock prices gyrate in recent years. Still, holders of either Sirius or XM shares have done far better over the past 12 months than those who invested in index funds. Sirius shares are up 251% in 2004, while XM shares have risen 57%. XM has been the clear long-term favorite among stock analysts and industry watchers because its subscriber base has been growing faster. While Sirius recently reached 800,000 subscribers, XM is closing in on 3 million. Karmazin, who had his pick of many jobs in the communications industry, decided to follow Stern to Sirius. Here's why: The shock jock has some 20 million listeners. If just 10% follow him to Sirius when he leaves Viacom next year (a conservative estimate), that gain will equal all of today's XM's current subscribers. PICTURES, TOO. Those new subscribers would mean roughly $290 million in fresh annual revenue, more than enough to offset Stern's $100 million-a-year paycheck. Most of the Stern listeners I know won't blink at paying $10 to $12 per month -- especially when they get the rest of Sirius' menu as well. XM responded to the Stern deal with a $650 million, 11-year contract to carry Major League Baseball games. XM CEO Hugh Panero recently told me that the MLB pact is a critical ingredient in XM's evolving maturity, predicting that it will attract subscribers at a greater rate. This is much harder to figure than the Stern deal. How many New York City baseball fans want to listen to a Kansas City Royals-Cleveland Indians game? How many ex-New Yorker retirees in Phoenix will be paying $10 a month to hear Yankees or Mets games? If they're big enough fans, won't they buy a satellite-TV package to watch the games, rather than merely listen to them? NIFTIER DEAL. Stern fans who want to hear the shock jock will have no choice but to go to Sirius. And won't they be even more apt to subscribe if they can hear the uncensored Stern, unencumbered by FCC decency rules or even the limited sense of decorum that prevails on cable TV, which now carries visuals of Stern's studio antics? Baseball fans can turn to pay-TV, free TV, and free radio in their own home cities, as they have always done. By that light, the lure of baseball pales by comparison. Karmazin sees the potential for revenue that previous managers were hesitant to pursue. Satellite music channels remain commercial-free, but talk channels have room to increase ad revenues, at least to a certain extent, without becoming the cluttered wasteland of today's commercial radio. Even the music channels have the potential to draw hourly sponsorship fees from advertisers keen to get in the good books of happy consumers getting just what they want: fewer ads interrupting their favorite tunes. The knowing Karmazin, forever in touch with the many aspects of his industry -- from pleasing audiences to delighting shareholders -- didn't earn that Zen Master tag for nothing.  Kiley is Marketing editor for BusinessWeek in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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