Karmazin-Sirius Move Draws Good Reviews

By Amy Gilroy -- TWICE, 12/6/2004

NEW YORK — Sirius' surprise announcement that long time radio/TV executive Mel Karmazin has joined Sirius as CEO, succeeding Joe Clayton who will remain with Sirius for another two years as chairman, got a positive reaction from the industry.

Clayton said that his contract with Sirius was scheduled to end Dec. 31 and that the Sirius' board "felt we had a unique opportunity" when Karmazin left Viacom earlier this year.

Karmazin was president/CEO of Viacom and is known for working his way up from a station manager at Infinity to running the company, which was later purchased by CBS, and in turn purchased by Viacom. He is expected to assume his new post Dec. 1.

Industry members said the move signals a step forward for satellite radio toward becoming a true entertainment entity.

Tom Malone, senior VP of mobile electronics for Audiovox, said, "In general, we're excited with the attention that satellite radio is getting with this change, and we certainly know Mel Karmazin has a great track record, and we think he can have a very positive impact on the business. We think, certainly, coupled on the Sirius side with Howard Stern's involvement, the energy and excitement is definitely building and it's just the beginning."

Kenwood's Keith Lehmann, VP sales, added that as satellite radio moves into satellite video, Karmazin's entertainment experience could have an even greater impact. "As we all know, the big draw is content. And you have someone in place now with a lot of experience delivering content in many different media channels. When satellite radio starts to diversify potentially into video transmission and data, anyone with that kind of experience will allow the transition" said Lehmann.

Retailers also said they believed Karmazin will help build Sirius. "I see it as a positive. There's a lot of debate as to whether Karmazin had anything to do with Howard's coming to Sirius. So I think that it's positive for Sirius, and it will help Sirius build strong programming," said purchasing manager Paul Gosswiller for Audio Express, Scottsdale, Ariz., a leading car audio chain.

Karmazin promoted the careers of both Stern, who will be joining Sirius, and Don Imus, whose morning talk show continues on WFAN and MSNBC.

Wall Street reacted favorably to Karmazin's appointment with Sirius shares trading higher several business days after the announcement.

Vijay Jayant, cable and satellite analyst for Lehman Brothers, said both Sirius and satellite radio in general will gain credibility from Karmazin, who is known for his strength in advertising sales and cost control.

Clayton affirmed that advertising would play a greater role in satellite radio as it progresses, noting, "You can certainly believe that the Howard Stern show will have advertising, and all our weather, news and sports."

A spokesman for rival XM Satellite Radio commented on the Karmazin hiring. "It is an interesting situation because, not long ago, Mel Karmazin was completely dismissive of the prospects for satellite radio's success. Time and again, he talked about how the business model wouldn't work and that satellite radio would have no impact on radio." XM is the leading satellite radio company with over 2.5 million subscribers compared to Sirius' 800,000 subscribers as of Nov. 22.

A recent Wall Street Journal article stated that Sirius' hiring of Stern helped raise Karmazin's opinion of Sirius and to change his mind about satellite radio.

Clayton said his accomplishments at Sirius over the past three years include turning around the company and commercializing it. "The founder David Margolis did a good job of getting the licenses, the satellites built and launched and putting the infrastructure in place. I basically commercialized the technology and turned around the situation, and it was a turnaround opportunity. I established the retail distribution portion of the business, solidified and expanded our automotive car manufacturer relationships, and started accelerating factory programs and also drove the technology in terms of the receivers themselves.

Clayton added, "All our IC development and receiver engineering is now in-house. We turned over three different generations of IC development in three years, and next year we feel we'll be at parity with the competition and maybe move ahead with some features." Both XM and Wall Street analysts claim XM remains more than a year ahead of Sirius in chip development and in OEM production of satellite-ready radios.