Karmazin Raps NAB Spin On Merger

In sitdown with TWICE, Sirius CEO calls broadcast lobby 'disingenuous.'

by Joseph Palenchar and Amy Gilroy -- TWICE, 7/2/2007

NEW YORK — The National Association of Broadcasters [NAB] is "disingenuous" for opposing the proposed satellite radio merger on the grounds that a duopoly would become a monopoly, Sirius Satellite Radio CEO Mel Karmazin told TWICE in an exclusive interview.

The annual reports of all publicly held radio groups "say in their risk factors that they compete with satellite radio," he said. "So it's just disingenuous for an organization [NAB] to stand up and say this is a duopoly becoming a monopoly."

During an interview at Sirius headquarters here, Karmazin said the intensity of the NAB campaign to shoot down the proposed XM-Sirius merger, although "probably predictable," proves the point that satellite and terrestrial radio compete and that the proposed merger would not result in a monopoly.

Karmazin also made the following points:

The merger will help satellite radio compete, but isn't necessary for the industry's survival.
In order to meet the FCC's public-interest requirements, the merged companies would offer "more choice, lower prices" and flexible — but not totally a la carte — pricing plans, which would credit consumers for channels that they choose not to receive.
Aftermarket customers are less likely to churn than consumers who get satellite radio in a new car.

See p. 22 and 23 for Karmazin's responses to key questions. The interview is available in its entirety at www.TWICE.com.

Satellite Radio Metrics

	Q1 2007		Q1 2006	2006
Subscriber base
Sirius	6,581,045	+61.4%	4,077,747	6,024,555	+81.7%
XM	7,913,728	+21.7%	6,501,859	7,628,552	+28.6%
Combined	14,449,773	+36.6%	10,579,606	13,653,107	+47.6%
Net New Subscriber Additions
Sirius	556,490	-26.9%	761,187	2,707,995	+24.6%
XM	285,176	-49.9%	568,902	1,695,595	-37.3%
Combined	841,666	-36.7%	1,330,089	4,403,590	-9.7%
Gross Subscriber Additions, Deactivations
Sirius
Gross adds	988,458	+2.9%	960,610	3,758,163	+49.2%
Deactivations	431,968	+116.7%	199,423	1,050,168	+203.5%
XM
Gross Adds	868,067	-13.8%	1,007,306	3,866,481	-6.4%
Deactivations	582,891	+33%	438,404	2,170,886	+52.2%
Combined
Gross Adds	1,856,525	-5.7%	1,967,916	7,624,644	+14.7%
Deactivations	1,014,859	+59.1%	637,827	3,221,054	+81.7%
Sources: Sirius, XM company reports © TWICE 2007

Post-Merger Plans

TWICE: When the merger occurs, presumably the merged company will adopt the best practices of both companies. Can you identify each company's strengths?

Karmazin: We have not been able to get into each other's businesses. There are antitrust concerns that are out there that would stop us from sharing any information at all with XM. All I know about XM is what I know as a competitor. So there hasn't been one bit of information that is confidential that I have learned, or conversely that we have provided to XM, during this period. We're prohibited from knowing.

TWICE: How would you accomplish your "one-radio, two-services" pledge? By porting some XM content to Sirius radios, and vice versa?

Karmazin: We started our service with 100 channels, and through compression technology and engineering enhancement and the normal rotation, we now have 135 channels instead of 100. So what we say is that we'd be able to increase our capacity by a certain number so that our existing receivers would be able to get some additional content. So as an example, if we wanted to have some baseball, or we wanted to have Oprah, or we wanted to have some of this content, we'd be able to deliver that to our satellites and to our receivers subject to the content partners' agreements. We couldn't offer a full complement of both services.

TWICE: Could we see a 50/50 split between XM and Sirius content on an existing satellite radio?

Karmazin: If we wanted to do that, but why would we want to do that if you're a Sirius subscriber and you like our content? We're basically saying to you that we don't want you to be disenfranchised. We saying to you that "You're an existing subscriber, you don't have to pay more than $12.95 after the merger, and your existing radio is going to work."

TWICE: And you would eliminate redundancies in the selection of channels offered by Sirius and XM after the merger to make room for some of the extra channels?

Karmazin: Let's assume for a second that, when the time came, that we'd take a look, and say that we both have a '50s station. Now can you sit there and say, "Which of the '50s channels might be the best channel?" And we'd have some cost savings at the head end, and we would not be producing two 50s channels.

TWICE: So Sirius would still have its voice and brand, and XM would have its voice and brand, a Sirius receiver would continue to get existing Sirius channels plus some additional XM content, and vice versa?

Karmazin: Right.

TWICE: And down the road?

Karmazin: The opportunity exists for us to commercially market an interoperable radio. Right now we have developed it. There's one in my office right now, which is an interoperable radio, which is a receiver that in essence has an XM component and a Sirius component sort of Velcro-ed together. So we developed that, and one of the things that we have the opportunity to do is to market it into retail stores as an interoperable radio, one that would be priced attractively and be able to get the consumer both services. A radio that gets the best of both services is sort of attractive and again enables the two companies to not water each other down but to have a stronger service while competing with all of these other technologies.

Merger Mission

TWICE: Is the merger necessary to compete with emerging services and technologies such as the place shifting of PC-stored content to a cellphone, delivery of entertainment programs via IP-enabled Mobile WiMAX networks, Wi-Fi streaming of Internet radio services to handheld devices, and the like?

Karmazin: I don't think it is necessary. I think it is very desirable, and it positions us in a better way to compete against all of this technology. But by no means do we believe this merger is about life or death ...

Hardly a day goes by that there is not a new company, a new competitor, that's coming out with the ability to get not just music but any content that you want. And we think content is king, and we believe that our content is what's going to separate us from all of these other competitors. No one has better content than we do.

TWICE: So you're as much a content company as a wireless pipe?

Karmazin: We've had a number of discussions internally where people say, "Well, gee, why don't you just take out the satellite radio from your name and just call it Sirius?" And then a number of other people who are sitting there are saying, "Our network is really one of the things that we have going for us," that we have a proprietary network. You can't say that about the Internet.

But I do think that at the end of the day, people are listening to our content, not necessarily listening to a pipe. We're not particularly great fans of a lot of what goes on over Internet radio ... and we have so much more content that's not around anyplace else. And it's not just sports [for example]. It's the way we do sports.

You can get plenty of NFL games, but you can't get every single NFL game with home team announcers and away team announcers ...

So there are really a whole lot of enhancements that we do. Even on our music channels … And you add things like Howard Stern and Martha Stewart and Cosmopolitan … and a lot of the channels that are just not available any place else.