Sirius XM To Beat Dual-Radio Deadline

By Amy Gilroy -- TWICE, 8/7/2008 9:14:00 AM

New York — Sirius XM CEO Mel Karmazin told analysts today the newly merged company expects to offer interoperable radios even before the nine-month deadline set by the Federal Communications Commission (FCC).

In its first conference call with analysts since the merger was completed on July 29, Sirius XM also sought to assure Wall Street that the company will continue to gain subscribers and revenue despite plummeting new-car sales, and would announce more management changes in the next two weeks.

“Satellite radio will continue to be important to the automakers, primarily because we are a source of revenue and an important cool factor,” said Karmazin.

In a worst-case scenario, with vehicle sales dropping to 12 million, Karmazin said it is reasonable to assume 3 million new OEM subscribers this year, generating $350 million.

Karmazin said XM’s agreements with General Motors expire in a few years, and he already called GM chairman/CEO Rick Wagoner “and told him we’d be in touch.” Karmazin said, “He’s very committed to satellite radio, and we’re very committed to GM. We look forward to announcing a new long-term agreement.”

At retail, the company is focused on pushing “Best of Both” programming this fall that will add extra Sirius channels to the full XM plan or extra XM channels to the Sirius plan at a fee of $16.99/month, or $4 more than the current $12.95 monthly fee for either service.

Karmazin said, “Interoperable radios are something we’d like to see at retailers … we’d like to see the customer have that one radio there … that might eliminate any confusion at retail.”

He admitted retail confusion is “tremendously problematic for us,” adding he has talked with the CEOs of major retail outlets that likened consumer confusion about satellite radio to HD DVD and Blu-ray Disc format wars.

“The customer was frozen and didn’t buy anything,” and “the salespeople didn’t quite understand,” but he said retailers “are optimistic in their estimates as to what we might be doing at retail in the fourth quarter of this year.”

Sirius and XM were prevented from sharing much business information prior to the merger, but Karmazin said he flew to Washington the day after the merger was completed to begin examining XM’s business.

“In the last 10 days or so, we’ve really had a deep dive” into XM’s records,” Karmazin said. “There hasn’t been anything we’ve uncovered that would make us less optimistic on achieving synergies.”

Karmazin also said the $400 million in post-merger cost savings expected to be realized by 2009 is a conservative estimate.

He added the company acted quickly to refinance debt immediately following FCC approval in order to close the merger quickly. “We didn’t want to add to any further delay to the process. We had reason to believe that some who had opposed the merger might try to get a stay … so we took the best terms available at the time.”

Karmazin despite “chatter” on how satellite radio will be affected by the economy, Sirius delivered record first- and second-quarter gross subscriber additions. “This is clearly a product that people want.”