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Q&A Continued....

6/29/2007 01:49:00 PM Eastern


Q: One theory is that the FCC delayed the clock on public comments in hopes you’d withdraw the merger application.

A: I think that’s bizarre. There was never a chance that we would withdraw the merger application. We believe this is a merger that should happen. We can’t figure out one reason, we can’t think of one reason, why we would ever withdraw the application. Obviously, we’re entitled as a corporation doing business in the United States to be able to go through the process to do a merger. We filed the Hart-Scott-Rodino filing, which is required. We filed an FCC application, which is required. None of this is against the law to do. We thought we were entitled to do it. We think that both these applications should be approved, and there is not a good reason, other than the fact that the NAB has made a lot of noise, and the fact that the NAB has written letters asking that we withdraw it. And again, we ought to think about their motives and why do they want us to withdraw it.

We believe that just like there has been a great deal of consolidation in the terrestrial radio business, just like there has been a lot of consolidation in the television business, all of those thing, the NAB has not spoken out against. As a matter of fact, the NAB has been a leading proponent for it. But anytime there is a competitor that might get stronger against them, they speak out against it. So again, it’s America, I’m not in anyway suggesting they should not be allowed to speak out against it, but at this point, we’re a small company, two companies, and we have not made money since [we] started. We have high fixed costs, which obviously we had to put the satellites up before we could get service. We had to put in a whole infrastructure. We’ve invested billions of dollars, and we hope down the road to be the beneficiary of that investment. But terrestrial radio is a $21 billion business. We have 3.4 percent, XM and Sirius combined, of the listening that’s out there, and you would think this was Exxon/Mobile combining based on the way the NAB has been fighting it. I think what it has done has given us a sense of believing that we are right, that we are competitive to them.

 If you go back to 1998 when we made our SEC filings for a public company, we said back in 1998 that we compete with terrestrial radio. One of the risk factors of our business was that we compete with terrestrial radio. If you take a look at all of the public radio companies, and you look at their annual reports, what they file with SEC, they say in their risk factors that they compete with satellite radio. So it’s just disingenuous for an organization [NAB] to stand up and say this is a duopoly becoming a monopoly. If that is a duopoly, how could they be competing with them? And if they are competing with us, that’s not a duopoly.

 


Q: When will the DOJ process be complete?

A: What happens is [after complying with a first request for information], you get a second request, then what you need to do is you need to certify that you have substantially complied with the second request … And then the clock ticks 30 days from the day you signed, and if the government doesn’t sue you [during that time] to stop the merger, then you can close. In our particular case, in the area of media, you can’t close without the FCC approval.

I think by the end of the summer we’ll be in a position to get all the information to the Department of Justice.

That’s why we were less concerned than others were about when the FCC got its public notice out, because if you take the public notice from the FCC, the comment period is over on July 9, and then there is a reply comments period, where there is another 10-15 days. That will be somewhere around August when their process of gathering information will be completed, and then they go through their own review of those comments. So I think both of them [FCC and DOJ processes] are on track.

 


Q: Are you meeting with, or have you met with the FCC commissioners, recently?

A: I think I had at least two meetings with each of the commissioners since we announced, since February 19. And so far, I’ve not met with the DOJ. I would anticipate that before that process is over, that we will. What’s going on right now at the DOJ is that they’re gathering all the information, so probably at some point after they gathered all the information, we’ll visit with them.

But at the FCC, we made courtesy visits prior to the [FCC] public notice coming out, so I have not had any meetings at the FCC since the public notice went out, bur prior to it, we wanted them to understand the merger. We filed our application wanting them to understand what it was that we put into the application. So we walked them through what was in the application. And that was the last time we had conversations with them.

 


Q: Did they present any suggestions on what would make the merger more in the public interest?

A: No, but I think we know pretty much the five commissioners. I’ve known them for a long time. And you sort of know what it is they have interest in and what they don’t have interest in. And if in fact we are trying to put something together that is consistent with the way they see the marketplace, that would be logical for us to do.

 


Q: Has the merger news had an impact on subscriber growth?

A: At this point, if you talk to some of our salespeople, what they’re saying is that there is confusion. There is a merger. We came out with a guarantee at retail where we said that no radio would be obsolete, and we tried to make that confusion as little as possible. But probably [I] think there has been some disruption at retail because of the merger, and we’re trying to minimize it, and hopefully it’ll pass.

 


Q: Would the number of net new Sirius subscribers in the first quarter be better had it not been for the merger announcement?

A: When I speak to our retail people that handle our consumer electronics stuff, they say to me, `Mel, we would be doing even better numbers if you didn’t do this merger.’

 


Q: Are interoperable radios necessary if we have “satellite-ready” home and car audio systems that are able to control a tiny optional Sirius radio or optional XM radio?

A: You might want it because…if you’re putting it into your car, you [might] want to have both services. So let’s assume you went into a retail store, and you didn’t have a satellite radio factory-installed, but you really want the ability to listen to baseball and football. So you’d have to put two radios on your dashboard. Why wouldn’t you want to put one on instead?

 


Q: Some have proposed that satellite radio offer public-access channels as a merger condition.

A: I’ve heard so many different proposals … Somebody proposed that we should not be allowed to do local content. [With satellite radio], you’re not allowed to use your repeaters [to deliver local content only to that local market]. So let’s assume you wanted to take WTIC in Hartford and put it on our service. We can do that. We can’t just do it [only] in Hartford. It has to be national.

But we have people who say they don’t want us to get into local programming, even if it’s on a national service…Then there are the other people who say that they want us to get into local programming to get us to make the local broadcasters more competitive, so that if satellite radio got into local programming, that would be good for the local [community]. You, as a consumer, why don’t you want more choices? … So a lot has to do with the agenda of the various organizations that are coming out with those viewpoints. What we’re doing is, we’re just sorting it all out, and we’re sitting here and saying, `What do we think is going to be in, not just our shareholders’ best interests, but in the consumers’ best interests?’

 And what is it that the government has to say about it? Generally, the government doesn’t like to be into content. You don’t want the government deciding what content you’re having on your service. That’s what the market should be.

There were a lot of people who believe that a la carte programming is the way to deal with violence on television. So as an example, if you don’t want to have violent programming on your television set, then you shouldn’t order any of those channels that have violent programming or sexual content. And a way of dealing with that subject is a la carte so that the consumer truly has the choice. If you want it, you’re entitled, you’re a citizen, you’re entitled to have that content if you want it. There’s no law that says the only content that should be available should be content for kids. So if you want adult content, you should be able to get it, and if you get it, you pay for it. And if you don’t want it, you shouldn’t have to take it, and you shouldn’t have to pay for it.

 


Q: After a merger, who would distribute the combined companies’ products: XM distributor Audiovox or Sirius distributor Directed Electronics?

A: No thoughts, no discussions.

 

Merger Mission


Q: So the merger will enable you to compete better against new technologies because you’ll be financially stronger, can invest more, and can tap the brainpower of both companies?

A: It’s all those things plus the other thing: The way it works today is that if you’re a subscriber to Sirius, you have to have your own radio, and the Sirius radio can’t really pick up XM, and if in fact you wanted to get some content that came from both companies, then you’d have to have two radios in your car, and that certainly is almost as silly as having a separate AM radio from an FM radio. Nobody would think today that the American public was better off if in fact there was a separate AM radio and a separate FM radio. Then why is the American public better off if there is a separate Sirius radio and a separate XM radio? 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.

 


Q: Before the first XM and Sirius satellites were launched, representatives of the satellite-radio industry and digital-radio developer iBiquity spoke at a CES seminar where they said satellite radio and digital terrestrial radio do not compete. One offered local content; the other didn’t.

A: I can’t speak for what panel we’re talking about, but it just strikes me that as you’re driving in your car, and you have a choice of listening to your HD Radio – you can listen to an AM station, you can listen to an FM station—you can listen to an MP3 player, you can put your cellphone in there, or you can listen to satellite radio, how you could say they are not competing with each other for peoples’ time, for the ability to listen? We’re not into local programming; [that’s] not our principle business model. But if you are listening to Sirius, you are not listening to your FM radio station at that moment in time. So I don’t know how anybody could say it’s not competitive.

If you think about their content, they have music. Well, we have music. We have sports. They have sports. We have news. They have news. I believe that if I were a terrestrial radio broadcaster, what I would be doing and putting my resources in, which is something satellite radio is not that interested in doing, is local content. How do you differentiate from a national service? You emphasize local. And good local broadcasters did that.

I don’t see how anybody could say that we’re not competing with each others’ services. Take Howard Stern. Howard Stern left there and came here. Isn’t that like a competitor? CBS didn’t think that Sirius was a competitor to try to hire Howard Stern? And they [CBS] are not trying to keep all of their good personalities locked in under contract so that Sirius wouldn’t hire them? So obviously if we can hire their talent, we’re a competitor. If we can get their listeners, we’re a competitor.

 

SIRIUS PERFORMANCE


Q: In 2006, the number of net new subscribers in the satellite-radio industry fell to about 4.4 million from 4.88 million in 2005. Is the industry slowing?

A: In 2006, we [Sirius] had 2.7 million net ads. It was our best year ever.

 


Q: What is Sirius doing to maintain net-add growth that XM isn’t doing?

A: I think a lot has to do with our content. A lot has to do with the fact that Howard Stern started in 2006 on Sirius starting Jan. 9, and we think that that contributed to an awful lot of people coming to us. We had, according to the numbers, I might be a little bit off, in the fourth quarter of 2006, we had 66 percent market share of net adds. At retail, if you take a look at the first quarter of 2007, at retail, we had 76 percent of the net adds.

 


Q: Was that due to XM withdrawing plug-and-play products from the market temporarily because their wireless FM modulators exceeded FCC emission limits?

A: Unfortunately, we had the same problem with FM modulators. But that wasn’t effective in the first quarter of this year.

 


Q: Do you think it was a mistake for XM not to strike a deal with the music companies over its time-shifting headphone portables?

A: That’s really up to them. I believe that from my point of view, our relationships with music companies are very good. I worked with them a long time. I hate going to court. I hate the idea of having a judge make the decision for you. I’d like to be able to resolve things in a commercial way, and we’re able to do that with our partners, in that particular case, in the music business.

But again, I can’t speak for XM.

 


Q: Do you think the litigation helped Sirius?

A: When you have a banker…it’s sort of never good when you’re in litigation if you don’t have to be. I’d much rather have a business relationship with my banker as compared to having litigation with my banker.

 

SIRIUS OEM, AFTERMARKET PLANS


Q: At the end of the first quarter, the combined XM-Sirius subscriber base in the aftermarket was 8.7 million, and for OEM, it was 5.2 million. When will the satellite-radio industry’s OEM subscribership exceed aftermarket subscribership?

A: I think there will always be an important aftermarket as well as OEM. I think that what the car companies are seeing is how hot satellite radio is at retail, that people were going in and buying it in the aftermarket. If in fact, people are liking satellite radio, why shouldn’t they [automakers] make the money on it? Why should they let the retailer make their money? From our point of view, what counts today is our number of subscribers, and I’m really indifferent whether or not we added in the aftermarket or we added in the OEM. As a matter of fact, certainly we love the idea of adding it in the aftermarket because people are absolutely coming into that store and wanting to get Sirius, as compared to when you often buy a car, and satellite radio happens to come with the car. So the fact that in the aftermarket, people have affirmatively made a decision that they want the product, I think it enhances the churn rate. It enhances people keeping that product. So the aftermarket is always something that we believe is important. We’re focused on it. We absolutely have great relationships with all of the retailers that are selling our product. And they’re very important for our future.

 


Q: Will you focus more efforts in the car dealer market?

A: One of the things we are obviously interested in is that, once we put the satellite radio into the vehicle, and somebody [a card dealer] then sells that vehicle, as an example, we want to get that person who’s buying that vehicle to be a subscriber. So dealing with their [car-dealer] equivalent of the aftermarket ... is something that we are working on and focused on — and working with used-car dealers and auction houses that deal with cars.

In addition, one of the frustrating things with this is when you’re buying a car, and it has a Sirius Satellite Radio, and the salesman is not doing a good job in showing you how to preset those radios and knowing as much as you can about the service. So we’re working with the dealers as a way of engaging them more with the customer, and just like they’re showing you how the seats work ... make sure they’re explaining to you how the Sirius satellite radio works for you.

As we’ve been ramping up. If you sort of think about the fact that we got our first subscriber in 2002…and our OEMs are just now beginning to start to ramp up, so suddenly now that we’re going in this OEM, how do we really get good execution on that? So it’s only really been within the last year that we started to focus on maximizing the OEM. Up until then, we were focused on working with the companies [automakers] to get product in there. Now, we’re sitting there trying to enhance the usage of the product.

 


Q: How do you accomplish that?

A: As an example, one of the things we’re doing is trying to make sure that when you get the vehicle, you know that there is a satellite radio in the car. You put some hangtags, something on the radio that says this radio has Sirius Satellite Radio on it. You encourage the salesman to tell the customer that, by the way, in addition to AM/FM radio, which people automatically expect, this radio also gets you Sirius Satellite Radio, and here’s how you access it. In some vehicles, it’s an auxiliary button. It doesn’t say Sirius. So one of the things we’re working on with our partners is to brand the radios better so that the customer knows it’s there.

 One of the other things is that when we’re selling a satellite radio in your car, it’s coming with a bundled subscription. We’re making sure that the customer is aware that the subscription is a year in the case of Chrysler, six months in the case of Ford, and we’re also interested in having the [car] dealer upsell the customer on longer subscriptions, so if you were to have watched television in the last month or so, you’ve seen Mercury has done a campaign where they are selling the vehicle using Sirius as a selling point, and it comes with a three-year subscription. In the case of a normal deal with Mercury, it would have a six month subscription. With this promotion [that] we just did, it comes with a three-year subscription.

 


Q: You helped subsidize the promotion?

A: Very little. It’s sort of a co-op plan.

 


Q: Do you or would you offer incentive plans to the car salesmen?

A: Possibility, if it became cost-effective to do that. In other words, if it became a cost-effective way of encouraging a salesman who’s selling the car to do something to enhance the sale of satellite radio? Sure. We’ve been experimenting with that at certain dealerships.

So Chrysler will pay us for a one-year subscription. There’s no point of paying that salesman if all he had is that one-year subscription … but if that salesman can make that subscription a three-year subscription, then it’s an opportunity for that salesperson to make some money.

 


Q: Will you offer Sirius TV to retailers this year?

A: We’re excited about it. Our engineering people did a fabulous job in coming out with television. Take a look at the antenna. It is real small, not like a big pizza box attached to you car. It’s smaller than a hockey puck, and we’re offering live real-time television to the back seat of a car. So, No. 1, I think it’s really cool from a technology point of view that we were able to do it, and the product is starting out with one of our partners, Chrysler, introducing it in their ‘08 models. We’ll see it pretty soon. It will be interesting to see what type of consume reaction [occurs]. We think the consumer reaction will be very good. We think that if you’re a parent, and you like the idea of having the DVD in the back seat of the car to keep the kids interested, then the idea of having live television and having Nickelodeon and Disney Channel and Cartoon Network live in the back seat is pretty compelling.

of the company, I’d love to see it available as soon as possible.


Q: One theory is that the FCC delayed the clock on public comments in hopes you’d withdraw the merger application.

A: I think that’s bizarre. There was never a chance that we would withdraw the merger application. We believe this is a merger that should happen. We can’t figure out one reason, we can’t think of one reason, why we would ever withdraw the application. Obviously, we’re entitled as a corporation doing business in the United States to be able to go through the process to do a merger. We filed the Hart-Scott-Rodino filing, which is required. We filed an FCC application, which is required. None of this is against the law to do. We thought we were entitled to do it. We think that both these applications should be approved, and there is not a good reason, other than the fact that the NAB has made a lot of noise, and the fact that the NAB has written letters asking that we withdraw it. And again, we ought to think about their motives and why do they want us to withdraw it.

We believe that just like there has been a great deal of consolidation in the terrestrial radio business, just like there has been a lot of consolidation in the television business, all of those thing, the NAB has not spoken out against. As a matter of fact, the NAB has been a leading proponent for it. But anytime there is a competitor that might get stronger against them, they speak out against it. So again, it’s America, I’m not in anyway suggesting they should not be allowed to speak out against it, but at this point, we’re a small company, two companies, and we have not made money since [we] started. We have high fixed costs, which obviously we had to put the satellites up before we could get service. We had to put in a whole infrastructure. We’ve invested billions of dollars, and we hope down the road to be the beneficiary of that investment. But terrestrial radio is a $21 billion business. We have 3.4 percent, XM and Sirius combined, of the listening that’s out there, and you would think this was Exxon/Mobile combining based on the way the NAB has been fighting it. I think what it has done has given us a sense of believing that we are right, that we are competitive to them.

 If you go back to 1998 when we made our SEC filings for a public company, we said back in 1998 that we compete with terrestrial radio. One of the risk factors of our business was that we compete with terrestrial radio. If you take a look at all of the public radio companies, and you look at their annual reports, what they file with SEC, they say in their risk factors that they compete with satellite radio. So it’s just disingenuous for an organization [NAB] to stand up and say this is a duopoly becoming a monopoly. If that is a duopoly, how could they be competing with them? And if they are competing with us, that’s not a duopoly.

 


Q: When will the DOJ process be complete?

A: What happens is [after complying with a first request for information], you get a second request, then what you need to do is you need to certify that you have substantially complied with the second request … And then the clock ticks 30 days from the day you signed, and if the government doesn’t sue you [during that time] to stop the merger, then you can close. In our particular case, in the area of media, you can’t close without the FCC approval.

I think by the end of the summer we’ll be in a position to get all the information to the Department of Justice.

That’s why we were less concerned than others were about when the FCC got its public notice out, because if you take the public notice from the FCC, the comment period is over on July 9, and then there is a reply comments period, where there is another 10-15 days. That will be somewhere around August when their process of gathering information will be completed, and then they go through their own review of those comments. So I think both of them [FCC and DOJ processes] are on track.

 


Q: Are you meeting with, or have you met with the FCC commissioners, recently?

A: I think I had at least two meetings with each of the commissioners since we announced, since February 19. And so far, I’ve not met with the DOJ. I would anticipate that before that process is over, that we will. What’s going on right now at the DOJ is that they’re gathering all the information, so probably at some point after they gathered all the information, we’ll visit with them.

But at the FCC, we made courtesy visits prior to the [FCC] public notice coming out, so I have not had any meetings at the FCC since the public notice went out, bur prior to it, we wanted them to understand the merger. We filed our application wanting them to understand what it was that we put into the application. So we walked them through what was in the application. And that was the last time we had conversations with them.

 


Q: Did they present any suggestions on what would make the merger more in the public interest?

A: No, but I think we know pretty much the five commissioners. I’ve known them for a long time. And you sort of know what it is they have interest in and what they don’t have interest in. And if in fact we are trying to put something together that is consistent with the way they see the marketplace, that would be logical for us to do.

 


Q: Has the merger news had an impact on subscriber growth?

A: At this point, if you talk to some of our salespeople, what they’re saying is that there is confusion. There is a merger. We came out with a guarantee at retail where we said that no radio would be obsolete, and we tried to make that confusion as little as possible. But probably [I] think there has been some disruption at retail because of the merger, and we’re trying to minimize it, and hopefully it’ll pass.

 


Q: Would the number of net new Sirius subscribers in the first quarter be better had it not been for the merger announcement?

A: When I speak to our retail people that handle our consumer electronics stuff, they say to me, `Mel, we would be doing even better numbers if you didn’t do this merger.’

 


Q: Are interoperable radios necessary if we have “satellite-ready” home and car audio systems that are able to control a tiny optional Sirius radio or optional XM radio?

A: You might want it because…if you’re putting it into your car, you [might] want to have both services. So let’s assume you went into a retail store, and you didn’t have a satellite radio factory-installed, but you really want the ability to listen to baseball and football. So you’d have to put two radios on your dashboard. Why wouldn’t you want to put one on instead?

 


Q: Some have proposed that satellite radio offer public-access channels as a merger condition.

A: I’ve heard so many different proposals … Somebody proposed that we should not be allowed to do local content. [With satellite radio], you’re not allowed to use your repeaters [to deliver local content only to that local market]. So let’s assume you wanted to take WTIC in Hartford and put it on our service. We can do that. We can’t just do it [only] in Hartford. It has to be national.

But we have people who say they don’t want us to get into local programming, even if it’s on a national service…Then there are the other people who say that they want us to get into local programming to get us to make the local broadcasters more competitive, so that if satellite radio got into local programming, that would be good for the local [community]. You, as a consumer, why don’t you want more choices? … So a lot has to do with the agenda of the various organizations that are coming out with those viewpoints. What we’re doing is, we’re just sorting it all out, and we’re sitting here and saying, `What do we think is going to be in, not just our shareholders’ best interests, but in the consumers’ best interests?’

 And what is it that the government has to say about it? Generally, the government doesn’t like to be into content. You don’t want the government deciding what content you’re having on your service. That’s what the market should be.

There were a lot of people who believe that a la carte programming is the way to deal with violence on television. So as an example, if you don’t want to have violent programming on your television set, then you shouldn’t order any of those channels that have violent programming or sexual content. And a way of dealing with that subject is a la carte so that the consumer truly has the choice. If you want it, you’re entitled, you’re a citizen, you’re entitled to have that content if you want it. There’s no law that says the only content that should be available should be content for kids. So if you want adult content, you should be able to get it, and if you get it, you pay for it. And if you don’t want it, you shouldn’t have to take it, and you shouldn’t have to pay for it.

 


Q: After a merger, who would distribute the combined companies’ products: XM distributor Audiovox or Sirius distributor Directed Electronics?

A: No thoughts, no discussions.

 

Merger Mission


Q: So the merger will enable you to compete better against new technologies because you’ll be financially stronger, can invest more, and can tap the brainpower of both companies?

A: It’s all those things plus the other thing: The way it works today is that if you’re a subscriber to Sirius, you have to have your own radio, and the Sirius radio can’t really pick up XM, and if in fact you wanted to get some content that came from both companies, then you’d have to have two radios in your car, and that certainly is almost as silly as having a separate AM radio from an FM radio. Nobody would think today that the American public was better off if in fact there was a separate AM radio and a separate FM radio. Then why is the American public better off if there is a separate Sirius radio and a separate XM radio? 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.

 


Q: Before the first XM and Sirius satellites were launched, representatives of the satellite-radio industry and digital-radio developer iBiquity spoke at a CES seminar where they said satellite radio and digital terrestrial radio do not compete. One offered local content; the other didn’t.

A: I can’t speak for what panel we’re talking about, but it just strikes me that as you’re driving in your car, and you have a choice of listening to your HD Radio – you can listen to an AM station, you can listen to an FM station—you can listen to an MP3 player, you can put your cellphone in there, or you can listen to satellite radio, how you could say they are not competing with each other for peoples’ time, for the ability to listen? We’re not into local programming; [that’s] not our principle business model. But if you are listening to Sirius, you are not listening to your FM radio station at that moment in time. So I don’t know how anybody could say it’s not competitive.

If you think about their content, they have music. Well, we have music. We have sports. They have sports. We have news. They have news. I believe that if I were a terrestrial radio broadcaster, what I would be doing and putting my resources in, which is something satellite radio is not that interested in doing, is local content. How do you differentiate from a national service? You emphasize local. And good local broadcasters did that.

I don’t see how anybody could say that we’re not competing with each others’ services. Take Howard Stern. Howard Stern left there and came here. Isn’t that like a competitor? CBS didn’t think that Sirius was a competitor to try to hire Howard Stern? And they [CBS] are not trying to keep all of their good personalities locked in under contract so that Sirius wouldn’t hire them? So obviously if we can hire their talent, we’re a competitor. If we can get their listeners, we’re a competitor.

 

SIRIUS PERFORMANCE


Q: In 2006, the number of net new subscribers in the satellite-radio industry fell to about 4.4 million from 4.88 million in 2005. Is the industry slowing?

A: In 2006, we [Sirius] had 2.7 million net ads. It was our best year ever.

 


Q: What is Sirius doing to maintain net-add growth that XM isn’t doing?

A: I think a lot has to do with our content. A lot has to do with the fact that Howard Stern started in 2006 on Sirius starting Jan. 9, and we think that that contributed to an awful lot of people coming to us. We had, according to the numbers, I might be a little bit off, in the fourth quarter of 2006, we had 66 percent market share of net adds. At retail, if you take a look at the first quarter of 2007, at retail, we had 76 percent of the net adds.

 


Q: Was that due to XM withdrawing plug-and-play products from the market temporarily because their wireless FM modulators exceeded FCC emission limits?

A: Unfortunately, we had the same problem with FM modulators. But that wasn’t effective in the first quarter of this year.

 


Q: Do you think it was a mistake for XM not to strike a deal with the music companies over its time-shifting headphone portables?

A: That’s really up to them. I believe that from my point of view, our relationships with music companies are very good. I worked with them a long time. I hate going to court. I hate the idea of having a judge make the decision for you. I’d like to be able to resolve things in a commercial way, and we’re able to do that with our partners, in that particular case, in the music business.

But again, I can’t speak for XM.

 


Q: Do you think the litigation helped Sirius?

A: When you have a banker…it’s sort of never good when you’re in litigation if you don’t have to be. I’d much rather have a business relationship with my banker as compared to having litigation with my banker.

 

SIRIUS OEM, AFTERMARKET PLANS


Q: At the end of the first quarter, the combined XM-Sirius subscriber base in the aftermarket was 8.7 million, and for OEM, it was 5.2 million. When will the satellite-radio industry’s OEM subscribership exceed aftermarket subscribership?

A: I think there will always be an important aftermarket as well as OEM. I think that what the car companies are seeing is how hot satellite radio is at retail, that people were going in and buying it in the aftermarket. If in fact, people are liking satellite radio, why shouldn’t they [automakers] make the money on it? Why should they let the retailer make their money? From our point of view, what counts today is our number of subscribers, and I’m really indifferent whether or not we added in the aftermarket or we added in the OEM. As a matter of fact, certainly we love the idea of adding it in the aftermarket because people are absolutely coming into that store and wanting to get Sirius, as compared to when you often buy a car, and satellite radio happens to come with the car. So the fact that in the aftermarket, people have affirmatively made a decision that they want the product, I think it enhances the churn rate. It enhances people keeping that product. So the aftermarket is always something that we believe is important. We’re focused on it. We absolutely have great relationships with all of the retailers that are selling our product. And they’re very important for our future.

 


Q: Will you focus more efforts in the car dealer market?

A: One of the things we are obviously interested in is that, once we put the satellite radio into the vehicle, and somebody [a card dealer] then sells that vehicle, as an example, we want to get that person who’s buying that vehicle to be a subscriber. So dealing with their [car-dealer] equivalent of the aftermarket ... is something that we are working on and focused on — and working with used-car dealers and auction houses that deal with cars.

In addition, one of the frustrating things with this is when you’re buying a car, and it has a Sirius Satellite Radio, and the salesman is not doing a good job in showing you how to preset those radios and knowing as much as you can about the service. So we’re working with the dealers as a way of engaging them more with the customer, and just like they’re showing you how the seats work ... make sure they’re explaining to you how the Sirius satellite radio works for you.

As we’ve been ramping up. If you sort of think about the fact that we got our first subscriber in 2002…and our OEMs are just now beginning to start to ramp up, so suddenly now that we’re going in this OEM, how do we really get good execution on that? So it’s only really been within the last year that we started to focus on maximizing the OEM. Up until then, we were focused on working with the companies [automakers] to get product in there. Now, we’re sitting there trying to enhance the usage of the product.

 


Q: How do you accomplish that?

A: As an example, one of the things we’re doing is trying to make sure that when you get the vehicle, you know that there is a satellite radio in the car. You put some hangtags, something on the radio that says this radio has Sirius Satellite Radio on it. You encourage the salesman to tell the customer that, by the way, in addition to AM/FM radio, which people automatically expect, this radio also gets you Sirius Satellite Radio, and here’s how you access it. In some vehicles, it’s an auxiliary button. It doesn’t say Sirius. So one of the things we’re working on with our partners is to brand the radios better so that the customer knows it’s there.

 One of the other things is that when we’re selling a satellite radio in your car, it’s coming with a bundled subscription. We’re making sure that the customer is aware that the subscription is a year in the case of Chrysler, six months in the case of Ford, and we’re also interested in having the [car] dealer upsell the customer on longer subscriptions, so if you were to have watched television in the last month or so, you’ve seen Mercury has done a campaign where they are selling the vehicle using Sirius as a selling point, and it comes with a three-year subscription. In the case of a normal deal with Mercury, it would have a six month subscription. With this promotion [that] we just did, it comes with a three-year subscription.

 


Q: You helped subsidize the promotion?

A: Very little. It’s sort of a co-op plan.

 


Q: Do you or would you offer incentive plans to the car salesmen?

A: Possibility, if it became cost-effective to do that. In other words, if it became a cost-effective way of encouraging a salesman who’s selling the car to do something to enhance the sale of satellite radio? Sure. We’ve been experimenting with that at certain dealerships.

So Chrysler will pay us for a one-year subscription. There’s no point of paying that salesman if all he had is that one-year subscription … but if that salesman can make that subscription a three-year subscription, then it’s an opportunity for that salesperson to make some money.

 


Q: Will you offer Sirius TV to retailers this year?

A: We’re excited about it. Our engineering people did a fabulous job in coming out with television. Take a look at the antenna. It is real small, not like a big pizza box attached to you car. It’s smaller than a hockey puck, and we’re offering live real-time television to the back seat of a car. So, No. 1, I think it’s really cool from a technology point of view that we were able to do it, and the product is starting out with one of our partners, Chrysler, introducing it in their ‘08 models. We’ll see it pretty soon. It will be interesting to see what type of consume reaction [occurs]. We think the consumer reaction will be very good. We think that if you’re a parent, and you like the idea of having the DVD in the back seat of the car to keep the kids interested, then the idea of having live television and having Nickelodeon and Disney Channel and Cartoon Network live in the back seat is pretty compelling.

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