With Mel at helm, Sirius gets serious

By Published on .

Mel is back.

Sirius Satellite Radio's hiring of former Viacom President-Chief Operating Officer Mel Karmazin as its CEO last week significantly raised the profile of the fledgling company and is the latest sign satellite radio is reaching its tipping point.

Mr. Karmazin, whose appointment was first reported on AdAge.com (QwikFIND aaq13t), joins Sirius just weeks after it announced a five-year, $500 million deal with radio shock jock Howard Stern. Mr. Karmazin hired Mr. Stern when he was head of Infinity Radio (a company that was sold to Viacom in 1999) and has frequently been described by Mr. Stern as his champion when disputes arose around his often controversial radio show.

The news that Mr. Karmazin was taking the reins at Sirius, based in New York, boosted the company's stock 9.5% to $5.17 on Nov. 19, up 45ยข from the day before. He replaces Joseph Clayton, who becomes chairman of the board.

`sea change'

Maurice McKenzie, VP-equity analyst at Friedman, Billings, Ramsey, an investment bank based in Arlington, Va., said: "The addition of Mel Karmazin to the head of Sirius is a symbol of sea change that satellite radio is making the shift from a high-growth tech stock to a major media player. We expect Mr. Karmazin will bring top line growth, programming quality and financial discipline to the company."

While Mr. Karmazin knows the radio business inside out-he spent 20 years building Infinity-he is better known for working with advertising rather than subscription-based business models. Many industry observers expect that Mr. Karmazin will ramp up advertising-supported programming at Sirius. And the industry will be watching to see how he'll sell against his former colleagues.

"He'll come head to head against the companies he just ran," said Dennis McGuire, VP-regional spot director, at Aegis Group's Carat.

Analysts suggest one of Mr. Karmazin's priorities will be to work with auto companies since they are a vital source of subscriptions. Sirius' partners include Daimler Chrysler, BMW and Ford Motor Co., while its rival XM Satellite has General Motors Co.

car alignments

"He needs the car companies that are partners to start installing them in the vehicles," said research analyst Alissa Goldwasser at William Blair & Co., Chicago. "They have been slower than XM Satellite's partner GM."

Ms. Goldwasser believes Mr. Karmazin may target either Toyota or Honda for future partnerships since neither company has aligned themselves with satellite radio. According to a Sirius press release, "Sirius radios are expected to be available in over 80 different car models, with more than 50 of them factory programs." It claims that its deals represent more than 40% of new cars and light trucks sold annually in the U.S. The company did not return calls for comment.

Sirius and Mr. Karmazin already are getting a huge boost from its deal with Mr. Stern, despite the fact he is bound to Viacom's Infinity until January 2006. Last week, he appeared on "Late Night with David Letterman" and flogged the service unabashedly, holding up one of Sirius' radios and extolling its virtues. The long-haired DJ also appeared at a park in New York City to plug his new alliance and handed out free Sirius radio receivers to the crowd.

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