One on One with Sirius CEO Mel Karmazin
Tuesday, October 30, 2007
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SUSIE GHARIB: Sirius Satellite radio narrowed its losses in the third quarter as revenue jumped 45 percent. The New York-based company lost $0.08 a share in line with estimates, but surprised analysts by adding more than half a million new subscribers. The company, which expects 2007 revenue to reach $1 billion, is still awaiting government approval for its planned merger with rival XM. Earlier today, I met with Sirius CEO Mel Karmazin and began by asking him when the company will turn profitable.
MEL KARMAZIN, CEO, SIRIUS SATELLITE RADIO: What you're seeing now is a narrowing of the loss. We're generating a whole lot more revenue. We're growing our revenues a lot faster than we're growing our expenses. When that path crosses, we have not disclosed, but a really good sign of how good the business model is is that this coming fourth quarter, the quarter that we're in, we will be free cash flow positive, so we will be free cash flow positive. Then we will become EBITDA positive. Then we will become earnings positive.
GHARIB: Mr. Karmazin, I see that Sirius added a lot of new customers, more than half a million in the quarter. Where is that growth coming from?
KARMAZIN: The two ways we get our subscribers are in the OEM, in the car companies, so you buy a new Ford, Chrysler, Mercedes, BMW car with a satellite radio and that channel is growing rapidly or you go into a retail store and you buy the radio in the after market and that is also growing for us. And we expect in the fourth quarter of this year that the retail numbers will increase because it's a holiday season and people tend to give, you know, satellite radio and other consumer electronics as a Christmas and holiday gift.
GHARIB: It's been more than eight months since you announced that merger with XM. When do you expect to hear from regulators on whether this deal is a go or not?
KARMAZIN: I'm waiting for the phone to ring as we speak. We filed all of the work that we had to file at the FCC. We provided the Justice Department with over six million pages of documents. We and XM each provided them with about six million pages. They have all of the information and it's ripe for them to make a decision and we're optimistic that they'll a make a decision before the end of the year.
GHARIB: Do you have any indication from government regulators of where they're leaning on this merger?
KARMAZIN: I keep reading body language. I keep reading public statements. I know that there are, you know, some FCC commissioners who tend to be against any form of consolidation. We think that our merger is different than typical consolidation where you're having two very successful companies and you're trying to limit the voices. What we're trying to do is to make ourselves a better competitor for terrestrial radio so I'm optimistic that even the FCC commissioners who tend to not be in favor of consolidation could see their way clear to vote in favor of our merger.
GHARIB: How are you managing Sirius for the future when you don't know whether you're going to be merging with your biggest rival or you're going to be competing with it?
KARMAZIN: The way we run the company is as if the merger is not going to happen. The fact that we have been executing so well in spite of all of the distractions that are going on with the merger and a lot of people focused and putting time in on the merger, we're delivering, you know, a really bang-up, you know, quarter as we did in the third quarter announcing 525,000 as you pointed out, better than expectations.
GHARIB: Let's say the merger doesn't go through. Do you think that satellite radio is a business where only one company can really survive?
KARMAZIN: We have not made that argument. We have not said that this category is a failing category. We believe that we have a business model that will make us profitable. We believe that we will become a very profitable company one day. And I say that with the merger and without. I feel more assured of what I just said if, in fact, the merger is approved.
GHARIB: Sirius stock has been rallying for the past few weeks even though it's off from its highs. What's behind the move?
KARMAZIN: I believe that a good amount of the interest in our stock is related to the merger. There is a belief that the efficiencies of the merger are so substantial that if the merger were allowed to happen that these companies would be worth far greater than they're worth today. So I think that there has more to do with the merger than it does about the fundamentals because the fundamentals have been strong for the last couple years.
GHARIB: Mr. Karmazin, thank you so much for your time.
KARMAZIN: Thank you very much. Good to be here.
