TMF: Neither XM nor Sirius (Nasdaq: SIRI ) is profitable yet. Is there room for both companies?
Hugh Panero: Yes, I think there is. There are well over 200 million licensed vehicles on the road today. We are a company that has moved into the portable and wearable market, which even broadens the base beyond cars. It is a very big business, and I think there is room for both us, but how you split that business up really is [a question of] execution and the kinds of business decisions that we made. I am very happy being in the leadership position, and we intend to stay there.
TMF: How important are factory-installed car radios to your business moving forward?
HP: It is hugely important to the business. Honda (NYSE: HMC ) and General Motors (NYSE: GM ) are both owners of the company and on the board of directors. GM has over a million XM subscribers right now. Together, Honda and GM will produce over 1.5 million factory-installed vehicles for the 2005 model year. We will be the only satellite radio service factory installed with Toyota (NYSE: TM ) . We have deals with Nissan. We just signed a really unique deal with Hyundai. With over 120 vehicle models now offering factory-installed XM Radio in 2005, we have really by far led the way in selling satellite radio in new cars.
TMF: Hugh, I am going to present three fairly obvious competitors and ask you to rank them from biggest threat to smallest, as you see it. The first is obviously Sirius Satellite Radio. The second would just be traditional, free commercial radio, and the third is, of course, Apple (Nasdaq: AAPL ) and its iPod.
HP: I think that Sirius is clearly a competitor of ours. We are in a duopoly. We offer similar services. The next group would be local radio. I really don't see local radio as a competitor at all. I think that they basically offer some local content that people will find attractive; however, if you enjoy music and sports, you will move to us.
iPod... that demand-oriented, MP3-based technology is very attractive to people who want to search and sort and download and put [music] in their iPods. And for people who have the time to do that, I think that iPods are very attractive. However, we are offering a very different option of effortless listening to music, and I think as people get older, when they realize that they don't have an hour and a half or two hours every night to sort, download, buy, catalog, that they turn to XM Radio because it is effortless, like cable television is or satellite television is.
So there are things to watch in that category, but I think a lot of these technologies are converging. Right now, our portable, wearable radios have memory in them. I think that is probably going to increase over time. So you will see some convergence of this technology, but obviously we are all in the audio space.
We are all competing for people's attention and discretionary income, but I think that it is a space that is big enough for a lot of these players, and we are going to be one of those premier players.
TMF: Hugh Panero, let's close with our game: "Buy, Sell, or Hold." We play it with every CEO on this show. I will be asking you about things happening in the business world, and asking you if they were stocks -- which they are not, but if they were -- would you be buying, selling, or holding now, and why. Let's kick it off with buy, sell, or hold the Federal Deregulation Act of 1996, which allowed radio stations to own more stations and really paved the way for big media conglomeration.
HP: I think we have got to sell that one. I think that has led to less diversity, more monopolization, and the conglomerization of radio. I think that we have got to get rid of that.
TMF: The likelihood that XM will offer video in the next five years. Buy, sell, or hold?
HP: I think we ought to hold on that. I think it is definitely something that we have demonstrated the ability to do, and the issue simply is whether there is a business model that supports that, because when you offer video, it takes up a significant amount of bandwidth, and something is going to have to be sacrificed. So I would say hold right now, until we figure out the exact variables that one has to evaluate as part of a business decision.
TMF: The likelihood that I will hear satellite radio on, let's say, my next flight with JetBlue or any other customer-focused airline in the next few years. Buy, sell, or hold?
HP: Oh, buy that! Buy that! We have deals with Air Tran. Air Tran is already flying with XM, and JetBlue is going to be launching very soon. So that is a no-brainer. That is the one where actually I have insider information on that, so I can make those judgments, right?
TMF: One more, and then I am going to close. He is the new head of Sirius Satellite Radio. If he were a stock, buy, sell, or hold Mel Karmazin?
HP: Oh, you have always got to buy Karmazin. He is a talented guy. As I said before, this is a business where both companies can be successful, and he has got a track record, so we welcome him to the category. I am just happy that XM was able to build the business in such a way that he could change his attitude toward it, which six months ago was that satellite radio would amount to nothing because it was only going to be a niche business. Now we have provided him with gainful employment because we have made satellite radio one of the hotter categories around, and I welcome him to the business.
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