The war of words between Liberty Media (Nasdaq: LMCA) and Sirius XM Radio (Nasdaq: SIRI) -- at least as it pertains to leading the company -- is intensifying.
Speaking at a Goldman Sachs conference on Thursday, Liberty Media CEO Greg Maffei told investors there are plenty of people who could replace Sirius XM CEO Mel Karkmazin after his contract expires by year's end.
"The business will not fail without Mel," Maffei said.
Maffei concedes that Karmazin has done a wonderful job. However, "Graves are full of replaceable people," he grimly said, as retold by the New York Post. "I put myself in that category, though I'm not in the grave yet."
Yikes.
Negotiating in public
Maffei's comments may seem a bit over the top, but Karmazin started it.
"My instincts today are that Liberty does not need me at the company," Karmazin said a week earlier at a different investor conference. "It's very clear to me that if I were Liberty, I would sit there and say I'm not sure we need Mel."
Arguing that he has "historically been expensive" as a CEO, Karmazin was trying to rally support. The stock took a hit on his comments, and that's probably the only time Karmazin was OK with seeing it happen. The market reaction was validating Karmazin as the media giant's helmsman, indicating that Sirius XM would be worth less without him around.
Is that really fair, though?
There's no denying that Karmazin saved Sirius XM from the brink of bankruptcy three years ago. Orchestrating the merger between Sirius and XM as one of equals -- even though XM had far more subscribers at the time -- was bold.
Anyone who's seen Sirius XM's stock chart over the past three years would want Karmazin to stay. He has transformed Sirius XM into a profitable company that's oozing cash flow and tacking on subscribers. Programming and content costs are surprisingly down over the past year, another indicator of Karmazin's shrewd yet effective management of on-air talent.
Karma vs. Karmazin
However, it hasn't all been perfect for Karmazin. He arrived after the dilutive recapitalization of 2003, but he was also the one who pushed Sirius XM's effective share count past 6.5 billion with the deal that awarded Liberty Media a 40% preferred share stake in the company. What's more, the stock is trading lower than when Karmazin arrived at the company.
Then there's the competition. Pandora Media (NYSE: P) is growing a lot faster than Sirius XM, and Apple (Nasdaq: AAPL) is reportedly in talks with record labels for licensing rights to put out a streaming platform of its own. In fairness, Sirius XM is making inroads in digital services: It rolled out on-demand streams of some of its more popular shows this summer, and it has its own Pandora-like solution slated for later this year. However, it's clear that Sirius XM could be doing a better job in growing its Internet subscriber base.
Finally, there's retail. Sirius XM's growth in recent years has stemmed entirely from car sales. It's understandable why aftermarket retail sales were so strong early on, sine new cars were rolling off the assembly lines with factory-installed Sirius or XM receivers. However, that doesn't excuse Sirius XM from its shortcomings in portable and home-based receivers.
Maybe it's time for Karmazin to pass the baton to someone who excels in areas where the company has been weak. Is a digital or retail guru the best choice for Sirius XM's next CEO if Karmazin does, in fact, move on?
Beyond Mel
Karmazin may have sealed his fate by being too good. All of the heavy lifting of turning Sirius XM into a viable media behemoth is done. He completed the merger. The synergies have been realized. Last year, he managed to talk Howard Stern into signing what should be his final five-year deal with Sirius XM.
The next CEO could essentially cruise on autopilot -- at least initially.
Karmazin would also be able to preserve his legacy by going out on top this year. If the next few years find Pandora, Apple, and Spotify challenging for premium listeners as mobile streaming becomes more pervasive, does Karmazin really want to deal with that scenario, which stands to level this playing field?
What if Karmazin isn't negotiating in public at all? What if he's ready to go? Sirius XM and Liberty Media had better be ready, because investors who have been spoiled over the past three years will expect something great.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
I recently put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors that are both long and short the dynamic media giant. A year of updates is also included with the report. Check it out now.
