Right around the end of October, it was announced to absolutely no one's surprise that Sirius XM (SIRI +0.00%) CEO Mel Karmazin will step down from the satellite radio throne on Feb. 1, when his contract expires. Opinions on the leader range from "savior" to "overpaid." The question now is, as a longtime suitor approaches full ownership of the company, who is best able to take control of radio's biggest transformation since FM?
Farewell, Mel
Karmazin took the reins of Sirius in 2004, eight years before John Malone's Liberty Media (LMCA +0.00%) had any idea it would be heading into a frustratingly long battle to acquire the company. The stock price went on a rollercoaster, starting around $9 per share before the XM merger, only to then bottom out at $0.10 in February 2009. While shareholders may have had to start taking heart medication as part of the investment, Karmazin claimed he was "one of the most underpaid executives in the history of executive payment." Boring syntax aside, the statement brought Forbes magazine to label him one of the worst-performing CEOs in terms of compensation compared with value created for shareholders.
When you look at the stock price over his tenure, during which he has earned close to $200 million, you may agree with Forbes. But there are other metrics to look at. When Karmazin stepped in, Sirius owned a subscriber portfolio of 660,000. That number is north of 20 million today. Two out of three vehicles are Sirius XM-capable, compared with one out of five just eight years ago. The company was cash flow-negative through the first half of the past decade. For the full year 2011, cash flow from operations came in at more than $540 million.
These are some undeniably fantastic numbers, so who are we to say that Karmazin has or hasn't done a good job? One thing is for sure: Sirius XM is many times the company it was less than a decade ago, and Karmazin has many more country club memberships.
The question remains: Who's next?
3 options
Since you asked, I'd like to offer up three suggestions for the next show-runner of the world's largest radio company.
1. Greg Maffei
Maffei is the CEO of Liberty Media. He is a talented capital allocator who has been a great pairing with chairman John Malone. Under Maffei's leadership, the company successfully spun off DirecTV, which has thrived as a standalone stock and company. He and Malone both engineered the Sirius deal still under way. Maffei has brought Liberty Media into its position as a top-rated media company -- something that's increasingly difficult in today's technology-driven world. Maffei knows the value of Sirius, being the architect of the deal. He knows what the company needs to thrive. It may not be as powerful a position as the one he has now, but why not pass on the torch when you're on top?
2. Scott Greenstein
Greenstein is the president and chief content officer at Sirius. Even though it's the radio company of the future, Sirius still needs to increase ad revenue -- the fundamental moneymaker of the old-school radio business model. Greenstein, in addition to brokering deals with big names such as the NFL, has managed marketing initiatives for the company. He's a company insider with a long track record in the entertainment industry
3. Ned Brody
You may have heard the name Ned Brody recently with the surprisingly strong AOL (NYSE: AOL) earnings report. Brody heads up AOL's Advertising.com segment and is quickly making a name for himself and bringing the company into financial security for the first time in a long while. Brody probably wants to see the job through, but this would be a great opportunity for a young advertising guru to cement his name in the corporate world.
Unlikely
I have no way of knowing whether any of these men are in the running at all. But I wanted to illustrate what the company needs, even as it becomes a subsidiary of Liberty. Sirius needs to drive up revenue from advertising. This was Karmazin's bread and butter, and it's what the man has done since he was 17 years old. Sure, the dynamics of the business have changed, but I believe some of the fundamentals remain.
In addition to the advertising, Sirius needs someone who understands the incredibly difficult business Sirius operates in. This is not a business that could be run by a monkey; it needs real talent to navigate the increasing competition, government regulation, and threat of disruptive technology.
As we see who takes the reins in the coming months, tip your hat to Karmazin for a solid run in the driver's seat. The ride may have been absolutely nauseating for long-term shareholders, but there's still a company here that's a definitive market leader and cash printer. It just needs the right man at the helm.
