Can we talk?
XM Satellite Radio
Thirteen months after Sirius found itself on bended knee, proposing a merger of equals to XM, Sirius CEO Mel Karmazin is starting to get a little more vocal about his displeasure with the slow-footed approval process.
Karmazin, who cut his teeth at Viacom
Wait for it
Right off the bat, Karmazin was asked about why the FCC and the Department of Justice have been so slow in rendering a decision.
"I really can't answer why it's taking so long, because from my point of view, it's such an easy call that they should have made this decision a while ago," he replied.
Karmazin believes the merger is "terrific for consumers" and "terrific for shareholders." The market seems to agree, since XM and Sirius subscribers haven't objected to the corporate combination, and investors are drooling over the synergies of two scalable models with high fixed costs and low variable overhead coming together.
"It's hard for me to believe that somebody could think that, with all of the audio choices that the consumer has, that two companies that have never made a dime combining are going to be a problem for consumers, particularly with what we're offering consumers," he said. "You can go to Best Buy
Karmazin also addressed the suggestion by Congressman Gene Green -- one of the few vocal critics of the deal -- that XM and Sirius should auction off half of their bandwidth to a third satellite radio company as a concession for the merger's approval.
"It's not on the table," Karmazin clarified, pointing out that the two companies have invested $8 billion in the business. He suggests that a day may come when a company may offer a fair price to buy something closer to 10% of the spectrum, but a mandated sale would defeat the premise of a combination for the greater good of the consumer.
"I can't understand why anybody would want us to divest spectrum, because it would mean that the audience is going to lose something," Karmazin said. "If we're going to give up spectrum, then we're going to have to give up content. And which content are we going to give up?"
Taking Sirius for a test-drive
Karmazin also got into the importance of the auto market in growing satellite radio. He pointed to deals like the one in place with Ford
The key to getting automakers excited is the revenue-sharing deals, giving royalties to struggling automakers like Ford as long as a car's satellite radio service is activated.
"The company that makes the steering wheel isn't giving the car companies a revenue share, nor is the one for the brakes," Karmazin stated. He expects this to breathe new life into the used-car market as well, with carmakers motivated to promote the otherwise dormant receivers being wheeled around by non-subscribers.
That's important. I have been skeptical about what will happen to the industry over the next few years, when XM and Sirius subscribers trade in their old cars for new ones. They won't be incremental subscribers, because they will be simply replacing their receivers.
But that doesn't mean growth will fizzle out.
"We now have a shot -- with no subscriber acquisition costs, with no cost because the radio is already in a car. We have the ability to get them as a subscriber," Karmazin says.
He's right. There's also the fact that not everyone with a new car keeps paying for their satellite radio service after their free trial runs out. In its latest quarter, XM noted that 54% of car owners with factory-installed XM receivers keep the service.
A popular knock has been to classify the other 47% as dashboard paperweights, but these virgin receivers will also be hitting the used-car market eventually. As more cars enter the marketplace with XM or Sirius receivers, the growth will be substantial if the industry can keep its conversion rates going on new- and used-car sales.
With or without a deal, Sirius is keeping its growth prospects alive.
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Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the stocks mentioned above. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.