The Revolutionary Challenge of Sirius Satellite Radio

    November 21, 2004

The FCC is being cut out of the loop (thank God) via Sirius, its management, Howard Stern and the legendary Mel Karmazin. XM Radio is playing a leading role now, but the real noise is being generated by Sirius.

According to Newsweek:

“Last week Karmazin took the helm of Sirius, the No. 2 firm in the rapidly growing satellite-radio industry. On the air for only three years, Sirius doesn’t post big subscriber numbers (about 700,000) or anything close to profits (it has gone through $2 billion to get up and running). But it has been prolific with headline-grabbing deals. In October it signed Karmazin’s top talent at Viacom, shock jock Howard Stern, to a five-year, $500 million contract.

Karmazin will collect a $1.25 million annual salary and $30 million in stock options, which, if recent performance is any guide, could be worth a lot. Sirius stock is up 35 percent this year. “This is a tremendous opportunity for me,” Karmazin says. “I love the radio business and I love small growth companies.” He also vows to overtake competitor XM: “We will be No. 1.” One hopes his plan will be better than his putting.”

The Motley Fool chimes in:

“Yet Sirius is a perfect fit for Karmazin. Succeeding at Sirius would mean that both XM (Nasdaq: XMSR) and Sirius will have nibbled away decisively at free radio’s market share, and that would sting his former company given its exposure to traditional commercial radio.

Having a prolific name at the helm also gives Sirius instant credibility. Karmazin’s contacts should help secure more big-name broadcasting talent interested in making the migration to satellite radio. It’s definitely been good for the shares of Sirius, as the stock was trading at $5.60 last night after Karmazin’s post was officially announced.”

“This is a perfect opportunity for me because I want to lead a growth company that can reshape the landscape of the radio business. I took Inifinity Broadcasting and Westwood One to leadership positions in the industry and am confident that Sirius will become a market leader in short order,” Karmazin commented to reporters.

Shares of Sirius Satellite Radio jumped almost 10 percent Friday as the Nasdaq’s most active stock on news that Mel Karmazin will become its chief executive officer at the end of the year.

Sticking it to his current over the air employer, earlier this week Howard Stern gave away 500 Sirius radios, as well as, around 20,000 Sirius gift certificates to thousands of fans in New York’s Union Square Park. Howard is set to move his top-rated radio show over to the satellite broadcaster beginning in January 2006, but rumors say it might be a lot sooner. Howard has mentioned numerous times on his radio show that he is receiving legal notices from Infinity to cease and desist discussing his move to Sirius.

Howard Stern is so popular that he propelled David Letterman into a rare ratings win over Jay Leno. “The Late Show” beat “The Tonight Show” nationally, snaring a 5.7 rating to Leno’s 5.4, according Nielsen Media Research. This popularity is what Sirius is counting on to sign up at least 1 million new paying subscribers.

Can this wild investment in personality and old radio experience pay off? Newsweek states:

“To make it all work, the prolific Stern will have to perform the same magic he did with his two best-selling books and his 1997 hit film “Private Parts.” In short, he’ll have to get his fans to pay for his shtick. For the deal to pay off, the self-styled “king of all media” needs to persuade at least 1 million fans to buy satellite radios (which start at about $150 in stores and $200 to get installed in a new car) and pay a monthly $12.95 subscription fee. Most analysts not only think that’s achievable but believe the Stern deal is already paying off in the crucial currency of buzz.”

“This made a statement to other radio talent and to everybody in the industry that Sirius is for real,” says Karmazin.”

Rich Ord is the CEO of iEntry, Inc. which publishes over 200 websites and email newsletters.

Rich also publishes his blog WebProBlog which focuses on internet business and marketing trends.