A masterstroke.
My jaw hasn't dropped this far since the announcement of the merger of AOL and Time Warner. I was essentially speechless.
But now that the shock has started to wear off, my brain is starting to click.
Mel Karmazin is an advertising guy. That's how he made his mark. By driving his salesmen. Programming was never his forte. He left that to individual programmers at the stations.
There's essentially no advertising on satellite radio. No team of cheap-suited thugs out drinking martinis with ad execs, trying to drain dollars from their clients. In satellite radio it's ALL programming. So, one might scratch one's head and ask...how good a fit IS this?
Then again, let's not forget that Mel was responsible for Infinity's growth. He was the one who paid tens of millions of dollars for KROQ and then reaped the financial rewards thereafter. He built Infinity into a dominant chain, and then merged it with CBS and Viacom. That's quite a play. The fact that Sumner bested him at the end is not relevant. Sumner Redstone is one of a kind. The poker player of all time, with a dash of loyalty to his hand-picked people to boot. So you don't get Sumner, the MVP, you don't get Barry Bonds. But would you like the RUNNER-UP? Not even Mike Piazza, but someone who can still catch, who is still hungry, who can still PLAY!
However ALL of the foregoing is irrelevant. The entertainment business is all about PERCEPTION! And to a great degree, Wall Street is too.
Perception was that Sirius was done.
They launched late because they used proprietary chips.
They charged more than XM.
Their relationships with their car company partners were weak.
They went through a number of programming executives.
The financials were horrific.
This WAS NOT a company you wanted to invest in, but one you wanted to run FROM!
Finally the technology worked. Sirius started to introduce new products. Finally releasing a boombox combo.
They settled on Walter Sabo. They turned programming over to him. Which lent professionalism and stability to the organization.
They hired Scott Greenstein, who made the Howard Stern deal, which was the shot heard 'round the world. Suddenly, everybody knew what satellite radio was. Sure, it benefited XM too, but Sirius more. And, ironically, what's good for one is good for the other, since it blows up the still nascent category.
Their $12.95 price point became a non-issue when they made it clear that unlike XM, they would not charge additional monies for special tiers of programming, like Howard Stern.
With the strength of the Howard Stern deal, they went back to their car company partners and squeezed them to perform. Now Ford, BMW, Mercedes and Chrysler have made MAJOR commitments. Sure, dividends won't be paid for at LEAST a year, but it's factory-installs that are driving XM subscriptions through the roof. Almost all GM cars are XM-ready, as are most Honda/Acuras. Subscription conversion rate is 60%. Now Sirius will be able to take advantage of this paradigm.
Still, XM, despite having less cash on hand, looks more palatable to the Street, since it's got the same team it always had and a well-liked wunderkind steering the operation, Hugh Panero.
Hugh Panero doesn't have a background in radio, but he's the face of XM radio in the financial world. Investors BELIEVE IN HIM!
But investors ALWAYS believed in Mel Karmazin. He made them A LOT of money over the years.
And now Mel's running Sirius.
So what you have here is an INCREDIBLE turnaround in perception. To the point where even though XM has outgunned Sirius in subscriptions 3 to 1, Sirius is seen as an equal player. Sirius is seen as a COMER! Sirius has the MOMENTUM!
Just look at Sirius' stock run-up today. People now BELIEVE!
Which will give Mel time to make perception reality.
And irrelevant of whether he's an exact fit for the job, Mel's a hard-driving charger, who plays to win. Exactly what Sirius needs.
Once again, this is good for both XM and Sirius. Good for the whole CATEGORY of satellite radio.
But just so you know, it spells the death of terrestrial radio. Already the numbers are bad at traditional stations. The Street believes in subscriptions, not advertising. All this hoopla has now made satellite radio unstoppable. The NAB won't be able to throw roadblocks in front of the category out of the spotlight. Now everybody is paying attention, and fat cats are INVESTED! Fat cats who have relationships in Washington, D.C. too.
It's going to be quite a ride. The music is going to be revolutionized in the next decade or two.
But when satellite radio becomes king will it too start to play it safe, will it too become stultified like terrestrial radio? And won't it be harder to break the logjam, with two companies dominating?
The answer to these questions is yes.
But then a new technology will come in to challenge them. Just like we're seeing in the record business. Make no mistake, the Internet is to major labels as satellite radio is to terrestrial radio. Those living in the past don't like newcomers breaking up their party. But innovation is always good for the consumer. Which begs the question, are regulatory agencies interested in what's good for the consumer, or do corporations now rule. Think which side you're on. You can't love satellite radio if you don't love cheap Net distribution.
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