xfdfx YOUR-WORLD-WITH-NEIL-02
<Show: YOUR WORLD WITH NEIL CAVUTO>
<Date: November 16, 2009>
<Time: 16:00:00>
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<Tran: 111602cb.140>
<Type: INTERVIEW>
<Head: Sirius XM Radio - CEO Interview>
<Sect: Business>
<Byline: Neil Cavuto>
<Guest: Mel Karmazin>
<Spec: Business; Radio Broadcasting Industry; Sirius XM Radio;
SIC: 4832>
<Time: 16:19:00>
NEIL CAVUTO, HOST: Well, GM's results are improving, all that government dough certainly helping. And that is not exactly hurting the satellite radio business. More car sales generally mean more radio sales, but Sirius XM Radio not looking for a bailout. It's using huge stars like Howard and Oprah, now Rosie, to stand out.And it has one of the most brilliant CEOs around trying to get those sales to break out, Mel Karmazin here, only here.
Mel, good to see you.
MEL KARMAZIN, CEO, SIRIUS XM RADIO: Good to see you, Neil.
CAVUTO: Things are picking up. And when you heard the news from GM that, look, we're doing better, we expect car sales to pick up, in fact, we're going to repay our loans a lot earlier, what did you think?
KARMAZIN: There was no new surprises there. You know, I think that we were anticipating next year that car sales will be between 11 and 12 million cars. And that's sort of what Fritz said today. So...
CAVUTO: Fritz Henderson of GM...
KARMAZIN: Yes. So, you know...
CAVUTO: There should be about a 10, a little -- 12 percent pickup from where we are.
KARMAZIN: Yes. Which is really good, you know, because our business model works, you know, real well. I mean we'd like 16 million subscribers as compared to -- or cars sold as compared to 11 to 12. But our model works really well since the merger with 11 to 12 million.
CAVUTO: But it is still contingent on car sales, isn't it?
KARMAZIN: You know, I...
CAVUTO: It comes down largely that?
KARMAZIN: You know, it's -- it's not about -- partially, yes.
CAVUTO: Yes.
KARMAZIN: ... because so many people listen to the radio, you know, when they're out of home and they're in their vehicles. So 75 of people are spending their time listening to radio in the car.
So it's really neat when cars get sold with an A. M. Button and an F. M. Button and a Sirius XM button. But we're not really about adding subscribers. That's not the critical nature. Of course, we want to add more subscribers.
The question was always about will the business model work?
And since the merger happened, we were about to dramatically improve the business model. You know, we have a swing of about, you know, almost a billion dollars from before the merger until after the merger, you know, insofar as our cost structure. So we have...
CAVUTO: But is the cost structure still a problem, though?
I mean I never know what numbers are accurate on Howard Stern, whether it's $100 million a year. Whatever it is, it's a lot of money. And that it just doesn't make sense.
KARMAZIN: So I will tell you this, Neil, in our most recent quarter and in the guidance that we've given for this year and in the guidance that we've given for next year, we're going to have --after paying these very substantial salaries, after paying extensive interest expense, we're going to generate free cash flow.
And, as a matter of fact, in 2010, our free cash flow is going to grow. And my metric that I care about, you know, more importantly than subscribers, more importantly than revenue, is free cash flow, because I've always believed that free cash flow creates wealth. And it's free cash flow that enables you to make accusations, buy back your stock, pay down debt. And we are generating -- in spite of the costs, you know, a lot of free cash flow.
If you could convince Howard to work for less money, you know, I'd be happy to. But I've been hearing about expensive content costs my whole career...
CAVUTO: I know.
KARMAZIN: ... whether it be the NFL, whether it be the NCAA tournament, whether it be David Letterman, whether it be Don Imus, whether or not it's the Howard Stern.
You know, good content costs you a lot of money. And as I've said before, I'd much rather have that good content than not have it. And if we have to work harder to generate more subscribers and more free cash flow to pay for it, we're prepared to do it.
CAVUTO: And just so we know, I want to go on record as I'm against trying to cut back talent pay for anything.
(CROSSTALK)
KARMAZIN: You're -- no?
You're kidding?
CAVUTO: Yes.
I've got to ask you about other rumors in the industry, the whole Comcast/NBC thing, which could go down.
If it were to go down and if it were to happen, your name keeps coming up as among the small pool of executives who would be perfect to run it.
KARMAZIN: There would be no question that I would be perfect to run it. There is no chance that I will ever take another job outside of Sirius XM. I just renewed my contract. It's exactly what I want. You know, I -- I believe...
CAVUTO: Well, why do you feel that way?
KARMAZIN: Well, because...
CAVUTO: Because you don't want to be a number two?
KARMAZIN: Well...
CAVUTO: I mean you could be a number two to Brian Roberts or...
KARMAZIN: Oh, well, no. That -- that would absolutely not be possible, OK, for me to be a number two. But -- but the scenario is that...
CAVUTO: Ever?
KARMAZIN: I...
CAVUTO: You would never be a number two?
KARMAZIN: Ever. I wouldn't be a number two to Warren Buffett.
CAVUTO: Really?
KARMAZIN: I mean I'm just not good at it. I mean I'm just not good at being a number two.
CAVUTO: So they ask you, they -- of course, I know you're ridiculously wealthy. But -- but if they were going to -- you're the guy, a gazillion dollars. You're the man. Make it happen. You're saying no.
KARMAZIN: I'm a big fan of Pete Peterson, Blackstone Group...
CAVUTO: Yes.
KARMAZIN: I saw him at breakfast a -- a week ago. He's given away over a billion dollars. He came to the conclusion he had enough, OK. Enough money -- you have enough. You don't need more.
For me, I came to that conclusion 10 years ago.
CAVUTO: You want this to be your last job, though?
KARMAZIN: Well, I don't know if it's my...
CAVUTO: I mean certainly you didn't envision this pool of headaches that...
KARMAZIN: No.
CAVUTO: Not of your own making and it's...
KARMAZIN: No. It's exactly...
CAVUTO: Kind of, when everything you had the fan, you had H.D. radio and all these other unforeseen developments.
KARMAZIN: It's exactly what I wanted.
CAVUTO: Do you want this to be...
KARMAZIN: I came -- I came to this company that really did not have a business model that worked. I wanted to do the merger. I didn't want to deal with the liquidity thing. I had no idea about Lehman Brothers and stuff like that. So that part of it was certainly not anticipated.
But I came to a business that's far more entrepreneurial, that's a growth business, that's revolutionizing radio. I made all of my money, you know, or a lot of it in radio. I loved radio. And this was, to me, the perfect opportunity.
And I have no desire -- is this the last thing I'm going to do?
I have no idea about that. But I will tell you what I don't want to do is to run another large media company. I've done that, you know, been there.
CAVUTO: I will play this back when you are running another large media company.
KARMAZIN: And -- and by the way, you know, I'll make you a bet that I will not run another large media company, unless it's Karmazin, Inc... .
CAVUTO: You know what...
KARMAZIN: But that's another story.
CAVUTO: Oh, I -- I -- I see.
KARMAZIN: Right.
CAVUTO: The -- the environment for satellite radio -- and now you've found a lot of different ways to provide it to people. You're not so contingent, for example, on the sale of a car.
But how much of the whole business has changed, you know what I mean, that all of a sudden we -- I was alluding to H. D. Radio. But there are all of these other alternatives out there.
And I should disclose, I'm a Sirius XM user. I love it. I love it a lot.
KARMAZIN: Thank you very much.
Thank you.
CAVUTO: But...
KARMAZIN: Are you a lifetime subscriber?
CAVUTO: I've been for a good six years?
KARMAZIN: Well, we have a sale. You can become a lifetime subscriber if you want to.
CAVUTO: Really?
OK, we'll talk about that.
But I always tell people, you know, once you try it, it really is night and day.
KARMAZIN: Right.
CAVUTO: But then a lot of people say yes, but I try H. D. Radio. That's pretty cool.
KARMAZIN: Yes, but they...
CAVUTO: Or, yes, but I'm on the Internet and all this stuff...
KARMAZIN: This...
CAVUTO: And yes, I don't live in my car and I don't like these contraptions because even some of them that hooked up to Apple that are $13 a month or whatever.
What do you tell them?
KARMAZIN: So I tell them that radio has been around for a long time. There was A.M. radio that started in the '20s. Then it became F.M. radio. But it's different than just recorded music and it's different than just a lot of stuff you're alluding to.
Our revenue today -- our trailing revenue is about $2.5 billion. There's only one other company that's close to us in revenue -- and they're slightly ahead of us -- and that's Clear Channel. None of these other companies -- there's no radio company, there's no revenues in H. D. Radio. You know, you've got all of these music services that have revenues of under $100 million a year.
That we have this extraordinary content. We have 135 channels in every single market in the United States, from Sirius and from XM. And our content is what separates us -- and it's, by the way, people are in their car right now listening to FOX News, OK...
CAVUTO: Right.
KARMAZIN: ... on Sirius or XM. You know, that's not just about only music, you know?
And when you add our sports and you add our content, you know, we have lots of competition. We told the Department of Justice, I mean -- the one thing about the merger that you talked about with NBC, you know, and Comcast, you know, that I would be concerned about is we went through 17 months of being in deal limbo because of the regulatory process.
CAVUTO: I remember that. I remember.
KARMAZIN: And that's an ugly period of time, you know. And the government...
CAVUTO: And investors leave you in that.
KARMAZIN: Yes. And investors, you know, not only do investors leave you, you know, subscribers are concerned about what's going to happen.
You know, are you going to have to do a la carte?
Are you going to have...
CAVUTO: Right.
KARMAZIN: ... you know, what -- what are you going to have to do?
So I think a huge disadvantage to us was going through that merger and then the subsequent liquidity that's behind us.
So I think today, you know, you'll start to see quarter after quarter of growth. You'll see us making free cash flow. You'll see us with, as I said, over $2.5 billion of revenue. We'll start to make money and we'll start to keep investing in content. And I think our future will be great.
Is there a lot of competition?
Absolutely. There's a ton of competition. I remember when people said that the cell phone in the car was going to put radio out of business. And when the eight track went into the car, people said gee, no one is going to listen to radio, they're going to be listening to the eight track.
And, you know -- so, you know -- I think there's a lot of competition, but I feel really good about our model.
CAVUTO: But a lot of it is not necessarily hinged to -- to GM, right?
I mean we're just getting word now that GMAC's CEO is resigning. He's...
KARMAZIN: I'm not taking that job. I...
(LAUGHTER)
CAVUTO: But the reason why, is -- is it fair to say you're trying to step back, that this isn't all GM contingent, or this isn't all auto contingent?
KARMAZIN: Well, we sell cars. We have deals with every single car company.
CAVUTO: Right.
KARMAZIN: You know, every single car manufacturer is putting satellite radio...
CAVUTO: Right.
KARMAZIN: ... in the car. So if next year there are 11 million vehicles sold in -- for North America, we'll be in about 60 percent. Indifferent as to whether it's Ford or Chrysler, Toyota. I mean we're rooting for all of our partners.
CAVUTO: Got you.
KARMAZIN: And we're in every one of them.
(CROSSTALK)
KARMAZIN: We have deals with everybody.
CAVUTO: You work with some of the most prominent talent in the world, right now, Oprah, Rosie and Howard. You work with my colleague and friend, Don Imus. They all love you. And I always hear from managers who say oh, God, you know, these talent -- the prima donnas. They never refer to me that way, but -- but I hear that.
And -- and how do you manage these gargantuan egos?
KARMAZIN: By paying them a lot of money.
CAVUTO: Yes.
(LAUGHTER)
KARMAZIN: All the rest doesn't matter.
CAVUTO: But don't they worry about -- you always hear these stories, yes, but he got more ad time than I did or he got more promo time than I did and the rest, you know?
KARMAZIN: It's -- it's called money, OK?
Yes, they come in and they say Mel, I love you because you fought the FCC for me...
CAVUTO: Right.
KARMAZIN: You know, you really supported me. You didn't fire me over that controversy, and, by the way, my contract is up, can I get 10 percent more money?
CAVUTO: But isn't the goal post for a lot of them I want to be paid more than this other guy who seems to be getting more of Mel's love?
KARMAZIN: Yes. I mean that's always a challenge...
CAVUTO: What do you say?
KARMAZIN: ... you know, is to sit there. And I keep telling them that when they are as generating as many subscribers for us as Howard Stern is, I'm willing to pay you that kind of money.
CAVUTO: But Howard Stern is your top talent.
KARMAZIN: Howard Stern is the most popular radio personality in --in all of radio today, especially today with us.
CAVUTO: And are you for the fact that he really does assiduously avoid media interviews, red carpet type appearances, that he keeps it all pretty much on the radio?
KARMAZIN: Yes.
CAVUTO: Are you OK with that?
KARMAZIN: Oh, I -- I love it, you know, because, as I said, I think if anybody wants to hear anything that's going on with Howard Stern, they can -- there's only one place to find it and that's on the radio. So, no, I -- I feel it's really good and Howard doesn't like doing things like this because it will be quick and rushed and he has five hours every morning on Sirius XM and he can say everything he wants to.
And why should he give it to FOX News?
FOX News isn't paying -- you're not paying me for this interview.
Howard thinks...
CAVUTO: I thought you came because you liked me.
KARMAZIN: Oh, I do. But Howard thinks I'm crazy doing...
(LAUGHTER)
KARMAZIN: ... with you when I could be doing it with him.
CAVUTO: President Obama, how do you think -- how do you think he's doing?
KARMAZIN: I think he is a great leader. I have a lot of respect for him. I wish that he focused on the job situation. I think that the single biggest problem facing people -- when you take security, because that's a give me, you've got to worry about security -- are the jobs. And I think...
CAVUTO: You wouldn't have done the health care thing right now?
KARMAZIN: No. I -- I -- I -- I feel that we need to do something on health care, but I definitely would not be doing it now. I'd be laser-like focused on trying to improve the job situation that exists today. Because I think it's really problematic.
CAVUTO: Yes or no, real quickly, Comcast and GE are going to come to pass on NBC?
KARMAZIN: Yes.
CAVUTO: OK.
Mel Karmazin, always good seeing you.
KARMAZIN: Good to see you.
CAVUTO: Your tie outdid mine.
(LAUGHTER)
KARMAZIN: Thank you.
CAVUTO: Which is saying a lot.
KARMAZIN: My wife will appreciate it.
(LAUGHTER)
END
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