Satellite Radio Gets a Reprieve

by Rick Rockwell

Inches away from the guillotine, satellite radio found a savior. But the jury is still out on whether this new economic arrangement is better or worse for consumers.

First, the basics: Liberty Media, the owners of DirecTV swooped in today (Feb. 17) and offered Sirius XM Radio $530 million in loans and stock purchases so the debt-burdened radio firm could pay off debtors and bond holders. Sirius XM had been making noises about bankruptcy.

The best part of the deal could be the end of one corporate culprit who is responsible for ruining the quality of radio in the U.S.

That would be Mel Karmazin, the Chief Executive Officer of Sirius XM. This blog has recounted Karmazin’s faults and deficiencies numerous times. One fact trumps all others: at various companies Karmazin has functioned as Howard Stern’s corporate protector. Karmazin’s foolish plan to pay Stern $100 million a year is part of what put his satellite company in such poor financial straits.

Sure, over time the combined enterprise now called Sirius XM Radio has gathered 20 million subscribers. (Karmazin doesn’t get credit for all that growth, but only for engineering a deal that brought XM Radio, the firm with the most subscribers, under his control.) But the mismanagement of paying big names too much and not investing better in marketing campaigns, not to mention solving the ease of use issue for introducing new technology for people’s cars, workplaces, and homes has proved to be too much for the fledgling satellite radio business.

With Sirius XM owing $3.2 billion in debt, creditors were clamoring for Karmazin’s head. His deal to bring Liberty Media in as the corporate white knight likely saves his job for the time being. But once Liberty cements its control of 40 percent of the company on the radio firm’s board, Karmazin will likely be shown the door. It might not happen until next year, but this corporate radio honcho’s days are likely numbered.

Karmazin was the architect of the satellite radio merger, another ugly sordid tale of the corporate media age. Karmazin convinced the government to approve the merger despite the fact that his firm had not lived up to promises it had made the government and despite his firm’s ill-advised spending on star contracts (Oprah Winfrey also has a three-year, $55 million deal.) and mismanagement. (Ironically, without the merger, Karmazin’s firm Sirius would likely be the one in the tank now, as XM Radio was the healthier financially. XM might have been able to stave off collapse or takeover alone.) But the debt burden of the combined companies was too much, especially in these poor economic times. Karmazin’s timing for the merger was impeccably bad.

Also, a Republican-controlled FCC and a controversy-averse Congress are responsible for approving the satellite radio merger, which created a monopoly. Now that monopoly is being swallowed by one of the satellite television firms. DirecTV has lured customers away from cable, partially due to better customer service. (Cable television firms are often ranked as among the worst for customer service of any business.) That’s a positive aspect of the take-over.

But the negative side is that Liberty Media in swallowing the satellite radio monopoly is creating a larger corporate behemoth with holdings in satellites, internet sites, cable television channels, home shopping, broadcast television, and sports. Further media and corporate consolidation usually isn't the answer to consumer service.

Despite all of this corporate soap opera, some of the programming on satellite radio is actually worth saving. The foundation is there for a wonderful system that is far superior to the vast wasteland of commercial radio. But history is not on the side of consumers hoping for the corporate bosses to figure out that good programming trumps deal-making every time.

For more background, please also see:

(The artist's rendering of a communication satellite in orbit is from NASA and is in the public domain.)

Add to Technorati Favorites

 Subscribe in a reader


bob said...

Karmazin did not give Stern $500 million, he was not with Sirius when they signed Stern.

Rick Rockwell said...

Technically, that is correct.

But in reality, Stern and Karmazin were a package deal.

Karmazin was hired as the CEO of Sirius within a month of Stern's signing. Karmazin had been unhappy at Infinity Broadcasting and CBS before he ended up at Sirius... and knowing how the corporate world operates, you do NOT sign a new CEO without that person having a checkoff on the biggest corporate signing the company is going to make. Plus Karmazin was there at Sirius to shepherd Stern into his new digs.

Stern announced his intentions to sign with Sirius in October of 2004. Karmazin began running Sirius in November of 2004. (Karmazin had left his position as Stern's boss at Viacom and CBS in June of 2004.) Stern did not even begin his program for Sirius until January of 2006.

Believe what you want, but Karmazin had a lot to say about this business deal and he gets all the credit for running what could have been a great business into the ground.

© iVoryTowerz 2006-2009

Blogger Templates by OurBlogTemplates.com 2008