Mel Karmazin: Bring It On
By Mark Robichaux -- Broadcasting & Cable, 6/18/2006 8:00:00 PM
Mel Karmazin always seems to be in the middle of a good scrap. In high school in New York, he was picked on by bigger kids. Later, as CEO of CBS and then as president of its parent Viacom, he waded into battles with the government over indecency. Now CEO of Sirius Satellite Radio, he confronted critics of his company's hefty payout to fill more than 125 channels with talent from Howard Stern to Martha Stewart, from NASCAR to Cosmo Radio, the NBA and NFL—not to mention the talk shows and commercial-free music. With the stock currently around $4, he disputes Wall Street's valuation of his company. Now Sirius and rival XM Satellite Radio are targeted by the National Association of Broadcasters, which urged the Federal Communications Commission to “open an investigation” into such offenses as the availability of “sexually explicit and profane” content to non-subscribers via rental cars, free trials and “bleed-through” to FM stations. He talks to B&C Executive Editor Mark Robichaux about the NAB's shot at Sirius, why his stock is a winner, the government's misguided war on indecency, and why Stern doesn't mess with him.
Let's jump right into it. The NAB letter that came out recently says, in effect, that Sirius needs regulation. What is your response?
I'm a little embarrassed to see where the NAB is today. The NAB used to be a very powerful, very influential organization in Washington but lost a lot of its strength when it got into battles with the networks. The networks and the affiliates had issues, and the NAB took a foolish point of view, in my opinion.
And now the NAB is spending more time talking about who should be regulated as compared to defending the industry against regulation. I feel sorry to see what their viewpoint is; I think it's misguided. I would've hoped the NAB would have been talking about why the content shouldn't be regulated and where the government should go the other way, rather than pointing fingers and saying, “But why aren't you regulating all of these others?” It just is a silly argument for an organization to make.
But what about the specifics of the argument? Does your programming reach the public through “bleed-through” and rental cars and trials?
It's a totally lame argument, but the facts are that satellite radio is a subscription service that you are paying for. You're paying for it when you buy your car and it's installed, or you're paying for it for a subscription. We also are addressable.
I believe the only interest that Congress or the government should have is to protect children from speech. With satellite radio, like cable television, if you don't want it to come into your car or you don't want it in your home, you can program your receiver. But if you don't want to program it, you can contact us, and we will make sure that that channel, whichever channel it is, won't get into your car and home. Unlike with free, over-the-air broadcasting—where there is no way you can block the radio signal from coming into your car AM/FM radio—there is an easy solution to have it blocked if a parent doesn't want it.
On that point, you've been directly involved with indecency in your previous jobs. Indecency fines on the broadcast industry have now been raised tenfold. Has the government gone too far?
Yes. I think the government is causing more harm to America than a view of Janet Jackson's top for two-tenths of a second.
Anything you want to say about Janet Jackson?
Yes. She should not have done it, and I certainly wish she hadn't done it. It was terribly inappropriate that she did it. Our investigation indicated that nobody from our company [CBS] knew anything about it; we were blindsided. I apologized to Congress, and I apologized to our audience.
But that said, the government should not be fining for anything. I've been looking at any studies that may have been done on the youth of America since they were exposed to that two-tenths of a second, and it's hard for me to find any harm that has been caused. I think there'll be a lot of harm caused by this new indecency law, because it is, in fact, going to censor people.
These fines are so big that small broadcasters just can't risk paying them, and, therefore, they'll just totally stay away from this type of content. As I understand it, the government isn't saying you can't cover any kind of content, but, if you're going to set fines that are so great, people are just going to shy away from it.
I think the industry did a horrible job in using its political capital. In walking the halls of Congress, I know that, when broadcasters want something to happen, they do a pretty good of lobbying. On this subject of decency, I guess people just don't care that much about it. And now there's lip service talking about, yeah, we're going fight it in the courts and things like that. But I don't think there is as great an effort speaking out for free speech as there once was on the part of broadcasters.
To some of our readers, you're the icon of a hard-charging salesman. But you no longer sell advertising time. You're a marketer selling a brand. How are you adapting?
In 2007, there will be four radio companies that will have sales over a billion dollars; two of those four will be satellite radio, and one, obviously, is Sirius. Clear Channel and Infinity and Sirius will be three of four companies with sales of over a billion dollars a year. An awful lot of companies that are in the radio business aren't going to have that.
So sales is always going to be important, whether or not you're selling advertising, whether or not you're selling subscribers, or whether or not you're selling any constituency and generating revenue.
Sirius stock is hovering around $4, in part because of spending on talent and marketing. You have said Sirius will have a positive cash flow by a specific date. Then that date was pushed back. What's the strategy?
I think, in fact, it's been accelerated. We have a market cap of $7 billion-$8 billion. What's going to make the stock be more than double that is our hitting the guidance we have given investors. What we've told investors is that we will be free-cash-flow–positive in 2007. We could be free-cash-flow–positive in the fourth quarter of this year. We also said that, in 2010, when we do $3 billion revenue, we will have $1 billion of free cash flow.
If Wall Street believes that we're going to have a billion dollars of free cash flow, that would make the company worth more than double what it is today. I believe that the stock will react when Wall Street and investors believe we're going to hit those metrics. I believe we need to have Wall Street believe it.
Programming is the life blood of our service. The reason people are, in huge numbers, becoming Sirius subscribers is not the cool-looking satellites we have or the cool-looking radios we have. It's our content. And as every good content company knows, content doesn't come inexpensively. It also means that, by having good content, you're more apt to show a profit and make money than by not having good content. Our strategy has been that we want to have the best content in radio.
There will always be guys on the sidelines saying it's too expensive. The transaction to get Howard cheaper was not available. When I was at CBS and we got the NFL, everyone said, “Oh my God, you paid too much.” And when David Letterman's contract was renewed, “you paid too much.” And when Ray Romano wanted what Ray Romano wanted per episode, “you paid too much.” And [NBC Chairman] Bob Wright “paid too much” for Friends.
The answer is, great content doesn't come cheap, and I'd much rather focus on monetizing that content than not having that content.
Does the iPod scare you?
Everything scares me. I've grown up scared. Starting in high school, bigger kids used to scare me. Now there's just a whole lot of things out there that scare me.
You know, there's only 24 hours in the day, and there's just so many more choices, and the consumer has so many opportunities to get content. I don't think it's ever been a better time to be a consumer, because you're really able to get your content any time you want it, any place you want it. It may be tougher to be a media executive these days than it is to be a consumer.
Our belief is that, if we have the best content, that content will be relevant on any device. The radio business, as your publication knows well, has been around since 1926, and there's always been radio stations on the air. And there's always been competition to radio. There was an eight-track player, cassette players, CD players. And radio has always managed to be more than a survivor, to be a very successful business.
Is it true that, as part of Stern's settlement with CBS over its lawsuit, Sirius walked away with his entire library for $2 million?
Well, there's a confidentiality agreement that really limits the comments I can make regarding the CBS lawsuit. I wish I could talk freely about it. But what we have talked about is the fact that we're going to get 20 years' worth of Howard Stern content, which amounts to over 20,000 hours of his show, for what amounts to about $400,000 a year. So forgetting the fact that we believe that library is going to be a big driver for us to get additional subscribers, the $400,000 a year is probably the best content deal I have done in my career.
One other question on Stern: It's rare that he doesn't talk about a boss, and yet he has rarely razzed you. Do you guys have some sort of written deal?
No. There was a time when I had agreements with all of the talent working for me that said they couldn't use what was then known as the seven dirty words and they couldn't mention my name, because I chose to be a private figure.
It wasn't a concern about saying good things or bad things. It was just that I didn't want to be talked about. But, for the last 10 years, that certainly is not there, and Howard has on many occasions talked about me. But when you lead that pure a life, there's very little bad that somebody's going to be able to say about you. [Laughs]
I have always respected content, and that's not just Howard. But Howard is certainly the biggest that's there. And the same thing is true about [radio host] Don Imus, and the same thing is true about major radio personalities across the country. I believe in paying them; I believe they should be free to program their own content. It wasn't about finding somebody and changing them; it was about giving them the opportunity.
I was a radio guy. I started in the radio business almost 40 years ago, and I've been in radio for most of that time.
A lot of people believed that the only thing that was lower than radio in the world of entertainment was a circus clown. And they didn't necessarily give radio the kind of respect that I always thought it deserved.
Looking at the broadcast-TV business now, how do you handicap it?
It's very much like the newspaper business; it's very much like the magazine business. It's very much like the terrestrial-radio business today in that it's going to lose share in advertising. Satellite radio and the Internet are going to be the faster-growing categories, growing faster than advertising in general, and television and radio will be growing slower.
What about Viacom, your old company?
I was a believer that putting the assets of CBS together with the cable networks and using the cash flow from radio to fuel growth in the other parts of the company made a lot of sense. I was the architect of the merger. I don't think that's a secret; I tried to buy Viacom when I was the CEO of CBS. Viacom would not consider selling the company. Alternatively, I sold CBS to Viacom. And again, [I am] a big believer that, at a time when the cable companies are consolidating, when advertisers are consolidated and agencies are consol­-idated, and you see these powerful media-buying services all consolidated, you want to be as big as you can be so that you can be negotiating against that.
So I was a believer in the [Viacom-CBS] merger. The management of Via­com believed that it was wiser to unwind it. Right now, the stock is trading lower than the stocks were when we were together, but you'll see long-term. I know that [Viacom President/CEO] Tom Freston and [CBS Corp. President/CEO] Les Moonves are very happy about it. And, by the way, I think they're both great managers.
By the way, what's the puzzle-piece pin on your lapel?
This is the missing piece of kids' puzzles for children with autism. Bob and Suzanne Wright founded an organization called Autism Speaks, and they asked me if I would be one of the founding board members. I have a grandchild who has autism. In addition to everything I do at work, I spend a lot of my time trying to help raise money and awareness for autism.
What do you watch on TV?
Since I'm now not involved in the television business, I'm truly able to enjoy my TiVo. I'm a big fan of Law & Order. I think that there are some great shows on CBS, I'm a fan of Desperate Housewives as well and love CSI and still watch 60 Minutes and still watch sports. Probably news is where I spend most of my time.
I now find myself listening to radio for business reasons, not just for my own pleasure. And that means that I now have to sample all of our radio stations.
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