NEW YORK Mel Karmazin, the charismatic CEO of Sirius Satellite Radio, has more than just a stalled merger on his mind. He’s also wondering what it’s going to cost to keep his star attraction, Howard Stern, on board.
“Great content costs money,” Karmazin reminded analysts Tuesday during a conference call to discuss quarterly earnings.
“If Howard is on the call and listening, if he would like to extend his deal at less money, we would be interested in that,” Karmazin told the analysts. “But from my history with him, I don’t think that is apt to happen.”
Stern costs Sirius $500 million for five years, and he’s in his third year already. Add to that the billions more Sirius spent on rights to the NFL, NBA, Nascar and other content, not to mention the building and launching of expensive satellites, and its easy to see why Sirius wants so desperately to merge with XM Satellite Radio, though regulators have yet to approve that plan.
In fact, the termination date for the merger deal is Saturday, though Karmazin said he expects the boards of both companies to meet before then to extend the deadline. XM will no doubt update analysts Thursday when it reports financial results.
Karmazin was once optimistic that the merger would be complete at the end of 2007, even while referring to it on occasion as “an uphill battle.”
Not only has Karmazin’s timetable been trashed, but the one-year anniversary of the deal struck on Feb. 19, 2007, also has passed, a significant milestone when you consider more than 200 mergers have been completed since then, each taking an average 110 days to complete.
Still, government bureaucrats aren’t in any hurry. In fact, 10 months into the process, Rep. John Conyers, D-Mich., the chairman of the House Judiciary Committee, asked the Justice Department not to “rush through” an approval, if there is to be one.
“We wait by our telephone,” said Karmazin. “But we really have not heard anything from them. It has been more radio silence than anything else.”
Even if the DOJ approves, the FCC must also bless the merger.
Karmazin also said confusion about the merger among consumers is having a negative impact on retail sales, though Sirius posted better-than-expected quarterly results Tuesday.
The company added 654,000 new subscribers to 8.3 million on its way to losing $166 million, compared with a loss of $246 million in the year-ago quarter. Revenue rose about 30 percent to $250 million.
Sirius posted a full-year net loss of more than $565 million; the year earlier it lost $1.1 billion. Sirius and XM together have burned through billions in the past decade, and merging the companies, by some estimates, would save them an equal amount over the next several years.
Many observers seem to think there’s not much of a reason to reject the planned merger, though that hasn’t stopped Wall Street from hammering the stock prices as if deal approval were a long shot.
Since Feb. 20, 2007, Sirius shares have fallen 22 percent to $3.05, while XM shares have sunk 15 percent to $13.13.
Regulators presumably have been considering for more than a year now the question of whether a merger of the only two satellite radio firms in the nation would constitute a monopoly that would harm consumers.
Those seeking to block the deal on the grounds that merging the two companies would stifle competition “may as well lay on the ground and become fossil fuel for that kind of dinosaur thinking,” Motley Fool senior analyst Rick Munarriz said.
Munarriz, like others, worries that two competing satellite radio services can’t survive. If they don’t merge, Munarriz predicts, “one or the other will fail, and that will give the victor the monopoly it wanted.”