Ousting Sirius CEO Karmazin Is a Crazy Idea

by: Brandon Matthews December 02, 2008 | about stocks: SIRI    

Brandon Matthews

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These days, I can only imagine that writing about Satellite Radio is akin to being a sportswriter in Detroit assigned to covering the Lions. Reality eventually settles in that hope is meaningless, and yet the season will not end for 5 more cruel weeks.

There has been very little to write about regarding Sirius XM Radio (SIRI) lately. I have to admit that I love a good fight, and not having the FCC, NAB or the DOJ to write about has given me a case of writer's block. It seems any story is written about the moment it happens by one of my fellow writers at Siriusbuzz, leaving me again searching for story ideas.

To my complete satisfaction, a new fight seems to be starting and I am all too happy to choose a side. An article was recently published by a writer calling for the ousting of Mel Karmazin as Sirius XM CEO, which lacked any real reason for such a recommendation.

For starters, it’s all about the share price. As someone with a long position in Sirius XM myself, I am none too pleased with its current severely undervalued stock price. The problem as I see it, is that far too many of the voices crying out for Mel’s dismissal have made the mistake of being overweight Sirius XM stock. In many cases I’d venture a guess that SIRI is either their only or largest position - a position that in most cases was taken on the way down, with hopes of great wealth coming with a positive merger announcement. I say too bad. These are mistakes of the investor him/herself, rather than Sirius XM management.

Have you looked at other stocks and the value losses those investors have seen this year? Have you looked at Ford (F) and GM? How about bank stocks? (You can pick one). Not to mention Berkshire Hathaway (BRK.A), whose 52 week high was $151,650.00 and now trades at a lowly $98,000.00. Google’s (GOOG) 52 week high of $724.80 now hovers above its 52 week low of $265.00. For those with tunnel vision who think that Sirius is in a world of its own, I can assure you everyone is hurting as a result of the overall negative market conditions and perceived recession/depression.

As for Mel & Co., the report card comes in my opinion not from the stock price but on the company’s execution of its business plan. Sirius XM continues to grow revenue, consistently meeting or beating Wall Street estimates. They have lowered costs, received approval for a merger to create a monopoly (which Direct TV (DTV) and DISH failed to do), and have recreated the product in such a way as to promote exceptional value to the consumer. They have done all of this under Mel Karmazin’s watch.

This in fact is the first full quarter of a combined XM and Sirius, and despite all the positive news relating to satellite radio, some people would rather create a distraction than let the newly formed company operate and succeed. I am forced to ask myself what a person’s motivation would be to oust a CEO before his plans could be put into place? Is terrestrial radio THAT afraid of a merged Satellite Radio company? Of course they are! So do your own research rather than rely on an unintelligent article that has little to no basis in fact.

No matter what anyone says, including Mel Karmazin, a great CEO can only run a company in the most effective way possible. No CEO dictates the price of its company’s stock. Under Mel’s command, Sirius XM continues to grow despite the worst economic environment that most of us will ever live through, which is his job and a job well done I might add.

As for the debt issues facing Sirius XM today, these were put into place long before Mel Karmazin took the helm. He is now faced with the daunting task of cleaning up someone else's mess, and appears to be on his way to doing just that. If a loss in shareholder value were the yardstick used by all companies, the world today would be without CEOs, unless of course, they ran hedge funds.

Disclosure: Long SIRI, F, no other mentioned companies.

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This article has 80 comments:

  •  
    Dec 02 06:26 AM
    I am one of those foolish investors who is heavily overweight SIRI. That said, one of the reasons I am where I am is because of my faith in Mel Karmazin.

    A change at this point would be disastrous and, frankly, in this credit market, having an experienced, competent CEO at the helm should help convince lenders that SIRI has the management team in place to execute their business plan effectively.

    A SIRI bankruptcy will probably mean an additional five years of work for me at retirement age. I'm down substantially and I'm hesitant to average down, like I did down to 1.25, because I have little confidence this 'Hail Mary' pass is going to connect. But, making any substantial changes to management now would be the death knell for this stock.

    SIRI needs to continue to cut costs, continue to execute their plan, advertise through used car dealers and to previous subs to reactivate existing radios, add (very) limited commercials or sponsorships to existing non-commercial channels, and seek ways to deliver the content they have built through other channels like iPhone and a more robust Internet platform (with ads).

    Satellite delivery is a stopgap until Internet radio is fully viable and Sirius is perfectly positioned to dominate both.

    I believe in SIRI, I believe in Mel's abilities, and I believe in the team he has assembled. This article is right. Mel is cleaning up someone else's messes. Now, I am now counting on both not to let me down.
    Reply | Link to Comment
  •  
    Dec 02 07:42 AM
    Brandon: I understand your position, ousting Mel isn't a good idea and of course not possible, given the fact that he has the support and approval of the majority of instutional shareholders and of course the significantly large individual shareholders. Yes, the cost cutting has begun as well as the consolidation among the individual stations, and I enjoy the new lineup. Probably the next step will be a channel realignment so that each channel will be identical on either sservice (Shade45 will be Shade 45 on XM) That just seems to make a lot more sense.

    I understand Mel's position given the terrible price paid for this merger and he does have a track record increasing the synergys of a merger, but he can take some hits too.

    for one thing, the marketing of this company is a disgrace and he is responsibe for that. There is no promotion anywhere, there is no appeal to a specific target market, there is a terrible lack of focus on the retail section of the market, on used cars, at expired subscribers, and especially at young people. This despite the fact that the products offered exceed the standards set by Apple with its IPOD. Frankly as the owner of both a stiletto and Ipod I'll take my stilletto any day, it has the same functions as the ipod and its wifi capable also. That this product has never been marketed to the young adults who are so techno crasy is disgraceful to me. In addition there is are stations oriented to the youth, such as Faction and XMU that can be used to support an ad campaign directed both at teenagers and college students, even by getting the endorsements of some of the DJ's like Jason Ellis or Bam Margera. They have done nothing to exploit this segment of the market that still goes out and buys "entertainment&qu... on a regular basis despite the recession.

    Mel has done nothing to ask his biggest stars to promote this company. Howard does nothing but collect his paycheck and I am one of his biggest fans. Same with Oprah what has she really done to justify her 55 million? What has she done to promote this company post merger? Why was there no Howard Stern Oprah press conference? Was Wasn't Howard on her show and vice versa?


    Jimmy Buffett is constantly promoting Sirius at his shows yet he has never been asked to appear on Howard show? Here is the most bakable entertainer in America, a promoters dream, and yet he has never been asked to be on the Howard Stern show despite his loyalty and commitment to Sirius? Why?

    The same holds true for Bubba, say what you want he is the most outrageous, over the top broadcasting personality on radio. he has the second most popular show and continues gain listeners every day in the USA and Canada. And he is the future after Howard leaves, yet he is not resigned long term for whatever reason, yet this is a guy who could have been promoting Sirius on the road this past year. Why? His status and situation certainly needs an explanation since he has more subscribers listening to his show than Chris Russo and he got 3 million per year.

    This is just the tip of the iceberg, there is no appeal to kids on myspace, facebook, no daily press releases to highlight what is happening on Sirius, nothing to indicate that this company exists, and it is a magnificiant company. This should be a place where the most creative people should be working ecause it has little boundary's and unlimited growth, in America, Canada, and the world via the internet. Yet there is no marketing of its internet based product? Why?

    For all of the above Mel is responsible. Sooner or later the large shareholders and long termers and the new investors who Mel will getafter the reverse split and dilution of the company will take a long hard look at all of this and then maybe Mel will be in hot water. Until then or until we as shareholders demand answwers to the above. Mel is the man for better or worse for richer or poorer.

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  •  
    Dec 02 08:16 AM
    Brandon, I couldn't agree more.

    One point..I do not believe Mel is gay so you might want to check your word usage in the title.. I believe Ousting is what you meant... not OUTING..
    Reply | Link to Comment
  •  
    Dec 02 08:38 AM
    I FIRST BOUGHT SIRI STOCK IN OCT OF 2004. SINCE I HAVE ACCUMULATED MORE AND HAD THOUGHT OF SELLING AT TIMES SINCE IT HAS GONE DOWN MOSTLY. I REMEMBER THE WORDS OF A LADY FINANCIAL PERSON, THAT IS WELL KNOWN IN HER CIRCLE OF FINANCE. SHE SAID "MEL HAS ALWAYS MADE MONEY FOR THE COMPANIES HE HEADED"! I CONTINUE TO HEED THAT STATEMENT! BEEN TEMPTING TO SELL BUT KEEP HEARING HER VOICE! I HAVE NOT A LOT OF STOCK BUT WILL KEEP IT, I SEE THERE ARE LOTS OF WAYS SATELLITE RADIO WILL BE USED IN THE FUTURE! THE KITTYHAWK FLIGHT WAS ONLY A HUNDRED FOOT OR SO? jcgris
    Reply | Link to Comment
  •  
    Dec 02 08:48 AM
    Mel hasn't defended the stock. His voice is silent. Doesn't SIRI have a spokesperson to do this?
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  •  
    Dec 02 09:57 AM
    Mel is smart enough to know that the more he says in a market like this with all the problems SIRI has had in the last 2 years, the more likely he is to bring on a shareholder suit that will cost the company money. Mel doesn't disappoint, which is why he has institutional inverstors at all. His estimates for the stock are always just a little under what comes in every quarter.

    In this toilet bowl of a market he knows that only performance will raise the stock permanently. This will take a while, a couple of quarters anyway to start to come around.
    Reply | Link to Comment
  •  
    Dec 02 09:57 AM
    I agree to a certain extent -however dont you think that Mel rushed into this financing a little to fast and is he doing enough right now with working out the refinancing--i undestand he had to do what it took to get TR from apealing and lobbying even further but the intitial financing could of been hashed out with better rates while the FCC was d***king around with approving the merger. I mean we blog about if this or if that...why didnt they tell the banks well IF we get approved we need to have the financing ASAP.. if we dont get approved then thank you for the support at least we knew the money was on hand. I also agree with wcorowitz we need to know hear that they are in talks and some sort of refinanicing is about to get done. Not rely on RS's and more dilution.
    Reply | Link to Comment
  •  
    Dec 02 10:57 AM
    You can kiss his ass all you want, it's not going to change the price of the stock
    Reply | Link to Comment
  •  
    Dec 02 10:59 AM
    I also say ...NO to a reverse stock split....I've never seen it work before either
    Reply | Link to Comment
  •  
    Dec 02 11:43 AM
    Thank you Brandon for saying what needs to be said. I agree with everything you said 100%. It seems to me Mel is an extremely effective CEO who knows media and radio better than just about anyone else. He is faced with large challenges that are not of his doing, and he is meeting those challenges in the best way possible. I think he is managing Sirius XM for the long term and that we need to back off and let him do that.
    Reply | Link to Comment
  •  
    Dec 02 11:45 AM
    Your comparisons to other stocks' declines are flawed, unless your point is that other stcoks went down too. The magnitude of sirius's decline is much larger than let's say Google's and the overall markets (60 and 40% respectively). Sirius went went from 3.50 to 19 cents, that's a 95% decline. Here is some basic math, to go back to 3.50, the stock has to increase...1600% percent, Google's just has to increase 173%, still a lot, but you get the idea.
    I agree that this stock is super speculative, I am glad I was probably more lucky than smart when I sold it at 3 something with a small loss.

    I hold a small position (relatively) and at this price, it's an option. I.e. it could completely lose value or go up a few hundred percent.


    They are in a tough place with the debt, but they do have the advantages of having agreements with car makers to install their technology and the fact that the rechnology is good for driving, unlike wifi, which may go in and out.


    Reply | Link to Comment
  •  
    Dec 02 11:48 AM
    that should say, technology, also, to clarify, I bought a small amount of sirius stock a few days ago
    Reply | Link to Comment
  •  
    Dec 02 11:53 AM
    "If a loss in shareholder value were the yardstick used by all companies, the world today would be without CEOs, unless of course, they ran hedge funds."

    it IS the yardstick for a PUBLICLY traded company, and those companies SHOULD be with ceos that maximize PROFIT and therefore SHAREHOLDER VALUE, what the f--k else is there for a publicly traded company to do, that is their raison de etre. ceos that can't do it, should retire
    Reply | Link to Comment
  •  
    Dec 02 11:59 AM
    Brandon, please identify the "writer" who suggested that Mel should be fired. Does this "writer" exist?
    Reply | Link to Comment
  •  
    Dec 02 12:05 PM
    Sirius/XM is firing on all 8 cylinders and accelerating even with the slugish markert place.
    On black friday I bought 2 XM recievers with $55 service plan, and the fm booster for each reciever to give out as christmas gifts. My Total for all equipment and service came to $100..
    There was a meaning to having that 1.4 billion dollar write down. It is working too, as there are some very large rebates on mostly XM equipment. Mel is using these rebates to hook line and sinker the audience. 3Q revenue wasn't bad either considering that there are barely any cars being sold.
    XM doesn't nead the interpolarable recievers that sirius needs either as you can get the NFL, Howard, or NASCAR on XM recievers right now!!!
    I too am a share holder, and I am not discouraged by any of Mel Karmazines decisions.

    Reply | Link to Comment
  •  
    Dec 02 12:25 PM
    Where are all the people that said "Here comes the short squeeze" at 3 dollars, 2 dollars, 1 dollar oh wait .14 cents. Squeeze the rest of your money out of your cold dead hand with RS and dilution.
    Reply | Link to Comment
  •  
    Dec 02 12:52 PM
    I don't see the point of having Jimmy Buffet on the Stern show -- why promote Sirius to Sirius listeners? They already have it. They get it. Sirius needs to work outside the bubble.

    Also, to say there is "no promotion anywhere" is blatantly not true. I've seen Sirius advertised on web sites and car commercials. While I would say there is certainly not enough promotion, Mel is NOT in charge of marketing.
    Reply | Link to Comment
  •  
    Dec 02 12:58 PM
    HEY BRANDON, SO WE KNOW YOUR'E NOT JUST SHOOTING OUT FRAUDULENT INFO LET US KNOW WHO THIS WRITER IS ABOUT MEL BEING OUSTED.

    IF YOU DON'T RESPOND THIS THIS ARTICLE IS A FRAUD.

    MR. STUPID
    Reply | Link to Comment
  •  
    Dec 02 01:12 PM
    The only thing i see wrong is the CEO and board keep paying themselves bonuses out of money thats not there right now. I think its time that Mel gives us common shareholders a leap of faith and as the CEO of Ford stated he will take a $1 per year salary until they clear their hurdles. Thats initiative to me. Shows us that he has faith in what he's doing and also shows he will push harder to get his salary back to a deserving salary and bonus. This example should also be put on the board. These are troubled times for all so why does only the shareholders have to tighten the belt?

    Reply | Link to Comment
  •  
    Dec 02 01:14 PM
    Also to reply to SMORT, Mel is resposible for the advertising. As a CEO he is resposible for knowing all corners of his business.
    Reply | Link to Comment
  •  
    Dec 02 01:22 PM
    here is the link to the article provided by Sirius Roadkill, on Siriusbuzz

    www.247wallst.com/2008...
    Reply | Link to Comment
  •  
    Dec 02 01:24 PM
    Paying Howard Stern all that money was a bad idea, I think everyone can agree he didn't bring the listeners they thought he would. It's a big hole, I think Mel can get them out of it....it is going to be sloooooooowwww going..

    ericsmusclecars.com
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  •  
    Dec 02 02:27 PM
    ^Eric, I think you got your thinking all mixed up there. Sirius had something like 600,000 listeners before Howard announced his move to Sirius, and increased to 4 million subs in 2 yrs, 8+ million subs last year. A large percentage of that increase is directly attributable to Howard. He's the reason why it was Sirius buying XM and not vice versa.
    Reply | Link to Comment
  •  
    Dec 02 02:34 PM
    I'll take the contrarian view. Firing Mel is the only way to bring about real changes to save the company. My reasons:

    1. Destruction of shareholder value: The stock was at $3.94 in November 2007 and is now around $.20. This low value means SiriusXM could be delisted barring a drastic reverse split.

    2. Terrible content management: Sirius and XM subcribers were promised simpler, cheaper and more diverse programming options. Instead, we've seen clumsy combinations (e.g. Sirius + Best of XM, top 50, and Best of Both) at higher prices. At the same time, niche content with dedicated listeners (e.g hip-hop, hispanic) is being watered down.

    3. Static technology management: The iPod/iTunes model is effective because it is simple, convenient, and accessible. Aftermarket SiriusXM customers have to run cables through their car, place an antenna just right, and search for dead FM stations. Even after this is done, most are stuck leaving it on a fixed mount in their home or car.

    SiriusXM should have figured out how to make itself more convenient, flexible, and simple by now. Aftermarket tuners should be able to automatically identify FM stations with dead air. Portable player options need to drastically improve. Also, SiriusXM must find a way to eliminate the need to place an antenna on the roof.

    4. Unimaginative handling of the revenue stream: SiriusXM relies almost entirely on paid subscriptions in new car sales to provide revenue. This is too narrow for remaining a viable business.

    SiriusXM needs to find ways to bundle in navigation, streaming video, and/or communication services on a broad scale instead of limiting to a few auto brands. Sell Stern, Ron & Fez, O&A on podcasts to mitigate the beatdown being given by iPods.

    Additionally, the company could consider giving hardware at deep discounts after signing a contract. This will help remove upfront cost barriers on skeptical first-time consumers.

    5. Inefficient usage of already dwindling cash reserves: SiriusXM subscribers and shareholders were promised drastic reductions to operating expenses and debt burdens post-merger. Aside from a few token executive departures, little has been demonstrated to date.

    Massive layoffs and other cost-cutting moves are too delayed in coming. Quick and effective cost-cuts could come from reduction of shared services such as HR, Marketing, and Accounting. The company will simply run out of cash without drastic measures.
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  •  
    Dec 02 03:34 PM
    Brandon with all due respect you need to put down the Pompoms !
    Reply | Link to Comment
  •  
    Dec 02 03:59 PM
    Brandon...

    Very good article. The originator of that article, WallSt24/7, HATES SIRI. They have done nothing but write negative articles for the past several years. A-hole Doug McIntire has been the main author of the negativity and this guy has chimed in from time to time. As you say, their opinions are pure conjecture with a "24/7" negative bias..so essentially they have no cred.

    To furthur illustrate your point about not being in a vacuum (which most people think SIRI is), before Thanksgiving I posted a list of other radio space stocks...who are ALL just as decimated as SIRI. Ostensibly, they all have their problems of some kind (although a few actually have positive CF), but the sector in of itself has been totally decimated. People just have to start getting real about the last 3 months. Take a look around...at ANY sector. But I urge any poster here to do a search on radio sector stocks and stop living in a shoe box.

    As ar as the guy whining about "no short squeeze"...get a clue, get a life. You prove that you have no business being in the stock market...for god sakes, stop blaming people here for your own misfortunes and shortcomings..thank you.
    Reply | Link to Comment
  •  
    Dec 02 04:03 PM
    Howard coming over was the best thing Mel did. Check the numbers, Howard has paid for himself many times over. IMHO, his show is hitting on all cylinders. I listened to the "best of programing" over the holiday on I-95 from Pittsburgh back to Myrtle Beach, it was amazing! I had forgotten many great moments from earlier in the year; Artie break down, Chris Rock interview, radio gold! I drove all 660 miles in my 08 F250 and listened to the best of for atleast 8hrs. Howard is carrying his weight, trust me.
    As for Mel and the stock price, not so much! Here is the thing that has bugged me about Mel since July. In the postmerger conference call one analyst asked about possible reverse splits or dilution and Mel shrugged off the question and stated that the combined company would be fully funded. (check me on this, I swear thats what I heard)...fully funded? That was a lie, and I know CEO's have to talk positive, but if Mel would have said we might need to dilute further or pull a reverse split. For me, that signals the end of times, I could have sold my 7500 shares for around 2.68. I think he could have left out fully funded, I feel he lied, I could be wrong. I hate sounding like a Monday morning Rothislisbergerh!

    Long Harrison/Woodley/siri
    Reply | Link to Comment
  •  
    Dec 02 04:42 PM
    Speaking of short squeeze, I see that short interest decline from about 285 mil shares to 270 mil shares (-5.24%) in the last couple of weeks. www.shortsqueeze.com/?... Any opinions as to how significant this is?
    Reply | Link to Comment
  •  
    Dec 02 04:47 PM
    Kevin Martin Is on Cnbc right now, I can not believe he still has a job and we pay his salary. 17Months....thanks...b... I thought siri/xm were going to take over the free world, huge monopoly! Since when was it the govts job to hold down companies until they run out of cash? If I hear about one more bail out I might lose it. Joe K said lets bail out Circuit City and I can not find one reason why we shouldn't.
    This country is going to be Moscow in three months.
    I have not heard Adam Smiths name in while what happened to him?
    Reply | Link to Comment
  •  
    Dec 02 04:48 PM
    No Reverse Split. Investors who bought @ $1-$2 will lose their money.
    No Mel, No board, No dilution. We need new management,
    new ideas, and new energy. The current big newspaper ads
    show images for talent for the 45 year age group and up. There
    are no ads for the 20-35 year age group. Mel is out of touch
    with the younger era and has lost the touch. He has overspent,
    used irresponsible fiscal policy that has put SIRIUS in deep
    debt with no way to pay it back. He now wants the current
    stockholders to lose money with his RS, dilution plans, so he can
    issue new shares to pay off the debt he made, at the risk of everyone
    else losing their money. The managedment and talent walk away with millions. Mel's salary, with options, 07, $32,000,000,-06,$31,00...
    Compare that to investor's losses. Why should a management that is
    losing the company money, putting it in debt, overpaying talent, and taking millions for themselves stay? Shareholders have the legal right
    for proper purpose to examine the books and the accounts at any
    reasonable time. The law of corporations allows shareholders to go and look at the books. Stock holders got screwed by this management. Why
    should they stay? To finish the stockholders off completely. Just because he got Howard Stern. NO RS>NO DILUTION> NO MEL AND NO BOARD. VOTE NO
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  •  
    Dec 02 04:50 PM