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Sirius Radio Crashes to Earth
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Amid the General Motors bankruptcy, the American auto industry is now claiming another victim: satellite radio. The Daily Beast’s Alan Deutschman on Mel Karmazin’s comeuppance.
The relentlessly bad news from the auto industry’s Big Three—including Monday’s anticipated General Motors bankruptcy—is creating an unintended casualty: Mel Karmazin, and his company, Sirius XM Radio, which has relied on new cars being sold equipped with satellite radio.
The embattled mogul, who once enjoyed a worshipful following among Wall Street investors, watched Sirius’s stock price tank by more than 30 percent recently. The selloff came after the company said that its number of subscribers fell by 400,000, from 19 million to 18.6 million, in the first three months of this year. Never before had the company lost subscribers from quarter to quarter, and investors reacted with panic.
In a dubious ploy (albeit transparently dubious, and completely lawful), Sirius has been counting millions of “subscribers” who never pay a penny out of their own pockets for the service.
While Detroit’s implosion is the main culprit, Karmazin is also getting his inevitable comeuppance for a longtime practice of hyping his company’s numbers. In a dubious ploy (albeit transparently dubious, and completely lawful), Sirius has been counting millions of “subscribers” who never pay a penny out of their own pockets for the service. These customers get it free for six months to 18 months in promotional trials that are paid for by automakers such as Chrysler, which install the satellite-radio hardware in new cars. Fewer cars sold, fewer trial subscribers.
Karmazin is simply taking part in a long and lemming-like tradition in the car business of inflating the one number that everyone looks at—the overall sales figure. For many years the big automakers sold fleets of vehicles to the big rental-car companies, which they owned, meaning essentially that they sold cars to themselves rather than to real-life consumers who were willing to pay hard-earned money for Detroit’s latest clunkers. Still, it’s surprising that Karmazin, of all people, would try a similar stunt, since he had built a reputation in his earlier gigs (including a stint running CBS) as the consummate straight shooter. Even as a big-shot CEO, Karmazin had the bluntness you might expect from his roots as the son of a taxi driver. He grew up in a public housing project in Queens and began his career in a mail room while he was still in high school.
So, what changed? The hype factor dates back to before Sirius merged with rival XM, when they were separate companies competing ferociously to be the No. 1 in their emerging business. “There was… a time when the focus was on adding subscribers at any cost,” Karmazin himself said recently in a conference call with securities analysts.
The “subscriber” decrease was entirely predictable by anyone who has been paying attention to this industry, so it’s curious that investors responded as if they were shocked. The more telling statistic: the number of customers who actually pay for Sirius XM’s service themselves, which fell by around 100,000, from 15.5 million to 15.4 million, which isn’t that horrible in light of the awful state of the economy as well as Sirius’s price increases.
While Karmazin isn’t shooting as straight as he used to, the rest of his modus operandi remains much the same as when he was beloved on Wall Street. Years ago I wrote that he was an “obsessed workaholic” with “a hyperaggressive, bullying, in-your-face style, a fearsome micromanager who even scrutinizes his underlings’ long-distance phone bills and overnight mail receipts…” He’s still famously tight-fisted: Sirius XM’s operating costs declined by 23 percent in the first quarter, partly in savings from merging the two companies. Still, Sirius XM has huge costs that it can’t really do anything about: The Sirius channels rely on three satellites up there in space, which will have to be replaced at great expense at some point, and the XM channels rely on their own set of satellites that aren’t interchangeable with Sirius’s. If the two companies hadn’t merged, the costs would have surely killed off the whole business. Even as a single operation, the outlays are still staggering. Karmazin’s biggest problem isn’t the ire of his shareholders; it’s making the payments on Sirius’s hundreds of millions of dollars of debt. Sirius recently avoided having to declare bankruptcy only because media mogul John Malone bailed it out.
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Alan Deutschman is a Daily Beast columnist. His next book, Walk the Walk: The #1 Rule for Real Leaders, will be published in September by Portfolio. He is also the author of Change or Die, A Tale of Two Valleys, and the Second Coming of Steve Jobs. He has been a Silicon Valley correspondent for Fortune, the “Profit Motive” columnist for GQ, a senior writer at Fast Company, and a contributing editor at Vanity Fair and New York Magazine.
Alan,
One small quibble: Sirius doesn't run commercials on its music stations, just on the talk channels and feeds of CNBC, CNN, etc. Hence the slogan "100% Commercial-free Music".
Sirius runs the equivalent of commercials with the DJs droning on and on about upcoming events. Merger has ruined XM - only good DJ is Mike Mulroney (sp?) and he doesn't get the airtime he used to get.
I have had satrad for about six years and love it. The abilty to get news and financial info during the market hours is great, although I was disappointed they dumped FOXBusiness. I would also offer this advice. The demographic that can afford the cost, those adults 50 have very few channels for music. With the exception of the sixties channel, only a few others play our music, meanwhile there are dozens of other music channels for the younger demos. While my 14 year old daughter loves the ten channels you have for her, she's not making the decisions on whether we keep our XM subscriptions (we have three). This radio narrowcasting is a great product and hopefully, they will be able to excute it properly. Forget Oprah and Howard Stern. Run your proforma without the cost of that baggage and see if you make money. The medium is much bigger than any star.
flyoverland, I wouldn't assume the primary demo is over 50. While that demo may have more discretionary money, they are not typically "early adopters" to new technologies. The same theory could hold true for most expensive new tech, yet most of it is adopted first by the 30-something crowd, disproportionately male. I haven't seen the stats on sat radio, I'm just saying it's not a given.
BTW, I'm in a younger demo and subscribe and also find not many stations that I like (for music anyway). They seem to have a lot of very narrowly specialized stations but not a lot of broad ones. So if you like Elvis, you can listen to him all the time. And there is probably one genre station for any particular taste. You found the '60's, I found the '80's and '90's. But even within those genre's its hard to listen day after day because they seem to save money by picking a narrow range of titles for a given month. So I'll here the same songs from the same groups over and over for weeks at a time. Boring, even if you like them. Then it will change. And what's weird is, when it changes it often changes pretty radically within the genre. So for a few weeks I will enjoy most of the groups/songs though get utterly tired of them, then there will be a cycle where I can barely stand to tune to the station...
And there are no stations I can find that do a good job of handling new stuff. I still find, when I luck out between commercial breaks, that the FM radio stations I listen to do a better job of overall format and playlist and introducing new songs than any option on Sirius XM.
While companies always think they know their target demo, a good rule from a guy who has been surprised several times is that your target demo is the one which can afford to buy your product. Most of us have plenty of discretionary money, while my daughter's cohorts do not. A company's primary goal must be its survival. To do that, satrad must establish a base of customers today and then expand into the more "desirable" groups. I agree hearing the same songs can get old, espcecially since they aren't making any more 60's songs. However, I think XM has always done a good job of bringing back songs that are not played on the "oldies" format stations. I would program it with one "hits" station for each group and one like Channel 6 which plays a lot of number 19 hits and not all number ones. I also love the old radio program channel. Hearing those shows with the commercials as they were presented during WWII, etc. is very entertaining and educational.
Actually citivas has a solid point. Even with lower incomes younger early adopters (early adopters come at many ages) are willing to spend the money they can't comfortably afford to acquire the high tech toys, they're status items for them.
I think you overestimate Mr. Karmizan's talents. When he was with Infinity and on a buying spree of radio stations the whole network was instructed to add one additional minute of advertising for each broadcast hours, nationally, which the underlings called "Mel's Minute," in order to pay for his profligate spending. When he wore out his welcome at Infinity he was, only God knows why, hired by Sirrius, and it didn't take a seer to predict where he would lead his new company. Why did he spend all that money on Howard Stern? Why did he spend all that money on acquiring XM? For you to play up his tight-fisted management skills only feeds into the delusion that Mr. Karmizan is saving anyone any money. And it obviously feeds into the public image that Mr. Karmizan likes to portray. And it probably will allow you access to interviews with Mr. Karmizan. But it's a long ways from the truth.
Roger that: dump Oprah and Howard Stern -- George Patton
I got it free for 3 months when I bought my car. Then I ignored all the calls and fliers to renew until the last one where I was offered another 3 months for $4.50 - i.e. $1.50/month instead of the list price of $12.95. Then I ignored all the fliers to extend that term until almost the end and then called to cancel (since it would auto-renew if I didn't). They offered a bunch of "deals" that I ignored then got to a final offer of $5.95/month (versus $12.95). A couple points: 1) Even once they convert people to regular subscribers, its probably at a much lower price point than their stated rate card, and therefore much lower revenue; 2) For anyone thinking of subscribing or renewing, hold out - they will substantially lower rates before they let you walk...
BTW, I think the service has gone hill substantially since the merger. They combined most of the music channels I listen to with their counterparts from the other service and the quality of the playlist quickly went down. Then the channels got much more redundant with the playlists - I often flip between the 5 channels I can tolerate and find the same song playing on a couple at the same time. Sometimes they interrupt the music programming for talk shows and simulcast it on more than one of the stations at the same time reducing the viable music channels even further. And they seem to be converting more of the stations to "commercial" stations and substantially increasing the commercial time on them. It's quickly becoming very similar to FM, at least on my channels. (For those that don't know, they DO play commercials on some of the channels despite the subscription fee you pay - and its trending more and more that way.)
Monopolies always cheapen content. Clear Channel and the other behemoths that gobbled up local radio and made it the banal and repetitive horror it is took us down the Karmazin road decades ago. Judging from the advertising nowadays, you can get a 15-second spot on commercial radio for around $4.75. Nobody's listening, though.
Excellent point. Monopolies tend to 'sovietize' product line down to the narrowest range, invariably headed in the direction of standardization rather than diversity.
I have the service, but tried to listen online. Now they want to charge for that as an additional radio. I can get NPR and Air America online, so why subscribe. My new car also has an axillary jack that allows me to listen to my IPod through the stereo system, in addition to the five CDs loaded. I like the Michaelangelo Signorile show, but it seems to be on the afternoon where I can only listen to a few minutes. Unless you live in a rural area and/or have a long commute (which I don't), it sometimes seems like a frivolous expense.
Banjo, you make a good point. Kids today do not listen to radio like we did. They have their own shows on the computer, starring their friends and their school, they don't have to wait an hour to hear their favorite song and they take their music with them when they are on the go. The demographic that is habitually addicted to radio is the baby boomer group. Use the demo to build the business. Stupidly, however, satrad continues to pander to the group that doesn't use it.
I love satelitte radio for the talk shows & sports. Bronco Fan in texas listen to all the games. Howard, News Channels, Sports Channels, Weather, etc. It's for older, the kids have their ipods all kinds of recorded music they don't like it, I pay for 2 radios just for me. I agree the music isn't the best but I buy my own cd's, I don't download........old fashioned....like artist to get paid.......Don Henley fan....just saying...listening to sirius more than I watch tv.......
I've had it since Stern went over and have loved it, I have 3 radios and purchased the up-front lifetime service so i wouldn't have monthly payments. Mainly because I HATE talking on radio (other than Stern or NPR) and I despise the endless commercials on terrestrial radio. It's funny when I'm in a car now and I have to listed to terrestrial radio, like a rental, I usually turn it off. Long live Sirius!
I had XM for 3 years and thought there was a vast difference in programming variety and even sound quality vs. Sirius. When they merged, everything I liked about XM was taken off the air. Sirius missed its opportunity by replicating demographic-based programming models, vs. qualitative, content-based programming. From a listener standpoint, Sirius's replication of tired Infinity/Clear Channel programming strategies is why consumers like me left the service and, why among many other structural reasons, it will fail. Sat Rad needed to be led by a visionary, not a bureaucrat like Karamazin. In the mean time, check out radioio.com on the web...
Cancelled it November 2008 and don't miss it at all. Content is King and Howard Stern is on autopilot waiting for his contract to expire, so he can retire, hence his show got old, fast, and the rest of the programming on the stations is worse than FM. As an example. Buzzsaw - same 25 bands again and again. Spa and Chill - you'd think they only had 40 tracks to play. Sirius: Yawn. Where's my iPod?
The state of radio in many, if not most, markets is simply unlistenable. With rare exceptions you get the thinnest of choices. Certainly nothing like the news coverage on POTUS, CNN, etc. How great is the XM lineup with our favorites Maragritaville, Spectrum, Deep Tracks and others. Where do you hear John Hiatt, Lyle Lovett, Van Morrison and a slew of other terrific artists on mainstream radio? You don't. If you want to go back in the day, every day, (and every hourr of every day) you can hit the Groove. Finding those funky songs with any consistency on commercial radio these days is not easy.Want a dose of Broadway or opera?Just hop to a different channel. It's all there on XM. Sure you can have a variety on your iPod but you don't have it all despite downloading 100's of CDS, you still have to make lists that you don't get tired of or go completely random which doesn't always work either. We just bought a receiver for home and love it. It's a great alternative and we find ourselves listening to XM more and more.
If you want to hear what you want to hear and want new music thrown in the mix to expand your library, Pandora.com uses the Music Genome Project and will provide what you're looking for.
The Music Genome Project has 150 types of criteria for each song (memes) with various qualities. Songs you select and identify as favorites as they play are compared to the cataloged songs and their memes. More songs with similar qualities are sent your way.
I'm just a fan, not an employee or shareholder :-)
I love Sirius radio; great music and the best talk shows.
Distribution of paid content will untilimately follow the Gillette model it would seem: Kindle-like devices should be provided at cost to newspaper subscribers who take 2-3 year agreements. XM/Sirius should subsidize the radios (maybe terrestrial Wi-Fi) instead of satellite) in a future iteration. Meanwhile, the big winner. Terrestrial Radio: Mass, Proven, Ubiquitous and FREE and rapidly becoming digital.
Perhaps terrestrial radio may still be mass, proven, ubiquitous and free, but its lack of substantive content and over-reliance on advertising is still inferior to the hyper-categorization and evolving content of Srius-XM. Not everyone cares about free, especially when the cost-benefit analysis is so favorable to a subscriber.
I grant you that broadcast radio consolidation resembled a circular firing squad and many would agree that it nearly killed the medium, but the enormous challenges faced by Sirus/XM are a gift to broadcasters: It is a window, albeit somewhat narrow, to diversify the content, junk the "cookie-cutter" branding and return to what works: Radio as entertainment, radio as a companion and fewer "value-added" revenue packages that make it sound like a fire-sale at Crazy Eddie.
I am a Sirious subscriber and I am underwhelmed. Landfill is landfill irregardless of the platform, but just now, broadcast radio has the opportunity to be local and relevant and still be mass. I bet Mel wishes he still had Infinity about now. Ah yes, WBCN....lovely.
I have been a subscriber of Sirius for about three years, after the merger I have been less than impressed. One station that I usually always listened (and bought CD's of music I would have never bought otherwise) to was axed outright, previously uncensored music channels were censored, the music selections and sets are now just as bad as free radio. I see no real reason to keep paying for what is available locally and for free, and what can be found online with Pandora. Thanks Mel!
Been Sirius subscriber for almost 3 years now and love it. For anyone who loves sports and sports talk radio it can't be beat. And the news and financial stations are great too.
Thank you.
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