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Mel Karmazin is having Sirius fun
The Satellite radio CEO finds that new media is a lot like the old media that he used to love.
November 4, 2005: 12:43 PM EST
By Devin Leonard, FORTUNE senior writer
Mel Karmazin has revamped his career.
Mel Karmazin has revamped his career.

NEW YORK (FORTUNE) - Mel Karmazin was miserable in his final days as Viacom's chief operating officer. The former Wall Street darling had struggled unsuccessfully to keep the company's stock aloft, lost his power struggle with Viacom CEO Sumner Redstone and finally left Viacom in June 2004. But he has returned from the depths, and he's never been happier.

November marks his first anniversary as CEO of Sirius Satellite Radio. Karmazin says he is relieved to be out from under Redstone's thumb. "I'm just not very good at being a No. 2 person in the company," he admits. He adds that he found Redstone a particularly disagreeable CEO to work for.

The two men are still at it. Redstone told a reporter in late October that he doubts Karmazin can build Sirius into a "major challenger" to terrestrial radio companies like Viacom's Infinity Broadcasting division. Never mind that Sirius has poached premier raunch-jock Howard Stern away from Infinity with a five-year contract worth $500 million. For his part, Karmazin notes with satisfaction that investors aren't giving much credence to Redstone's plan to break up Viacom. (Since the plan was announced, Viacom's stock has fallen 10 percent.) "I don't think the stock market today is saying it thinks the split-up of the company is the right thing to do."

But Karmazin didn't just escape his old boss. He has transformed himself at Sirius in a way that makes him the envy of his generation of media executives, most of whom are trying to change themselves from old-media guys to new-media guys. They are in a panic because, as Merrill Lynch analyst Jessica Reif Cohen points out, new-media stocks have outperformed those of traditional media companies by 370 percent since mid-2001.

Media moguls, reinvented

So now Disney CEO Bob Iger is selling episodes of Lost to iPod users, Rupert Murdoch spent $580 million to purchase the parent company of MySpace.com, a teen Web site, and Time Warner CEO Richard Parsons is bullish on AOL—after removing those three letters from his company's name. (Time Warner is the parent of CNN/Money and Time Inc., FORTUNE's publisher.)

Karmazin, though, has outdone them all. He has pulled a Terry Semel. Like the former Warner Brothers chairman who recreated himself as CEO of Yahoo, Karmazin has crossed completely over to the promised land of new media.

Compared with Viacom, Sirius is tiny—it had revenues of only $67 million in 2004. But satellite radio is enjoying the kind of sales growth that traditional media colleagues dream about. XM Satellite Radio, which has rights to Major League Baseball, says its subscribers will almost double this year, to six million. Smaller but faster-growing Sirius predicts that its subscribers will nearly triple to three million by the end of this year. Wall Street expects Sirius's revenues to rocket by 256 percent for 2005. Both Sirius and XM Satellite say they will be cash-flow positive sometime next year. Since Karmazin's arrival, Sirius' stock is up 33 percent, while shares of XM have declined 10 percent. Part of the reason is the pending arrival of Stern, who'll begin broadcasting on Sirius in January, free of FCC regulations.

XM CEO Hugh Panero calls the Stern deal "a half-billion-dollar gamble on the part of my competitor," and it is certainly that. But Karmazin says the agreement is already paying off. "They have more subscribers than us, but we have more unaided [consumer] awareness," he says. "Howard has already brought a significant number of subscribers to us, and he will significantly jump-start our ad sales operation."

Of course, Karmazin himself is the other reason for the performance of Sirius's stock. He's put the company's radios into new Ford and BMW cars. He has lured Martha Stewart to Sirius, acquired the programming rights to NASCAR, and helped launch Sirius's first portable music player. He's also raised $500,000 in debt financing on what Sirius boasts are "extremely attractive terms." Says Merrill Lynch's Cohen: "I just think he's given huge credibility to the company and the [satellite radio] sector."

Karmazin started selling radio ads when he was 17 and ran Infinity Broadcasting for 15 years before selling the company to Westinghouse, then CBS's parent. The joke about him was that he was so pushy that advertisers used to buy airtime from Mel just to get him out of their office. "Mel's a guy who, if he was selling shingles, he'd have the best shingles, and everybody else's shingles would suck," says the head of a Hollywood studio. "Now he's selling satellite radio, so he's saying Sirius is the best satellite radio, and XM sucks."

Maybe this isn't such a transformation after all. Karmazin may have gone over to new media, but he's still selling radio ads (only on Sirius nonmusic channels), kicking competitors in the shins, and getting rewarded for it by investors. That's what's always made him happy.

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