Sirius Disavows Knowledge of Rumor That Stern Will Soon Leave Infinity

Karmazin said he listened personally to Stern’s radio show Tues. morning and heard Stern himself repeat the rumor. “We have not heard anything” about the rumor, Karmazin said: “We certainly have no interest in interfering with Infinity’s contractual relationship with Howard. We are excited to have Howard start with us as quickly as he can start with us when he is free of his contract. If that’s at the end of the year, we will start with Howard on January 1. If that’s sooner, we will start sooner.” An Infinity spokeswoman told us Stern “has said for a long time that he wants to get out of his contract. But as far as we know, he is here until the end of the year.” She said things could change, but Infinity has no plans to have Stern leave at the end of Sept.

Karmazin vowed Sirius will support Stern’s debut with an intensive marketing and promotional campaign. As a result of that effort, “you can be assured there will be nobody in the United States who will not know that Howard Stern will be on Sirius Satellite Radio.” Scott Greenstein, Sirius pres.-entertainment & sports, told analysts of Stern’s debut that “we're prepared for the most exciting launch in radio history,” and it will have positive impact on subscriptions beginning in this year’s 4th quarter.

Sirius upgraded its projected year-end subscriber count to 3 million from 2.7 million based on a successful 2nd quarter in which Karmazin said the company again “overdelivered on all our promises.” If the year-end forecasts of Sirius and XM prove accurate, Sirius would finish 2005 with exactly half the number of subscribers expected by its rival. Nevertheless, Karmazin said Sirius has delivered on its pledge to achieve “parity at retail” with XM. Citing NPD point-of-sale data on aftermarket satellite radio purchases, Karmazin said Sirius achieved a 48% share in the 2nd quarter and a 53% share in June. He said by comparison, Sirius had managed only a 7% share in the 2nd quarter of 2002 before boosting its shares to 23% and 40% in the 2nd quarters of 2003 and 2004, respectively. Strong momentum in the OEM automotive distribution channels also gave rise to the year-end subscriber forecast upgrade, the company said.

Jim Meyer, pres.-operations & sales, said Sirius this weekend will launch a promotion in which the list price of its Starmate plug-&-play receiver will be “repositioned” to $79 from its present $99. Moreover, the promotion will offer a $30 consumer rebate on most models, he said.

ST Microelectronics has begun production of the new Sirius “3G” chipset that will make new receivers “sleeker, smaller and lighter,” Meyer said. Many will feature record and replay functionality that has become a “very strong feature” among consumers, Meyer said. “The ability to store content and take it with you will become a huge feature in satellite radio,” Meyer said later in the call, replying to an analyst questioner when Sirius plans to introduce “wearable” portable receivers. The Sirius 4th- quarter receiver line-up based on the 3G chipset will be previewed for reporters in late Aug., Karmazin said.

Sirius finished the quarter with 1,814,626 subscribers, including 365,931 net additions, which was 184% better than the 128,678 net additions in the same 2004 quarter. Sirius added 244,985 subscribers from its retail distribution, a 137% increase from the 103,201 net additions in 2004’s 2nd quarter and a 23% sequential increase from the 198,558 added in this year’s first quarter. Sirius also added 121,664 subscribers from its OEM business, a 375% increase from the 25,636 added in last year’s 2nd quarter and a 13% sequential increase from the 107,855 added in this year’s first quarter.

The company’s net loss widened in the quarter to $177.5 million (-13 cents per share) from $136.8 million (-11 cents) a year earlier, on a 295% revenue increase to $52.2 million. Senior executives said the company is on track to achieve cash-flow profitability by 2007, and possibly as soon as 2006’s 4th quarter. In line with the upgraded forecast on year-end subscriptions, Sirius also raise its projected year-end revenue target by $10 million to $225 million, which would represent a 237% increase from 2004’s year-end revenue.

Ad sales have become an “in-house core competency,” Greenstein said. Sirius has added 7-8 ad salespeople in Chicago, L.A. and N.Y., Greenstein said: “We're fully staffed for where we need to be right now.” Music programming “will always remain commercial-free,” so the news, talk and sports channels will be the ad “opportunities,” he said.

Karmazin said Sirius has begun experiencing “great demand” in the ad industry for NFL programming. He said there’s also “great anticipation” for Martha Stewart “from a lot of advertisers who have been disappointed in their ability to reach women over traditional radio.” He also said Howard Stern is expected to be a significant “driver” of ad sales in 2006. Moreover, it’s expected that Nascar programming “will have great demand” in 2007, Karmazin said.

Other issues: (1) Sirius broke little new ground on its plans for Canada. The regulatory process is now in the appeals phase, Karmazin said. Sirius will enter the “lucrative” Canadian market “as soon as is practicable” after the appeals process is completed, he said. (2) Sirius has no plans to follow its XM rival and acquire WCS spectrum, Karmazin said. He said Sirius believes it has enough spectrum “enabling us to do all of satellite radio that we have committed to do,” in addition to future telematics and video delivery. “When there is a business plan where the additional spectrum would be beneficial for our shareholders, then we would obviously consider acquiring additional spectrum,” he said. “But right now, we clearly have sufficient spectrum to be able to deliver what we see needs to be in the future.”