Satellite Radio Recall Not in Public Interest, Karmazin Says

Sirius has “a variety of other solutions” for resolving the modulator matter “that can be implemented more quickly and without consumer disruption” than a product recall, he said. NAB “is rattling its saber” out of opposition to satellite radio, Karmazin said. “But we continue to believe that there would be nothing served if in fact there was any sort of a recall -- and we have not heard any of that out of the FCC.” Earlier in the call, Karmazin termed NAB “very aggressive in lobbying” on the modulator issue. “We continue to see what their agenda is,” he said: “The NAB is moving from an organization that used to play offense to sort of playing defense and is looking to try and muddy waters.”

“Cost-effective” engineering remedies could address the modulator issue in both regulatory and “service quality” ways, said Jim Meyer, Sirius pres.-operations & sales. “We have enough supply in the marketplace to meet near-term demand,” he said: “We expect to have greater and greater clarity from the FCC shortly and to resolve this issue expeditiously.” In Q&A, Meyer said Sirius has a list of “what if” ways to keep the pipeline filled in a prolonged FCC probe, but it’s confident of a quick resolution. Power emissions problems go beyond satellite radio to MP3 players and iPods using wireless FM modulators, Meyer said: “There are literally thousands of devices out there that have the same type of issue.” Though most press has been on satellite radio, “it’s a much bigger problem than that, and I think it’s safe to say there’s quite a bit of effort going on” globally to address it, Meyer said.

Bottom line: Sirius believes all its radios now being made comply with FCC rules, Karmazin said: “We have enough product in the pipeline so that there wouldn’t be any shortage. We're hopeful that short term, the FCC will give us the guidance that we need in order to continue to manufacture the product in a way that’s very rewarding for the consumer as well as being compliant for the FCC.”

Karmazin’s expression of confidence that Sirius receiver inventory is strong and the FCC probe soon to end contrast with XM’s glum portrayal of its situation. XM said last week it had no firm idea when its plug & play receivers will comply with FCC power emission rules. “Sporadic” inventory shortages hurt XM’s Q2 aftermarket performance, a result of halting shipments of noncompliant receivers, it said. As a result, XM slashed its year-end subscriber target for the 2nd time in as many months (CD July 28 p6).

But strong Q2 growth at Sirius spurred a slight hike in its year-end target to 6.3 million subscribers. It had said year-end subscriptions would pass 6.2 million. Sirius ended Q2 with 4,678,207 subscribers, 158% more than at the end of the same quarter last year. In Q2, Sirius added 600,460 net subscribers, 64% more than in Q2 2005. XM still leads the 2- team league with 7 million-plus subscribers, but Sirius has narrowed the gap with impressive aftermarket share gains. Citing NPD point-of-sale data, Karmazin said Sirius year-to- date commands 58% of the satellite receivers sold at retail. In Q2, its share was 57% vs. 47% a year ago; for June, it reached 61% vs. 52% in June 2005, he said. Sirius has bested XM in aftermarket share every month since Sept. 2005, Karmazin said. In doing so, Sirius has outperformed its projections and Wall St.’s, he said. Sirius had predicted retail “parity” with XM, “not the preeminent position we now hold,” Karmazin said.

Sirius executives disputed XM statements made last week -- also based on NPD data -- that satellite radio aftermarket growth had stalled to the single digits from 120% rises in Jan. NPD surveys underestimate aftermarket growth, since big accounts like Wal-Mart don’t participate in them, Meyer said. Counting Wal-Mart, Sirius believes satellite radio sustained double-digit growth through June, Meyer said. Wal-Mart is capturing an ever larger share of aftermarket satellite radio sales, and Sirius’ share in Wal-Mart also is growing, Meyer said.

Sirius is “on target” for launch later in Aug. of “Stiletto” -- its first “live” wearable receiver, Meyer said. Stiletto will have “a number of exciting new features,” he said. But in Q&A, Karmazin tersely spurned queries on those features or whether it discussed the Stiletto with the RIAA, with which it struck a royalty agreement on the S50 receiver. Sirius has said all it’s going to say about the Stiletto until its introduction, Karmazin said.

Other Karmazin disclosures: (1) Sirius is near content deals for children’s programming to feed launch of its video services 2nd half. (2) “Explosive” satellite radio growth is expected in Canada, where Sirius holds a 60% share because -- unlike in the U.S. -- Sirius and XM launched simultaneously there. (3) Satellite radio penetration remains less than 15%, suggesting “big growth really lies ahead.”

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Of devices NAB tested for emissions in a June engineering survey it sent the FCC, “only one was an XM radio and that radio passed the NAB’s own test,” XM said in response to NAB’s call for the Commission to recall noncompliant XM and Sirius receivers. XM has modified its radios to fit FCC emission rules “not only through its manufacturers but through its distributors and retailers as well,” the satellite radio provider said. “As a result of these measures, XM believes its radios meet applicable FCC testing requirements for in-vehicle radios and XM is prepared to work with the NAB to resolve any misplaced concerns.”