Sirius-XM Regulatory Activity ‘In Line’ With Plan, Karmazin Says

Still, Karmazin refrained from repeating his earlier statement that the odds favor approval of the merger (CD Feb 21 p1). But he sought to put the best face on congressional scrutiny of the deal. Four Hill hearings have been held, and “a number of leading voices from both the House and the Senate have opined on the merger,” Karmazin said. “We are pleased that a number of these leaders have expressed confidence that competition will be preserved in the audio entertainment marketplace following the merger of our companies.”

Though the FCC hasn’t yet sought comments, “we expect to receive endorsements from a number of prominent organizations, many of which we expect to file letters of support with the FCC,” he said: “From the beginning, we understood that this process would be extensive. We also expected that, like any merger, we would have to demonstrate the benefit of our combination to different constituencies. We were prepared to do that from day one and we are actively engaged in the process.”

Sirius finished Q1 with almost 6.6 million subscribers, a 61% increase from a year earlier, the company said. It had more than 556,000 net additions Q1. Almost 193,000 were from retail and almost 365,000 from OEM; slightly reduced business from Hertz lowered the total. Again, Karmazin and other executives accentuated the positive, though net additions from the retail channel were 64% below those a year earlier. Still, Sirius grabbed “a remarkable” 76% share of total satellite radio retail net additions Q1 -- “the highest share in our history,” Karmazin said.

Jim Meyer, pres.-sales & operations, conceded that the aftermarket net additions were “clearly below last year’s strong momentum resulting from the arrival of Howard Stern.” But in Q1, “we achieved our objectives in the aftermarket and I am particularly pleased with our share improvements in non- NPD reporting segments,” he said: “I believe overall industry growth in the aftermarket segment will continue to run at approximately 4 million gross additions for 2007. We are very focused on this channel of distribution.” In Q&A, Meyer confessed to being “a little disappointed” that the company’s “wearable” portables haven’t caught on better.

Sirius captured 61% of Q1 OEM net additions -- again, “the highest results in our history,” Meyer said. Much of that result “can be attributed to pull from end users as evidenced by those partners marketing Sirius as a free-flow option,” Meyer said. “The great news is that penetration rates for Sirius are exceeding initial projections and strong customer, and dealer demand for the Sirius option is driving these high penetration rates.”

Sirius has stuck with its $12.95 monthly sub “since inception,” and has no plans to raise it, Karmazin said, citing recent questions about its pricing strategies. In a subtle defense of the Sirius-XM merger, Karmazin said again he thinks Sirius offers “a premium product over XM and that we can justify a higher price than we currently charge, if we were only looking at XM.”

But Sirius is competing “against alternatives that are effectively priced at free,” Karmazin said. “Even though our content justifies a higher price, our focus is on growing satellite radio vis--vis terrestrial radio, Internet radio, iPods, content over mobile phones, and other alternatives for audio entertainment. Right now, we have a relatively small number of people subscribing to satellite radio and we want that number to grow huge. The way to do so is by providing great content at a good price. To look at it another way, if we do not have enough subscribers at $12.95, how will we get them at $14.95 or higher?”