Karmazin Shares ‘Reasonable Frustration’ on Merger Inaction, He Says
The “good news” for Sirius Q1 was its “very strong” subscriber and revenue growth, CEO Mel Karmazin said Monday in a quarterly earnings call. But another quarter of FCC inaction on its proposed merger with XM was the “bad news,” Karmazin said.
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XM and Sirius think nothing is more in the public interest than the promise of “more choices and lower prices,” Karmazin said. He shares the “reasonable frustration” of investors that the merger still isn’t a done deal, he said, despite 350 days since the FCC put the merger proposal out for comment. Monday’s conference call was the fifth quarterly earnings announcement since the merger deal was announced a year ago February, he said. Still, Karmazin is “optimistic we're close to the finish line” in gaining FCC approval, he said.
Sirius ended the quarter with 8.64 million subscribers, a 31 percent increase from Q1 a year earlier. OEM subscriptions jumped 72 percent, but retail aftermarket subscriptions rose only 10 percent. There’s growing evidence in the aftermarket that the merger publicity is “impeding purchase decisions,” Jim Meyer, president of operations and sales, said during the call.
Total revenue for the quarter increased 33 percent to $270.4 million, the company said. Subscriber acquisition costs per gross subscriber acquisition fell to $91 from $101, it said. Q1 churn climbed to 2.7 percent from 2.3 percent a year earlier on the higher mix of OEM sales. Meyer said Sirius was investing heavily to improve churn.
XM Satellite is crossing its fingers, hoping that by the time Q2 earnings are reported, XM will be part of Sirius, XM Chairman Gary Parsons told investors Monday during a Q1 earnings call. Sirius said in February 2007 that it wanted to buy XM (CD Feb 21/07 p1), but it’s still waiting for FCC approval. XM President Nate Davis has cleared up some legal and regulatory overhang at the company since joining management from being an independent member of the company’s board of directors two years ago, he said. For example, inquiries by the Federal Trade Commission and the Securities and Exchange Commission have been concluded with no further action taken and litigation with the recording industry “has been substantially resolved,” he said. Revenue for Q1 rose to $308 million, almost 17 percent over a year earlier. The operating loss was $30.7 million, compared with $27 million a year ago. XM’s subscribers grew 18 percent, mostly from automaker original equipment maker contracts.