In the Same Orbit, but on Different Planets
Satellite Radio Leaders Are Opposites in Temperament
Sirius chief Mel Karmazin, right, a longtime champion of deejay Howard Stern, would run the company if Sirius and XM Satellite Radio merge.
By Frank Ahrens
Washington Post Staff Writer
Wednesday, February 21, 2007; D01
In the radio industry, Sirius Satellite Radio chief executive Mel Karmazin is like Bono or Prince or Charo: One name is sufficient. Say "Mel," and everyone knows who you're talking about.
The same cannot be said of XM Satellite Radio Holdings Chairman Gary M. Parsons. That's why some say, if the proposed merger between the two satellite companies is approved by regulators, the two executives may work well together.
Under the proposed merger, Karmazin would be the chief executive of the combined company, with Parsons chairing the board. There is no role in the new company for current XM chief executive Hugh Panero, whose duties have diminished since the XM board appointed director Nate Davis as president and chief operating officer in July.
Karmazin and Parsons are opposite in temperament and style, said Tom Taylor, editor of Inside Radio, an industry trade paper. Karmazin can be electric; Parsons is more laid-back.
Case in point: The rambunctious Karmazin has been tossing merger speculation to the New York media and Wall Street analysts for the past several months. The more reserved Parsons has been just as interested in a merger, he said yesterday, but kept it to himself.
"He was looking at it," Parsons said of a merger, "and we were looking at it -- just less publicly."
Complementary traits between the pair could be key because the last time Karmazin was part of a power duo, things didn't go so well. He left his job as chief operating officer of Viacom for Sirius in 2004 after clashing with Sumner Redstone, the equally strong-willed leader of Viacom.
Before coming to Sirius, Karmazin spent more than three decades in the terrestrial radio business, most of it running Infinity Broadcasting's radio stations and then CBS Radio, when it bought Infinity and eventually became Viacom.
Mel stories are plentiful, and they consistently paint Karmazin as a sleeves-up radio man devoted to making money for shareholders.
Taylor recalls a story of Karmazin helping set up chairs in a meeting room before the start of an investors' conference. Karmazin has near-total recall, Taylor said, which has come back to haunt station managers who worked under Karmazin and failed to produce a promised ratings number.
If there's one thing to know about Karmazin, it's that he's always about the sale. There's a reason "Mel" rhymes with "sell."
"He's one of radio's best-ever sales guys," Taylor said. "He knows how to sell radio advertising."
In 1985, Karmazin sold CBS on hiring Howard Stern (after he'd been fired by New York's WNBC) and built him into a national radio superstar, often defending his antics to corporate brass. In an interview years later, Karmazin was asked what he saw in Stern that made him take a chance on him.
"Revenue," was his reply.
Karmazin is also the man who helped sell Stern on jumping to Sirius in 2004, though the $500 million contract plus performance bonuses probably helped.
Parsons, by contrast, is a veteran of the telecommunications and satellite industries who spent time as a radio deejay in his youth. He has been on XM's board since 1997. He ran XM until he brought in Panero in 1998. Prior to XM, Parsons spent six years at MCI Communications in a number of executive jobs and started several tech companies.
"The general book on me is that I'm extremely collaborative," Parsons said, noting that he has worked well with Panero, something of an outsized personality himself.
Parsons said the proposed merger became inevitable over the past few months, as both companies saw their stock price and market capitalization slide. Wall Street analysts speculated that the synergies created by a merger would be as much as $5 billion -- almost as much as the value of either company on its own.
The odd man out in the proposed merger is Panero, XM's chief executive.
Panero and head XM music programmer Lee Abrams have been with XM since nearly day one, when the company was housed in a basement apartment near Dupont Circle and the only sign of a radio company in the making was a whiteboard with dozens of format ideas scribbled on it.
Panero is a "Star Trek" fan. XM's broadcast operations center at the company's headquarters in Northeast D.C. is a dazzling spectacle of display monitors and lighted control boards sometimes referred to by employees as the bridge of the starship Enterprise.
In the middle of the room is a swiveling chair Panero had modeled after Capt. James T. Kirk's command seat on the Enterprise. Panero sat in the chair and pushed the button that launched XM's service in September 2001.
Panero is a music junkie who religiously listens to XM's channels and is credited with the vision that cultivated the business through its early years, negotiating the deals that got XM installed in new cars and acquiring talent.
However, XM's board soured on Panero's performance last year after the company missed its earnings guidance for several consecutive quarters. The company got bogged down in legal battles with the music industry and terrestrial broadcasters over technology issues and has allowed the cases to drag on, rather than settle with the groups, as Sirius has. And when Sirius started paying hundreds of millions of dollars for content -- such as the NFL and Howard Stern -- the XM board thought Panero failed to respond effectively and could no longer clearly define XM's vision, said a source familiar with the situation who spoke on condition of anonymity because of the sensitive nature of the issue.
Panero said if he could have changed anything about his time as chief executive, he would have put off having to pay so much to acquire programming early in XM's life, before it began to stabilize its losses.
Yesterday, Panero said he was proud of the business he helped build and will remain XM's chief executive until the merger is approved and perhaps beyond, if it is not.
He said he would be a little sad to give up the helm of a merged company, "but there can only be one CEO and one chairman."
Shift on Antitrust Issues May Aid Sirius-XM Deal
Maybe he should have called Charles W. Ergen, the founder and chairman of EchoStar Communications.
Mr. Ergen could have given Mr. Karmazin an earful about his failed effort to merge EchoStar with DirecTV four years ago, a deal that seems eerily similar to the one Sirius and XM have proposed.
Will the government see things differently this time?
“I do think it could get through, but I don’t think it’s going to be an easy one,” he said. “It’s going to be incumbent on the companies to demonstrate that the analysis in EchoStar-DirecTV is different.”
In opposing that deal, regulators — both from the F.C.C. and the Justice Department — argued the merger would create a monopoly. EchoStar and DirecTV, on the other hand, argued that the market should be defined more broadly than simply satellite television and should encompass cable television operators and telephone companies providing video over phone lines.
When Sirius and XM announced their merger on Monday, they made a similar argument — that their market is much bigger than just satellite radio.
“In addition to existing competition from free ‘over-the-air’ AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies,” the companies said.
There is no question that times have clearly changed: a decade ago, the argument for a Sirius-XM merger would have never had a chance.
Joel I. Klein, then the acting assistant attorney general in charge of the antitrust division, gave a speech to the radio industry 10 years ago this week, suggesting that merging terrestrial radio stations in the same market was “no different from a situation where all soft drink manufacturers would seek to merge and control 100 percent of that market. We wouldn’t walk away from such a merger — and if you like soft drinks I should think you wouldn’t want us to walk away — merely because there are lots of other beverages out there, such as milk, juice, beer, wine, et cetera.”
But the regulatory tone in Washington has changed. Inside Sirius and XM, executives are bullish on government approval.
In a conference call with analysts yesterday, Mr. Karmazin said that “I would not have gone to our board,” if he “didn’t think there was greater than a 50-50 chance of approval.” In fact, the deal’s timing was driven in part by a feeling that the current administration was more likely to let the deal through and that it needed to be done before that window closed.
The Justice Department’s surprising approval of Whirlpool’s acquisition of Maytag — a deal that created the nation’s largest manufacturer of appliances with more than 50 percent market share — has encouraged others to proceed with deals that might have seemed to pose regulatory problems.
But Sirius and XM should not necessarily take solace in the shifting attitude in Washington and the Whirlpool decision, some antitrust experts suggest, because the deal’s fate may be decided by the F.C.C., which issued two sets of satellite spectrum to Sirius and XM in order to create competition.
At the time, the F.C.C. defined free-to-air radio as a separate market from satellite because free-to-air radio, which included local programming like weather and traffic, was tightly regulated while satellite’s content would be unfettered.
“Howard Stern couldn’t do his current broadcast on radio,” said Mr. Powell, who had fined Mr. Stern several times for some of his lewd talk on terrestrial radio before his program moved to Sirius.
Mr. Powell said that in the end, the deal’s fate would lie in the evidence that both companies produce during the government’s review. He said that while EchoStar and DirecTV publicly talked up an assortment of competitors like cable and telephone, when the government got its hands on the companies’ documents about the way they internally defined their rivals, “it seemed that the only competitors who mattered were each other.”
Of course, perhaps the largest factor in their decision will be the precedent regulators want to set. “If the Federal Communications Commission grants a green light for this transaction, the brakes will be off for similar telecommunications industry hookups,” Carmi Levy, senior research analyst with Info-Tech Research Group, wrote to clients. If so, perhaps Mr. Ergen will get a second chance.