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The Karmazin Way: Build It, Sell It, Run It, Repeat
Mel Karmazin, above, “is the singular best salesman I have ever met,” said Joel Hollander, the chief executive of CBS Radio and a longtime colleague. “He’s very aggressive, to say the least.”By RICHARD SIKLOS
MEL KARMAZIN could sell microwavable ice to Eskimos. He started his career in ad sales at WCBS radio in New York four decades ago, quickly proved himself to be a master closer, and has been peddling his wares ever since.
“Mel is the singular best salesman I have ever met in my life,” said Joel Hollander, the chief executive of CBS Radio, who spent much of his career working for Mr. Karmazin. “He’s very aggressive, to say the least.”
The capping moment of Mr. Karmazin’s radio career came in 1997, when he sold Infinity Broadcasting (now CBS Radio), a vast collection of stations he and partners had built, to what was then the broadcast company CBS Inc.
Though he had little experience in television, Mr. Karmazin’s hero status on Wall Street and his zeal for growth catapulted him into the chief executive’s chair at CBS after only a couple of years. A mere nine months later, he pulled off another coup and sold CBS to Viacom, on the condition that he would run the combined media conglomerate as its president.
The Karmazin rocket finally ran out of fuel in 2001, when Viacom’s chief executive and controlling shareholder, Sumner M. Redstone, lost confidence in Mr. Karmazin’s relentless focus on costs and quarter-to-quarter results, coupled with an unpardonable failure to invite the billionaire to lunch. (Mr. Redstone went a step further last year by sort of undoing the deal and splitting off a new CBS Corporation, which he also controls.)
Anyway, gazing at Mr. Karmazin’s career, you start to get the picture behind what happens when you put him in the big chair: he is forever building and selling, even when it looks like he’s buying. And so, two years after he became the chief executive of Sirius Satellite Radio, it should come as no shock that he has struck a deal to merge the company with its only direct rival, XM Satellite Radio.
Not coincidentally, if the deal goes through, he will again end up running the combined entity.
Last week, Mr. Karmazin took his campaign to win over lawmakers and regulators to Washington with his pitch that a single satellite radio company would mean more choice and lower prices for consumers — rather than create a foreboding monopoly, as his former chums in the terrestrial radio business contend.
Speaking before an antitrust task force of the House Judiciary Committee, Mr. Karmazin said he was shocked by the very idea that anyone would see a monopoly as the logical result of merging the only two satellite radio broadcasters. “There is no monopoly or duopoly,” he told the hearing. “That’s the most bizarre thing I have ever heard.”
Mr. Karmazin’s essential message is that satellite radio is competing with all forms of audio entertainment and information — from commercial radio to iPod jacks in cars to Internet radio and maybe even people humming as they walk down the street.
On Feb. 19, the day the merger was announced, Mr. Karmazin had a similar message for me: that it was wrong to compare his proposed deal with the merger of the direct broadcast satellite companies DirecTV and EchoStar, which regulators turned down in 2004. “The only thing that you could even think of as similar between those companies and us is that they both use satellites,” he said. By Mr. Karmazin’s reasoning, the television business has an entirely different structure.
Whether this is conviction or sophistry, it is very hard to throw Mr. Karmazin off his message, even when he seems to be contradicting himself.
Early in his tenure at CBS, for example, he was dismissive of the Internet as a business. But he quickly changed tack and did some clever deals in which the company traded ad space on its TV network to Web start-up companies for equity, which it cashed in on shrewdly during the stock market bubble a few years ago.
Similarly, the pre-Sirius Mel was a satellite-radio skeptic. He later argued that what changed his mind was the defection of Howard Stern, whose career he had nurtured, from CBS/Infinity to Sirius for an estimated $500 million pay package. Mr. Karmazin said the potential of having the controversial but popular Mr. Stern anchoring Sirius helped entice him out of a brief post-Viacom retirement to join the company.
Sirius has certainly blossomed since Mr. Karmazin came on board in November 2004: it had just under 800,000 subscribers then but has more than six million now.
After chalking up billions of dollars in losses since its inception in the early 1990s, the company will begin generating positive cash flow this year, Mr. Karmazin says, and he contends that Sirius does not need to merge with XM and its eight million customers to survive.
But the costs of acquiring and keeping customers remain daunting. And what tears him up inside, he said, is Sirius’s stock price, which, at a closing price on Friday of $3.55, is 28 percent lower than the day before he joined the company. “It’s been a great two years,” he told me. “If there weren’t a Quotron in my office, it would have been the perfect job for me.” (A key to Mr. Karmazin’s legendary salesmanship is that he can be quite funny.)
One of the messages that Mr. Karmazin brought to Washington is that a combined satellite broadcaster is better for choice — Mr. Stern and major sports leagues would ultimately be available to subscribers of both services rather than one or the other.
Among the biggest hurdles he and XM face is persuading the regulators that merging would be better for consumers than the satellite radio rivals’ long-promised and long-delayed new receivers that would allow listeners to switch from one service to the other without having to pull one receiver out of their cars and install another.
As far as price is concerned, Mr. Karmazin made it plain to the House committee that he would be willing to agree to a price cap for the combined service to seal the deal. The pitch is that raising prices isn’t really feasible anyway because most of what satellite radio is competing with out there is free — particularly on the radio.
ONCE more, this seems slightly at odds with statements that Mr. Karmazin made only a few months ago, Jonathan A. Jacoby, a Banc of America Securities analyst, wrote last week in a report. At an investor conference in December, Mr. Jacoby said, Mr. Karmazin talked up the potential for raising prices beyond the $12.95 a month most people pay now.
Clearly, Mr. Karmazin and his counterparts at XM have their work cut out for them in getting their deal past regulators. But one thing you can take to the bank is that he will do whatever it takes to get the deal done. If he does pull it off, the question will be this: What company would the master pitchman want to sell the combined XM-Sirius to next?
