Conversations From the Corner Office

INTERVIEW TRANSCRIPT

Mel Karmazin, CEO of SIRIUS Satellite Radio, talks with Kai Ryssdal

KAI RYSSDAL: Mel Karmazin, welcome to the program.

MEL KARMAZIN: Thank you. It's good to be here.

RYSSDAL: You are a radio guy from way, way back. What was the first draw for you to radio?

KARMAZIN: Well, I was a media buyer in the '60s — excuse the expression. That was before the '70s — there was a thing called the '60s.

RYSSDAL: I think I remember that.

KARMAZIN: And I bought a lot of advertising on the radio, and a fellow who was the sales manager of WCBS Radio approached me about joining CBS. So it wasn't about me having a lifelong desire to get into the radio business, it was the fact that I was offered a job in the radio business and did pretty well there at CBS.

In 1970, I joined Metromedia and worked for John Kluge and worked there for 11 years. And my feeling at the time was that everybody who was any good in the radio business moved on to television, particularly at CBS and at Metromedia. And all of these really good people had left the radio business and gone to television. And it didn't take me long to realize that if I stayed in the radio business, I would be competing with people who couldn't get a job in television.

So I chose to turn down the television jobs and stayed in radio, and it's been pretty good.

RYSSDAL: Interesting that you say you did "pretty well." I think based on what I've read you did real well in sales.

KARMAZIN: Well, no, I did real well. I made an awful lot of money selling advertising. I was fortunate to work for good radio stations, and work with good people, and made a lot of money and moved up the ladder within the Metromedia organization. And in 1981-- along with two partners--I joined Infinity Broadcasting. We owned three radio stations at the time I joined. And we ultimately sold Infinity to CBS, and ultimately sold that same radio division to Viacom for $20 billion. So it's pretty good.

RYSSDAL: You started in sales and now here you are, arguably, again in a sales job, running SIRIUS.

KARMAZIN: Well, I don't know if it's a sales job. I mean I think that, you know, the background in sales is a good degree of training. I mean my degree was in accounting. So, you know, I think that the ability to communicate, the ability to negotiate, is a talent that's pretty good no matter what your title is. So I spend a good amount of my time on the sales process because revenue in companies is very important. So if you take the revenue side and you take the expense side, you just pretty much got the whole business. And I like to be part of growth businesses where the revenues are growing, and SIRIUS fits that bill perfectly.

RYSSDAL: What do you think it is about radio that makes it this stepping-stone, this waystation, for people on their way to television? Either on the talent side of the house, or on the business side of the house?

KARMAZIN: Yeah, I think that television has always been much more glamorous. I think that if you were to take a look at the show business rung, probably the only thing lower in the pecking order than radio is a circus clown. So I think that most of the people who are driven by ego, you know, like the ability of being on television. My feeling had always been that I was interested in the business of making money and having fun, and I was able to make money and have fun in radio.

When I became the CEO of CBS and I had the network and the CBS News and CBS Sports all reporting into me, I still enjoyed the radio business. So the glamour had nothing appealing to me.

RYSSDAL: Let's talk about this company for just a second. It's been around for a good long while, yet still isn't really turning a profit, though.

KARMAZIN: Well, I don't know what you mean "a good long time." We got our first subscriber in 2002, and here were are in 2006, and we're saying that we're going to have over six million subscribers. And we said that we will make a profit — that we will have free cash flow as recently as the fourth quarter of '06. So if you were to compare SIRIUS to many other start-up businesses, I think that it's a great accomplishment.

The other thing about the business is that it's a high fixed cost business so that when — before we got our first subscriber, we had to spend $1.5 billion in putting up satellites. Obviously, no one was going to subscribe to a service if the service didn't exist. So we spent $1.5 billion on satellites. We then had to provide all of the programming because, again, if you're going to — before you get a single subscriber, you need to have the programming offering. So all of these fixed costs were in there already before we got a single subscriber. Now we're dramatically adding subscribers, and the revenues that you generate fall to the bottom line, and therefore you make the turn pretty quickly.

RYSSDAL: When you first heard about the concept of satellite radio, what was your thought?

KARMAZIN: Didn't think that people would pay for it, didn't think that it was compelling. But I said the same thing about cable television and drinking water — I never thought that anybody would pay for water. So I was not one of the early believers, but I'm a convert.

RYSSDAL: So are we now going to be having satellite radio the same as we all have HBO and ESPN and all that?

KARMAZIN: Oh, yeah. And I think we've demonstrated that already, so obviously the satellites are up and running, and they worked, and the programming is on. We've been able to attract great programming, far greater programming than exists in terrestrial radio today. And we are able to convince people that they should pay forty cents a day for a satellite radio, particularly people who spend a lot of time listening to the radio, or people who are in their car, so we think that's proven. And now the next step is for us to demonstrate our ability to turn a profit, and that's what we're focused on.

RYSSDAL: Competition, though. I mean, you're trying to convince people to spend 40 cents a day to listen to your product when they can get in the car and flip on the radio, and it's free.

KARMAZIN: Well, I think the issue is that we need to have something that they can't get for free. And what we have that they can't get for free is 68 channels of commercial-free music. There's an awful lot of people who like to listen to music and are turned off by the extraordinary number of commercials that are on. So we offer commercial-free music.

We also offer things that are not being offered on terrestrial radio, so that you might be able to hear the Giants or the Jets game in New York City or whatever city you are in; you might be able to hear a local football game. But if you subscribe to SIRIUS, you'll be able to hear every single football game that's on at that same time. You know, we broadcast every game as compared to just the one game. The same thing is true about basketball. You'll be able to hear all the basketball.

We also made a big investment that has paid off very well for us in attracting Howard Stern to SIRIUS, where you can't get Howard Stern on free over-the-air. So we think that much like cable is a reason that people are paying $70 a month to watch television is that they feel that the free, over-the-air stations are not sufficient for them; in radio, we believe that the free, over-the-air stations are good; it's great that they exist, they'll continue to exist, but if you really like radio, why don't you want these extra 132 channels that you'll be able to get, and we're finding an awful lot of people wanting to subscribe.

RYSSDAL: Let's take this competition thing one step farther. Talk to me about your thoughts on SIRIUS and podcasting, the Web, and all those other forms of media that are now out there which are either directly or indirectly your very serious competition.

KARMAZIN: Yeah, I think for every year that I've been involved in the radio business there has always been competition, and somebody said what about it. So I remember that when there was just AM radio, that everybody said that FM radio was going to come along and AM is not going to exist, but clearly AM has continued to exist. Television came along and people said, well, gee, no one is going to listen to radio — they're going to all have television. And then they started to put 8-tracks in the car. And people said well, if you're going to have an 8-track in your car, you're not going to listen to radio and the same thing, then, with cassettes and CDs.

I think that the radio business has been around for a long time. Tthe first station went on the air in 1926. I think that there is always going to be a place for radio. There will be competing music technology, there will be other audio alternatives out there as there has been forever, but I think that radio is going to continue to survive. I think it's going to continue to prosper. I think you'll see what is now mostly on FM move over to satellite radio. But I still think that there will always be room for a local AM or a local FM station side-by-side with satellite radio.

RYSSDAL: Can't talk to Mel Karmazin without talking about Howard Stern. You're the guy arguably who made Howard Stern and brought him to us. When was the first time you heard him?

KARMAZIN: Well, no, I mean Howard made Howard Stern and who he is. I first heard Howard when he was an afternoon personality on WNBC Radio in New York City. That station is no longer there. And Howard ultimately got fired. And I was a competitor of his at that point and quickly called his agent that day and tried to hire him. And it took us a few weeks, but we managed to hire him — and that started about 20 years of a relationship.

RYSSDAL: What was it that made you listen to him and say, "Man, I gotta get him"?

KARMAZIN: Well, I think what made me want to get him was that he had unbelievable success with advertisers. So my interest was not so much in hiring him because I liked listening to him or that he had large ratings--those things are important. But the main reason that I was interested in him was that he was amazingly financially successful. And when we hired him, he just expanded even more.

It's — you know it's hard to compare Howard to any other area outside of the radio business. It's not like you can compare Howard to a successful TV show like "Friends" or "Seinfeld" or "Everybody Loves Raymond," because Howard is four hours a day. He's the entire prime time lineup in radio. So morning drive time is the equivalent of eight to 11 on television, and Howard occupies all of prime time, and he is the number one program and has been for most of those 20 years. So he represents a huge, huge revenue and profit opportunity, and that's what I enjoyed about Howard.

RYSSDAL: For all of the nice things you say about him, though, he's caused you no small amount of headaches and cash — FCC fines in the millions, CBS is now suing this company for negotiations during when he was thinking about coming here. Is he worth the headache?

KARMAZIN: Well, clearly the FCC fines were things that I absolutely believe were unjustified and continued to fight. And I believe that the FCC was wrong and that there was no court in this country that would uphold, you know, the fines. The reason that I did a financial settlement with the government at the time was that our company was involved in acquiring radio stations at a rapid pace, and the FCC was holding up those transfer applications. They were stopping us from buying radio stations and used the leverage to get me to settle. And interestingly, the language of the settlement was that we certainly did not admit that Howard violated any rule. There was no fine paid. It was characterized as a voluntary contribution to the government. But it really was them holding a gun to my head and saying, "If you don't settle, we won't allow you to acquire radio stations." And I couldn't do that to our company.

Regarding the CBS lawsuit, we totally believe that that's without merit, but you know Howard is back on the front pages again. So if you're — asking me about the lawsuit, I would say it just has increased again the awareness that Howard is on SIRIUS satellite radio. We're not concerned about the merits of the case because we don't believe there are any merits to it, but we're getting an awful lot of attention, again, about this big company's billions and billions of dollars -CBS suing Howard Stern.

RYSSDAL: You brought him here in a $500 million deal. Isn't that a whole lot of the company's money to plow into one guy?

KARMAZIN: Just for the facts — you know, I did not bring him here. I joined the company after Howard did, but stand behind the decision that was made and absolutely was a tremendous amount of money. There's no way of saying that that's not a lot of money. The difference is that Howard's — that decision has paid off significantly for SIRIUS. That we sell subscriptions at $12.95 a month — a very low price in our opinion — and if in fact Howard were to bring a million subscribers, then we would have more than paid for itself. So we would have brought in well over $140 million as a result of Howard, pay him about $100 million, and therefore there was a profit in it for us in making that decision.

When Howard was announced that he was joining SIRIUS, we had 700,000 subscribers. Today we have over 4 million subscribers. It's our belief that Howard was responsible for more than a million of those incremental subscribers. And obviously if he did that, not only did he increase the awareness and the visibility and the promotion, but he also paid for himself with the additional subscribers.

RYSSDAL: I'm going to guess that one of the real attractions of satellite radio for you is not having to deal with the FCC?

KARMAZIN: No, I really had some issues with the FCC — I worked with the FCC from the time I joined the broadcasting business in the late '60s as I mentioned earlier and always got along with them. I had no issues with them. When the indecency standard was the "seven dirty words," when you couldn't say the seven dirty words, we knew exactly what those rules were, and we never said any of the seven dirty words. There was no radio station that I was responsible for that ever violated the rules. If the speed limit is 65 miles an hour, we go less than 65 miles an hour.

What happened was that the FCC changed the definition of indecency, and they said indecency was a discussion of sex or excretory matters in a patently offensive manner. And we said, "Okay, what do you mean by 'patently offensive'?" And they said, "We'll tell you when you do it." And Howard would say a word or talk about sex, and it would be determined that the FCC would believe that that was patently offensive.

That same content was being done on soap operas, and that same content was being done in other places, and it wasn't getting fined. And we just felt that — an important responsibility of a broadcaster, you know, is to stand up for your first amendment rights. And I believed that we weren't going to knuckle under, and that we weren't going to--just because the FCC believes that something is indecent--that we were going to say, "Oh, okay, you know, you must be right." And we wanted to go to court, and that's where this whole FCC issue came about.

But no, I mean I have no trouble playing by the rules of government agencies. Certainly did it — had some experiences with them that I disagreed with over the time. When I was at CBS the halftime episode of Janet Jackson. We did a thorough investigation. Nobody at our company knew that Justin Timberlake and Janet Jackson were going to do what they did; that it never happened on television before. The way you deal with it is you pull a camera away.

In the case of radio, you operate on a seven-second delay, and we were operating that Super Bowl on a seven-second delay. But you never had to deal with a video circumstance because if somebody did something, you just pulled the camera away, so for a fleeting second something inappropriate went on the air. I thought it was terribly inappropriate that it happened. I apologized that it happened —

RYSSDAL: To Congress, in fact.

KARMAZIN: To Congress, in fact, and to the FCC, but I did not believe that there was appropriate — that it violated the indecency rules. It may have been offensive, and it shouldn't have happened, but I don't believe it did. And when I was at CBS, I was still fighting for the rights that we wouldn't pay a fine.

RYSSDAL: You've been in a very creative business for 40-something years now practically, but you've always been on the business side of it. Have you ever had the urge to try your hand at creativity?

KARMAZIN: No. I don't think I'd add a lot of value to it. As a matter of fact, I recall when I was president of Viacom, and the people at Paramount wanted to send me scripts to read so that I can, you know, green light them as a lot of my peers did at some of the other media companies. And I told them that if they ever sold a — if they ever sent me a script for me to read, I would sell all my stock because I would totally lose confidence in them. Because I don't believe that I add any value in that creative process. You know, I think that I pride myself on creating a environment that encourages creative people to want to be there and to give them all the tools that they can have possibly to make them win. But I don't feel that I add any value in creativity in radio or television or the movies.

RYSSDAL: Why did you leave Viacom?

KARMAZIN: I left Viacom because I really wasn't having any fun. And I had--at the time of the merger--I had tried to buy Viacom —

RYSSDAL: Let's explain that for a second — the merger between —

KARMAZIN: So I was now the CEO of CBS, and the regulatory rules had changed that would allow CBS to expand into some other areas that prior — it could not do, and I approached Viacom about acquiring them. Viacom had no interest in selling the company. I thought that it was important for the two companies to combine. I thought that it was a perfect combination. We were each other's missing piece in the puzzle and ultimately decided that a transaction with Viacom was in the shareholder's best interest, even if it wasn't us as a survivor.

So I sold the company to Viacom, was very happy to have left the company at that time. Because I was the CEO of CBS, and Sumner Redstone was the CEO of Viacom, and he had no interest in stepping aside. Our board was not interested in that transaction. They insisted on a transaction that kept me with the company for three years, where they took the powers away from the CEO and gave it to the board and to me.

At the end of the three years, the contract was up. I considered leaving at the time. The board and the company convinced me to enter into a new agreement. The new agreement gave me great flexibility that I would be able to leave when I wanted to leave. And a year after entering into that new agreement, I decided that I wasn't having as much fun as I wanted to have. And since I wasn't working for the money, and if I wasn't having the fun, there was just no reason to stay, and I left in May of 2004.

RYSSDAL: Why not just retire? You were 60-something at that point?

KARMAZIN: I was —

RYSSDAL: Almost 60 at that point.

KARMAZIN: I was about 60 years old at the time, and I thought that might have happened. I had been working for over 40 years. I had never had more than two weeks off at the same time, and in the last 15 years had never had more than five days in a row off. So I was interested in how — not having to go to work every day and not having to think about work every day would be.

And travelled — went on a honeymoon with my wife, who I had married five years earlier, but we only went away for the weekend then. So we traveled through Europe and spent two months doing that and -but for any business reasons I wanted to burn my passport because I absolutely did not want to travel.

My son convinced me to play golf, and I played golf, and I hated it. So that didn't last very long, and around October of — you know, so I had from May until October doing nothing. Spent time on my foundation, spent time, you know, giving some people some advice — free advice. That I was ready to get back into the business ,and what I was looking to do, I told people who cared that I was interested in being the CEO of a company. I'm not very good at being a number two person. I'm just not — it's just not in me — so I needed to be the CEO of a company. It needed to be in New York City because I've lived in New York my entire career and didn't want to change my lifestyle at all and that it had to be a growth company. The thing that I liked the most about the business was in not necessarily running a very large company; that wasn't as much fun as it was in building a company.

And those were the requirements, and I received a phone call from representatives of the board of the directors at SIRIUS asking me if I might be interested. Had a meeting with them, spent the next few weeks learning more about the company and its prospects, and got turned on by it, and joined the company in November of 2004.

RYSSDAL: I don't want to call you tight with a buck, outright. But your reputation is one of a man who is very, very cautious with the company's money.

KARMAZIN: So let's get back to the idea. So, one is a sales guy who focuses on the revenue. Yeah, I am. One is somebody who watches the expenses. Yeah, I'm that as well. I believe that I invested a lot of money, you know, certainly the amount of money that I've invested over the years and even here at SIRIUS in talent and content doesn't need to be justified. I mean, Howard worked for me for 20 years, the most expensive radio personality at the time at CBS. We got the NFL back. We got the NCAA tournament. We certainly paid a lot of talent. Tom Cruise made an awful lot of money on "Mission: Impossible" movies while I was there.

So always invested money when it was important for growing the business, but also very prudent and very concerned when it comes to spending the money and making sure that the shareholders are being looked after and that the company was not squandering money. And I think that's how you run a profitable company is you focus on the revenue you watch your expenses and therefore the profits take care of themselves.

RYSSDAL: I've done a number of these conversations with CEOs. And only one has been as absolutely upfront about the bottom line and about wanting to be number one as you, and that was Sumner Redstone. I think it's interesting that you two somehow couldn't find a way to work together.

KARMAZIN: Well, I think the idea is that Sumner's a very smart guy who has made great accomplishments, and I just don't think very often that two people who have been CEOs who combine are able to work together. I mean, I've looked around at other mergers and tried to say well, okay, where — has it worked? More often than not--and I can't give you a good enough reason as to why it doesn't work--but it just doesn't work. You know, you've not seen too many companies to where, you know, a CEO of one company and another CEO have merged and those two people are still working together in some way after some number of years.

RYSSDAL: Yours is not the typical CEO profile. There's no MBA in your background, no fancy Ivy League degree. You're very much an up-from-the-bootstraps kind of guy.

KARMAZIN: Well, I don't think that if you were to look — I probably will never be considered a great CEO, and probably the reason is that I don't play golf. Because I think that all of the great CEOs that I know really do play golf, and I just don't. I don't think that an MBA was so important. As a matter of fact, I barely made it through college. You know, I graduated Pace College having gone there at night. And my grade point average was terrible, so I wasn't a particularly good student. I gravitated towards business, I had a great work ethic that I put in a long day. And maybe because I wasn't as smart as everybody else, I had to work longer than other people, and also hated to lose. I just couldn't stand losing. I didn't care about winning. If there was no contest, I — I'm okay with that. But the idea of if there is a contest, I just didn't want to lose.

I can give you a great example. Somebody who knew me pretty well told me that the industry was selecting a "Man of the Year." And they wanted to honor somebody, and I turned it down, and I wasn't interested. I thought it was egotistical, and I just had no interest in doing it. And this person called me and said, "Hey, Mel, I understand that you turned it down. And we're about to give it to somebody else. And you know that everyone's going to wonder how come you didn't get it." And I said, "Oh, my God." You know? And I wound up accepting the award not because I wanted the award, but God forbid there was an award and somebody else got it, how it would reflect on me. I lost it! So therefore, that gives you a little bit about my thinking.

RYSSDAL: You've been going day-in and day-out for forty years. Only a couple of days off here and there, as you say. Do you have any regrets?

KARMAZIN: Nah. I mean my kids are great. I spent great — what they now call quality time with my kids. I mean, I wasn't home for dinner with them every night, but having the benefits of this job, my son has been to 25 Super Bowls with me and when — I think he started going when he was six-years-old. And I would take my daughter to all of these big events and I have a great relationship with them. Happily married, healthy, love working. I think the time that I spent in that May till October having left Viacom has convinced me for sure that I will always want to work. That the idea of not doing anything is not something that appeals to me.

So, no, I'm really not regretting anything. I think the combination — even the decision to merge with Viacom, today I believe is right even though they've made a decision to unwind that transaction. But I thought it was the right decision. As a matter of fact, the stockholders believe so as well because the stock is trading at a lower price today now that they've unwound it than it was when it was together. And I believe that being involved in the radio business has made me financially successful enough that my foundation is a very important part of my life. And we give away a significant amount of money every single year to worthwhile organizations, and I enjoy doing that. So I have no regrets.

RYSSDAL: Well, Mel Karmazin, thanks very much for your time.

KARMAZIN: This was great, thanks.

[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

	DOW 1.29%
	NASDAQ 1.40%
	S & P 1.36%
Details...