by Documents  Sep 12 2007 - 5:32pm  Satellite radio   

XM and Sirius yesterday submitted  to the Federal Communications Commission a recent interview that Sirius CEO Mel Karmazin did with Neil Cavuto of Fox News. The filing was part of the proceeding on the proposed XM/Sirius merger.

Among the discussion's revelations: Karmazin acknowledged that a merged XM/Sirius might just put Don Imus on the payroll, and not as a janitor either:

"I think I would have to know a little bit about what Don Imus wanted to do at this point in his career and what his vision is," Karmazin confided. "But you know, the fact that he had been fired, OK, would not stop me from having Don work for me again. He makes you a lot of money."

Here's the transcript of the August 7th edition of "Your World With Neil Cavuto," filed by XM/Sirius to the FCC.

NEIL CAVUTO, HOST: In the meantime, fears of deals drying up on Wall Street today more to do with Congress than a credit crunch? Democrats using the word "antitrust" a lot more lately. My next guest recently appeared on Capitol Hill to defend a pretty big deal he has been trying to get done. With us now, an exclusive chat, is Mel Karmazin. Mel is the CEO of Sirius Satellite Radio, which is trying to merge with XM. Mel, very good to have you.

MEL KARMAZIN, PRES. & CEO, SIRIUS SATELLITE RADIO: Neil, good to see you.

CAVUTO: To that end, you had a great piece in The Washington Times today where you were arguing, look, I'm going offer a la carte, tiered pricing, if you will, and we have already gotten the response from the Federal Communications Commission, the chairman, Kevin Martin, says he likes it. Does that help the deal go through?

KARMAZIN: I don't know about that, but I do know that when we announced our deal, we said that we needed to demonstrate that this merger that we were doing was not anti-competitive. And I think that anybody that gives some thought to it understands that satellite radio is competing with terrestrial radio, is competing with other technologies that exist. So we don't think that combing two satellite radio companies in any way is anti-competitive. And the other threshold that we have to pass is we have to make sure that this is in the public interest. And our announcement on a la carte we thought was a very, very strong announcement because we are now as a result of this merger having such efficiencies that we will be able to offer the consumer a 46 percent -- of the current price entry into satellite radio, a 46 percent discount. So if you believe public interest is giving consumers more choice, the ultimate choice being a la carte, you know, and lower prices, paying for only what you want, we think that the merger should be approved without question.

CAVUTO: Your critics who oppose this deal say, gee, why didn't he offer this earlier?

KARMAZIN: And the reason was simple. Is that our company has very high fixed costs. We have been in business now for 17 years and have not made any money. And the idea of lowering your RPU without having any efficiencies connected with it is something we can't do as a business. But because there are so many efficiencies that get created as a result of the Sirius-XM merger, we're able to pass on a good proportion of those efficiencies to the consumer in lower prices. And that's how we're able to do it. Without the merger, we are not able to financially do it.

CAVUTO: All right. Without the merger, is it likely that one or both of you will be out of business?

KARMAZIN: I don't think so. I mean, I can't speak for XM, because we don't have access to any non-public information there. But I can tell you our business model is that, you know, we're not making an argument that we're a failing company. You know, we believe that we can better compete. We will be a better competitor, but we believe that we will be around for a long time whether the merger is approved or not.

CAVUTO: OK. And can you still make money on tiered pricing, whatever you want to call it, because the very attractiveness of the merger becomes less so with that, right?

KARMAZIN: Well, no. If they are -- the efficiencies are so big that taking a portion of it enables us to lower the price. Remember, we're competing with free. Terrestrial radio is free. So for us to be able to drop down to a $6.99 entry point is good news for us because we will pick up more subscribers and we will be able to grow faster, which is why our critics, which are mainly the NAB, which represents terrestrial radio broadcasters, they don't want us to offer lower prices. They want us to not be more attractive to consumers. They want us to be less attractive to consumers so that they can better compete with us. So the tiered pricing to me gives us the opportunity.

CAVUTO: I got you. Mel, your deal is unique but there has been a concern on Wall Street about the financing for deals freezing up, and that that is a big issue. Is it?

KARMAZIN: Well, it is not in this particular case. You know, we are expecting that our deal will close by the end of the year and that.

CAVUTO: Still confident of that?

KARMAZIN: Yes. I mean, we have no reason to believe that it won't. I mean, the only reason it won't close is if you believe that satellite radio doesn't compete with terrestrial radio. I mean, if you believe that there is a market, and that we only compete with XM. And that's the only competition we face, you know, not iPods in the car, not mp3 players, not any of those things, then the merger won't get approved. But I don't think anybody believes that to be realistic. And I believe that if you believe that there is a bigger competition field, then the merger will be approved. And we think that the timing will be by the end of the year.

CAVUTO: All right. Yours is a neat and clean deal if it goes through, but there is this concern that all of a sudden the deal-makers are running out of cash, or at least options for cash. Is it a big worry to you? You are a pretty savvy market... (CROSSTALK)

KARMAZIN: Well, yes, I mean, it is phenomenal what has happened over the last six weeks. We just did a public-debt deal six weeks ago and we did it because the market was pricing it very opportunistically and very attractively. And what has happened over the last six weeks has been that that market has dried up. One of the reasons, you know, I got this gray hair -- and it's not just the make-up that you put on it, OK? I mean, it really is gray, have been around a long time is that the one thing I know for sure is that if the market is closed today, it's not going to be closed at some point in the future. It will change. I don't know which way it will change, but it will definitely change. And I think the way it is today is unfortunate. I think.

CAVUTO: Are you worried about a crash or something even worse?

KARMAZIN: I don't think I'm worried about a crash at all, because I don't see -- you know, I see the unemployment rate where it is. I mean, I see the stock market -- you know, in general where it is. I mean, I think that the country is doing well. My sense of the economy, you know, is that the U.S. economy is doing fine. I mean, it is not doing great, it is doing fine. And I think that fine is really pretty good.

CAVUTO: OK. You don't mind my switching gears, Mel, Don Imus, a close friend of yours, speaks highly of you, talk that he is going to come back to the airwaves. I'm wondering if the pay radio airwaves are for him, whether you would be interested in offering or have offered him a job?

KARMAZIN: So I can tell you that since Don left CBS, I have not had a conversation with him, or with anybody that represents him. So I have had no conversation at all. I hope that Don Imus decides to come back. I think he has, you know, some legal issues with his former employer, but that, you know, Don Imus is a great talent. He has done a great deal of value being on the air. He has been on for a long time. And if he wants to come back, I think it would be great for him to come back.

CAVUTO: Do you think it was too much punishment meted out to lose a job over those comments?

KARMAZIN: Well, you know, I mean, he worked for me for a long time, you know, and one of the things that we used to say is that he is an equal-opportunity offender. It wasn't a shock that Imus went on the air and talked about offensive, you know, things, said offensive things.

CAVUTO: If you were running CBS, would you have essentially fired him?

KARMAZIN: No, I would not have, OK? And again, I don't want to dwell on a la carte programming, but it strikes me that the way you deal with those kind of issues is you have consumers pay for this -- the products that they want to pay for, and if they don't want Don Imus in their home, they shouldn't have Don Imus coming into the home and they shouldn't be subsidizing him coming into the home if he was on some form of pay radio.

CAVUTO: Not to over-dwell, Mel, but you have not offered him anything on Sirius?

KARMAZIN: That is correct.

CAVUTO: And if Sirius and XM were to merge, and you will be the head of that combined entity, would you offer him something then?

KARMAZIN: Well, I think I would have to know a little bit about what Don Imus wanted to do at this point in his career and what his vision is. But you know, the fact that he had been fired, OK, would not stop me from having Don work for me again. He makes you a lot of money.

CAVUTO: OK. Personal interest -- I have just my own personal interests, you are doing these CNBC spots. I listen to CNBC, whatever. Why?

KARMAZIN: Well, they asked me to do it. I have been on. I have been a supporter. They asked me to do it. And if you could get Roger Ailes to come up with the money, I would be happy. (LAUGHTER)

CAVUTO: So they paid you!

KARMAZIN: . to do them for the new FOX channel.

CAVUTO: They paid you for them?

KARMAZIN: No, they did.

CAVUTO: All right. But it goes to charity, right?

KARMAZIN: I wasn't paid at all, and there was -- nothing was transferred. They asked me if I would do it. I saw no reason to do it. I certainly am looking forward to the new FOX business channel. And if, in fact, you, in this new executive role that you have, would like me to have a participation, I would be very happy to do it.

CAVUTO: We would always be honored. If you don't mind stepping back and looking at the economy, you know, we mentioned once or twice, we have President Bush tomorrow, and you've got a good lay of the land, Mel, probably better than most CEOs out there. And there is this concern -- I think Donald Trump was saying not too long ago, a foreboding, and they can't place it, finger it, define it, even say it, but there is something that worries them about the fall and that -- maybe the market has run too far, too fast, and 20 years after '87, it is going to be bad.

KARMAZIN: Yes. I mean, I remember -- you know, again, getting back to this being old, you know, I remember October of '87 and what went through that. I don't spend my time on the stock market. I spend my time in business, you know? And I feel, as I said, unemployment is good. I think in general, the stock market is doing good, you know? I feel pretty good about the economy. I particularly feel good about the media and entertainment sector. You know, I think over the next five years that there will be great growth in the media sector, far greater than GDP. And I do believe -- over the next five years, I believe that GDP is going to, you know, increase. Now, I mean, I know -- you know, if you want to stick your neck out, it is probably good to say, you know, something negative because if it does happen you can say, see, I told you so. But I don't personally see any of that happening, you know? I see our subscribers are coming in in big numbers. They are paying for radio, you know? It is not a necessity.

CAVUTO: You have a very low churn rate. Once they have it, they stick with it, don't they?

KARMAZIN: People are satisfied with our product. And that is why we are excited about our prospects.

CAVUTO: All right. Mel Karmazin. Great seeing you again. We will talk to you about those FBN spots.

KARMAZIN: Well, let me tell you, I'm available. (LAUGHTER)

CAVUTO: OK. Very good.