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Ex-Viacom head gets hired by Sirius
11/19/2004

 
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Satellite/Subscription Radio
NEW YORK � First, Sirius Satellite Radio landed Howard Stern. Yesterday it hired Stern's former boss.

Former Viacom chief operating officer Mel Karmazin was named CEO of Sirius Satellite Radio in a move that will reunite the longtime radio executive with his star former employee: Howard Stern.

Karmazin, who abruptly quit as president and chief operating officer of Viacom in May after a long-simmering dispute with president-CEO Sumner Redstone, was Stern's most vocal champion at Infinity Broadcasting. Now, the two will work together again.

Shares of Sirius rose over 20 percent in after-hours trade in response to Karmazin's appointment, hitting $5.75 from a Nasdaq close of $4.72.

Karmazin's challenge is to establish the fledgling medium of pay radio as a significant competitor to commercial broadcast radio, which puts him in direct competition with his former employer, the owner of the country's second-biggest radio division.

In October, Sirius - the smaller of the two major players in satellite radio, behind XM Satellite Radio - signed Howard Stern to a five-year, $500 million deal. Beginning in 2006, after his contract with the Infinity Broadcasting division of Viacom expires, Stern will bring his popular but divisive presence to pay radio.

Stern will be able to say anything he wants once he starts at Sirius Satellite Radio, which is free of Federal Communications Commission restrictions.

In joining Sirius, Karmazin will return to his roots in radio, where he worked his way up from the bottom. "This is a perfect opportunity for me because I want to lead a growth company that can reshape the landscape of the radio business," Karmazin said in a statement.

"I want to prove the fact that I could be instrumental and helpful in taking a company that is at this stage of its development and lead it to becoming a major media company in the future," he added.

The annnoucement has fueled rumours that Karmazin will try to find a way to get Stern out of his contract with Viacom-owned Infinity and over to Sirius before his scheduled Jan. 1, 2006, start date, a development Stern has brought up on his morning radio show. The day of Karmazin's Viacom resignation, Stern publicly lamented the loss of his former boss, who signed the shock jock in 1985 after he was fired from WNBC. Stern's Infinity contract is good through the end of next year.

Also yesterday, Howard Stern, surrounded by strippers and cheered by thousands of fans, began promoting his switch to satellite radio Thursday at a rally in New York City where he handed out free boom boxes and satellite subscriptions.

"Down with the FCC!" the shock jock told a legion of sign-waving backers. "They have ruined commercial broadcasting."

Karmazin's five-year contract will pay him $1.25 million annually, plus 30 million stock options, with 20 percent of that vesting each year. Mr. Karmazin succeeds Joseph P. Clayton, who will remain as chairman.

Analysts interpreted Mr. Karmazin's move as a sign of the changing balance between paid and free media.

But Sirius and XM are still minor players in the media world. Around for just a few years, Sirius now has 700,000 subscribers paying $12.95 a month; a satellite radio receiver costs about $150, although many automakers include a receiver in their option packages.

XM has about four times the number of subscribers, who pay $9.95 a month, although several channels charge a premium. Commercial broadcast radio has an average of 175 million listeners each day, according to the National Association of Broadcasters.

Karmazin's success in turning radio stations into such a powerful cash generator was partly a result of pushing the upward limits of commercial time each hour.

But Sirius's point of distinction from traditional radio lies in its 65 commercial-free music channels and nearly as many talk and entertainment channels, which carry a modest number of ads.

Several analysts said they did not expect Mr. Karmazin to shift to an advertising-driven system. Instead, the company is likely to raise the ante in the competition with XM for big names to populate its channels.

In addition to Stern, the company recently struck a deal to have the rapper Eminem program his own channel, and the company has been seeking other deals with figures in politics, sports and entertainment. For its part, XM has nabbed the bawdy talk show duo Opie and Anthony to broadcast on a premium channel, as well as the former National Public Radio host Bob Edwards.

Karmazin praised the company's subscriber model. "I definitely think it works. I think that the programming on Sirius is compelling and I think at the end of the day people listen to compelling programming."

He said the emergence of the satellite radio business will parallel the development of cable, which began at a crawl but picked up with the introduction of in-demand channels like MTV and ESPN.

Karmazin said he did not view his new post as a way to compete against his old partner.

"I don't think that they have to lose sleep over what we're doing, and I think the world is big enough for both terrestrial radio and satellite radio to coexist,'' he said.




 
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