Summit Notebook

Sirius CEO Karmazin limbers up for the Howard Stern dance

It’s been five years since Sirius lured shock jock Howard Stern to satellite radio with a $500 million contract. Whether Stern can re-up with a similar deal when his contract expires at the end of next year is anyone’s guess, but it ought to be entertaining. Sirius XM CEO Mel Karmazin is preparing himself for negotiations with the self-proclaimed King of All Media.

In a meeting with reporters at the Reuters Media Summit on Monday, Karmazin gave us a thumbnail sketch of his version of “The Art of the Deal.”

“I could tell you, it will start with Howard feeling that he is working too hard and doing too many shows and not making enough money. Our side would say, ‘We want you to do more, and get less money,’” Karmazin said.

“That would be how we would go into the room once the time came to go into the room. And the hope would be that we would come out with Howard staying with our service,” he said.

Karmazin praised Stern as “a talent like no other in radio,” but would not say whether such a talent was still worth a half billion dollars.

“You have to now assume that the negotiations are at a stage where everything is in print, so if I were to say, yes, we got every penny’s worth, Howard would come in with that piece of paper and say ‘See? I sold myself too cheap,’” he said.

Stern is one of the biggest draws of Sirius XM’s satellite radio service, which counts 18.5 million subscribers. His decision to exit FM radio for Sirius in 2004 is credited with establishing satellite radio as an established form of media, though some analysts have also noted that high-priced contracts like Stern’s contributed to financial woes that pushed Sirius to the brink of bankruptcy earlier this year.

Mattresses and pillows, a diversified portfolio

With financial markets in turmoil and the U.S. economy in recession, we asked top entertainment and sports executives at the Reuters Media Summit for some investment advice.

Our question: “If we gave you $50,000, where would you invest?” One rule: They couldn’t pick their own company. But then we thought $50,000 was too little for well heeled executives, so we switched it to $50 million. But that seemed excessive. After all, we’re talking about personal investments — so we settled on giving them a cool $1 million.

Here’s what they said:

“In a pillow … You might look at the energy sector, you might see what happens with gold. I’ve got cousins who work in the banking industry. When I asked them, they told me put it in my pillow. That is your answer.” – Havas’s MPG Chief Operating Officer Steve Lanzano

“I would be in the most conservative mechanisms I could — treasury bills, whatever, absolutely. The old trite bromide about cash is king? Well, that is true and more true today than ever before.” – Major League Baseball Commissioner Bud Selig

“I’d put 40 percent of it into exceedingly high-yielding senior debt securities in a diversified array of businesses. I’d put 30 percent of it with a pretty diverse array of fund managers who have a strong track record of navigating choppy times in an array of strategies. And then I’d take the final 30 percent and buy Time Warner stock … I will tell you why I love Time Warner. OK, so it’s trading at 50 percent of book, and these are people who, post AOL, were incredibly aggressive about writing down their book value. So it’s trading at 50 percent of essentially tangible books, tangibles you are going to get for a media company. They are not especially exposed to advertising. A lot of their revenues are very sticky. They still own their cable assets. You are getting a free option on the value of whatever happens in the spin-off. They generate, I think, $13 billion in EBITDA right now, if I’m not mistaken. And all their debt obligations are laddered out well into the future so they have no particular financing risk. So if you figure we have three horrible years ahead of us — and I don’t believe we do, but if you do — they are perfectly fine from a capital point of view for the next few years. And even after all obligations, all repayments, all capex, they still generate loads of free cash flow. Even if you don’t think they are particularly well-positioned strategically — they are currently yielding 2.7 percent, and I see no reason for the dividend to go down.” – Take Two Interactive Inc Chairman Strauss Zelnick

“If I had a knife, I would probably put it in my mattress. No, seriously, I think if somebody gave you $1 million today, I think my gut tells me that the market would probably be a good place to put it … But there’s a little bit of hesitancy there. Have you reached bottom yet? Who knows. Do you actually have to actually reach bottom before it’s a good time to invest? Probably not. But this might be a good time to put money in the market if somebody just hands you $1 million … I would avoid the financial stocks for now because I’m not sure all the bad news is out. You know, you would think as low as some of those stocks are, that there would be buys, but some of them may not be around at all. So I would stay out of the financial sector. I probably would steer more toward durables and things that people are going to need year in and year out. They can be a bit volatile too, but you know that they are going to be around for years to come. I don’t think I would invest in domestic auto stocks today. You know, natural resources and products that are going to continue to be in demand, even some of the medical and drug companies.” – Regal Entertainment Group CEO Mike Campbell

from MediaFile:

Mel says lost Sirius/XM channels worth every penny – to bottom line

If you're an old Sirius or former XM subscriber who lost one or more of your favorite channels after the two satellite radio companies merged earlier this year, CEO Mel Karmazin has a message for you: Tough luck, it's for the greater good.

Karmazin told reporters at the Reuters Media Summit in New York that the two companies had taken the best of breed in each music channel genre from either Sirius or XM as part of a $400 million cost saving drive.

"We're going to pick the best channels," said Karmazin. "We've gotten hundreds of people who hated it and claimed they were going to cancel. So we've analyzed all the cancellations since the rationalization...It's hard for me to understand what they don't like."

"If we took the most aggressive number of people who cancelled and we take that (away) the $120 a year (they pay) it doesn't get to a $1 million as compared to the significant amount of cost savings as a company that needs to make money," said Karmazin.

Our colleague Franklin Paul said he was upset with the loss of his favorite classic hip-hop channel, The Rhyme. So Karmazin made his best pitch to an old school B-boy.

"We have other hip hop channels," coaxed Karmazin.

"You as a subscriber, though you may miss your channel, you need to make sure we make money because you want us to be around so we can invest in programming and we can provide you with all these services," said Karmazin.

Karmazin does it for love, not $

Sirius XM Chief Executive Mel Karmazin is a serial monogamist when it comes to stocks. No matter where he’s worked, from Viacom to Sirius, he only buys stocks in those companies, he told the Reuters Media Summit in New York on Wednesday.

Lately, at Sirius, “every dime I’ve taken in has been spent buying stock,” he said. To show his fidelity, he wears special cufflinks in his shirtsleeves. One says “XM.” The other says “Sirius.”

Otherwise, he steered clear of stocks in the past decade or so, opting for tax-free municipal bonds or treasury bills. “So I have been a terrible investor because if you look at the past 12 years, my portfolio has only grown… 3 percent a year. If you look at stock market at that period of time, I’ve left an awful lot of money on the table. Over the last year… I’ve done ok compared to where a lot of people were.”

Speaking of Sirius, he notes all the media reports that peg his annual compensation at $32 million are not quite right.

“When I came to the company, I got 33 million options at $4.72 (each). You take the Black-Scholes formula, and it was worth $150 million. Over five years, that’s $30 million a year. And I’ve never sold a share. That four dollars and 72 cents is now worth 18 cents.”

That sounds fairly underwater to us.