Maybe this shouldn’t be a surprise considering all the will-he/won’t-he stay speculation that’s taken place since Liberty Media‘s John Malone began his takeover effort. Lately it seemed as though Mel Karmazin was warming to the idea of staying, and that Malone would be glad to have the voluble exec — who’s famously a pal of one of Sirius XM Radio‘s biggest attractions: Howard Stern. Karmazin’s decision to bolt suggests that big changes are ahead for the satellite radio company. The smart money is betting that Malone will spin it off at some point in a way designed to minimize his tax hit. But it’s far from clear how long that might take, and how Malone will operate the company in the meantime. Sirius XM says the board has formed a search committee chaired by Liberty CEO Greg Maffei and including Sirius XM directors James Mooney and Eddy Hartenstein, who will “consider both internal and external candidates” to replace Karmazin. Shares are down 1.4% in after-hours trading. Here’s the release:
John Malone’s company made its intentions clear today when it asked the FCC to approve its “Application for Consent to Transfer of De Jure Control” of the Sirius XM’s broadcast licenses. Liberty said that it “intends to purchase sufficient additional shares of Sirius common stock” so that — when it converts the preferred shares it owns — Liberty “will own more than 50% of the total outstanding shares of Sirius,” the satellite radio company says in an SEC filing. Liberty already controls about 48%. It added that the transfer of control “will be completed within 60 days of Commission consent” of the request. Regulators have to ensure that the public interest would be served by having Liberty control the airwaves. Sirius says that it “will cooperate fully with the Commission in its evaluation of the Application.” In May the FCC rejected Liberty’s request to take control of Sirius XM based on its claim that it already had “de facto” control even though it didn’t own a majority of the stock. Investors have been curious to know whether Malone intends to run Sirius XM, or sell it. Last month Malone said that “there’s no question that eventually Sirius will be an independent company. The question is in what time frame and under what circumstances.”
UPDATE, 6:15 AM: CEO Mel Karmazin is known as a straight-shooter, but showed today that he can also be diplomatic about a sensitive subject that hits close to home: Analysts in a conference call wanted to know what’s up with the FCC petition by John Malone’s Liberty Media to take over the rights to the satellite radio company’s broadcast licenses. Liberty says it has “de facto control” of Sirius XM by virtue of its 40% of the company’s stock, and right to hold five of the 13 board seats. Karmazin says he’s confident that the FCC will reject the petition. Although Liberty has “significant influence,” Karmazin says that ”our board absolutely concluded that they do not have de facto control…40 is not the new 50.” He says that he isn’t sure why Malone’s company filed its FCC petition. “Liberty has not indicated anything that they want to do. When they get asked, why are you doing it, they say they want to keep all of their options open.” While Karmazin wouldn’t criticize his largest shareholder, he added that “if the time ever comes that Liberty’s interests are different than the 60% shareholders, then we will do whatever we can do to protect the interest of our 60% shareholders.” Karmazin says he’s now just waiting to hear from the FCC.
Mel Karmazin, the satellite radio company’s colorful CEO, is on a victory lap of sorts with his stock up more than 29% so far in 2012. He told CNBC’s Jim Cramer last night that he’s glad to see shock jock Howard Stern become a judge on NBC’s talent show America’s Got Talent: Calling Stern the “greatest radio performer of all time”, he adds that “the bigger Howard gets … the better it is for us.” (Cramer didn’t ask about Stern’s suit claiming Sirius XM owes him money for helping to boost subs.) Karmazin adds that he feels “very good about subscriber growth” despite the 11.9% price hike in January to $14.49 a month.
UPDATE, 6:05 AM: CEO Mel Karmazin says he’s not worried that Sirius XM will lose subs beginning in January when the monthly price will rise to $14.49 from $12.95. “We thought about raising the prices more,” he says. The company monitors consumer comments on social networks, and “we’ve seen them say they understand … there hasn’t been much reaction.” Still, he says that “we’re going to work closely with our ‘save’ desk’ ” to retain subs. He assured investors that he’ll keep costs under control but would consider repurchasing company stock or acquiring another company. “All of the bankers visit us regularly,” Karmazin says. He adds that he’s upbeat about 2012 in part because forecasts show a 1M pickup in auto sales, the main source of new satellite radio subscriptions. “The best is yet to come,” Karmazin says. Investors are less certain: Sirius XM’s share price fell more than 5% in pre-market trading after the company’s conference call. Lazard Capital Markets’ Barton Crockett says he’d give the company a “B” grade for its 3Q performance. The market wants to see sub growth and the latest figure, he says, was “light.”
PREVIOUS, 4:25 AM: The satellite radio company is down about 1% in pre-market trading: It reported 3Q net income of $104.2M, up 54% vs the same quarter last year, on revenues of $762.6M, up 6.3%. While the revenue figure was lighter than the $764.2M the Street expected, earnings of 2 cents a share beat analysts’ estimate of zero. Still, the subscription figures might worry some investors: Sirius XM ended 3Q with 21.3M subs, up 364,004 in the quarter.
Media stocks suffered along with just about everyone else today after the Federal Reserve stirred recession fears by reporting “significant downside risks to the economic outlook” — and World Bank President Robert Zoellick warned that global economies are in a “danger zone.” The Dow Jones U.S. Media Index fell 3.9%, slightly more than the 3.5% drop in the DJ Industrial Average. Companies most exposed to advertising were hard hit. CBS led the pack among the industry’s Big Guns with shares down 7.2%. It was followed by Viacom (-6.6%), Disney (-5.5%), Comcast (-3.8%), Time Warner (-3.6%), News Corp (-3.3%), and Sony (-2.7%). Others falling at least 7% include Nielsen and Sirius XM. Those dropping at least 6% include Martha Stewart Living Omnimedia, The New York Times, Coinstar, IMAX, and Cumulus Media. Even in the battered market, a few media companies were up on the day including Live Nation (+2.1%), Barnes & Noble (+3.1%), Scholastic (+6.8%) and Westwood One (+20.8%).
It’s “more likely than not” that new online video streaming providers such as Amazon will offer some programming on a premium tier — a contrast with Netflix’s single-price package – Liberty Media CEO Greg Maffei said this morning at the Goldman Sachs Communicopia conference. He broadly hinted that his company’s desire to charge extra for Starz was a big reason why the premium channel recently ended negotiations to extend its carriage deal with Netflix. The current arrangement, he says, is “inconsistent” with the way consumers receive Starz on pay TV.
More broadly, Maffei says that Liberty is on track to split off its Liberty Capital and Liberty Starz tracking stocks by tomorrow now that it has beat back a court challenge by bondholders. The deal transfers some assets to the spun-off companies, violating some bond agreements. But the Delaware Supreme Court yesterday upheld a lower court decision that said the split-off is OK because it isn’t part of what it called an “overall scheme” to hurt bondholders. That likely won’t change the overall strategy for the company that’s controlled by the famously tax-averse former cable titan John Malone — and that some analysts say is little more than a portfolio of stock holdings. “Finding things to buy at attractive prices is the biggest chalenge we have today,” Maffei says.
A judge today approved the framework of a settlement to a lawsuit subscribers filed against Sirius XM Radio charging that the satellite radio company violated terms of its merger by raising prices afterward. The class action was filed in 2009 and claimed that Sirius XM broke antitrust laws when it boosted prices and imposed a music royalty fee after the 2008 merger was approved. The deal, worth $180 million, ensures that prices and the fee will stay at current levels through year’s end and subscribers who canceled can rejoin without charge.
UPDATE, 6 AM: Sorry, analysts didn’t ask about Howard Stern — and Sirius XM doesn’t allow reporters to participate in its quarterly calls with The Street. So Mel Karmazin stuck with the themes that have served him reasonably well over the years: Promises of cost cuts and lots of love for Wall Street. He crowed that Sirius XM will end 2011 offering “more channels with less programming expense” than it did last year. He put subscribers on notice to expect an increase early next year in Sirius XM’s $12.95-a-month base rate. And he says that he plans to funnel some of that cash to shareholders. (He doesn’t rule out an acquisition but says “they are hard to come by.”) The company says that by year end it will introduce Sirius XM 2.0: It’s built on a new technology that will accommodate additional channels, program time shifting, and replays. The company’s online service also will offer pause and rewind. At least one auto maker will commit to offering Sirius XM 2.0 radios in 2012. About 65% of all new cars come equipped with a satellite radio, and Karmazin says he plans to step up efforts to have dealers install them in used cars. The company also plans to offer a suite of channels for Hispanic audiences. All told, Karmazin says, “we are growing in a very competitive market and a weak economy.”
PREVIOUS, 4:15 AM: The satellite radio company reported 2Q net profits of $173.3M, up from $15.3M in the same period last year, on revenues of $744.4M, up 6.4%. Earnings at 3 cents a share beat the 1 cent consensus among analysts who follow Sirius XM. But they thought that revenues would reach about $752.6M.
Note to Sirius XM CEO Mel Karmazin: When you talk to anyone besides Wall Street analysts, don’t sound so gleeful about your plan to raise your basic $12.95 a month subscription rate later this year. Karmazin told analysts Tuesday in his quarterly earnings call to “think of a number more than” the inflation rate so Sirius can recoup some of the huge payments it’s been making for the NFL, Howard Stern, and other programmers. Karmazin is salivating for the end of July and the expiration of the 3 year moratorium on price hikes that he promised the FCC he’d make in 2008 when regulators allowed Sirius and XM to merge into a satellite radio monopoly. The freeze is widely expected to end, although there’s been some talk at the FCC about possibly extending it. Government officials have allowed Sirius XM to pass along higher fees to cover music royalty payments and for special services including Internet access. Karmazin is in no position to plead poverty, especially as the economic recovery helps auto sales — Sirius XM’s biggest suppliers of new customers. The company reported net profits in the first quarter of $78 million, up nearly 86% vs. the same period last year, on revenues of $724 million, up 9%. Profits, at 1 cent a share, matched what Wall Street analysts expected. Sirius also reported that it had nearly 20.6 million subscribers at the end of March, up from 20.2 million at the end of 2010. The company says …
EXCLUSIVE: This is exactly the kind of information that shareholders of Big Media need to know but rarely see. It’s considered a red flag when any public company pays one of its bigwigs – usually the CEO – three times more than the average for the four other top executives which the SEC requires them to list. So I’ve taken proxy statements and done the computations and discovered that at least 16 of 35 companies failed that test. Often miserably. Nearly half of the media company compensation packages disclosed so far for 2010 show a startling degree of hero-worship as boards of directors pay their top dogs sums that far exceed what the pay was for other top execs in the company.
Stock grants accounted for big chunks of the compensation for those who top this list, including Discovery Communications CEO David Zaslav, Viacom CEO Philippe Dauman, DirecTV CEO Michael White, Nielsen CEO David Calhoun, and CBS chief Les Moonves. Radio station owner Entercom was off the charts: CEO David Field’s $9.1 million compensation was modest by media company standards but still 25.4 times bigger than average for the company’s other four executives. It includes $7.9 million from stock grants that only pay off if Entercom shares rise to hit certain target prices.
Still, corporate governance experts who focus on what’s often called “CEO centrality” say that an out-of-whack pay package is bad news for shareholders. It indicates that the board of directors may be in the pocket of a CEO – or believes he or she has near super-human power to help the company succeed. In either case, the board is likely to give the CEO all the credit when things go well, and blame others when they go badly. Research shows that usually hurts the stock price over time.
I’ll track this and other measures of lop-sided pay as other media companies release information for 2010. But there are a few things to keep in mind: The SEC reporting rules only cover the top-paid executives of publicly traded U.S. companies. That means we probably won’t know how much privately held Hearst pays CEO Frank Bennack, or how much Japan’s Sony pays CEO Howard Stringer. It also means that we’ll miss a lot of highly paid people who work at subsidiaries of a big company; Universal Studios’ Ron Meyer may be a big deal in Hollywood, but he was a relatively small fish last year at parent company General Electric.
To make comparisons in our list here as fair as possible, we looked at the compensation for the five most highly paid employees for 2010. Sometimes companies report the pay for more than five people — for example, when a top executive is replaced during the year a corporation will include the incoming and outgoing person’s compensation. And the pay data given the SEC can spike in a year when an executive cashes in stock or collects deferred compensation. So here’s how the companies stack up, with the top paid executive’s 2010 reported compensation and comparison to the average (median) pay for the four other highest-paid honchos:
1. Entercom: David Field. The son of company founder Joseph Field became CEO in 2002, about 15 years after leaving his job as an investment banker at Goldman Sachs. Field made $9.1 million last year – the total of his $791,723 salary, $444,308 bonus, $7.9 million in stock, and $28,000 in other perks including medical insurance premiums. That’s a 348% raise in a year when company shares appreciated 53.2%. Though considered a strong operating executive, his salary stands out because it’s 25.4 times higher than the $358,692 average for the four other top executives listed in Entercom’s proxy statement. Field’s salary and the $3.9 million paid to CFO Stephen Fisher accounted for 93% of the $14 million that Entercom paid to its top five executives.