What do you call a media company with a million subscribers and $500 million in annual losses? A great start. Sirius Satellite Radio has set Wall Street on fire, commanding a $7.4 billion value by following in the greasy path set out long ago by the cable industry, grow first and ask questions later. But now comes the hard part for former Viacom President and now Sirius CEO Mel Karmazin – making this thing actually work. Competitor XM Satellite Radio is worth slightly less yet has 3.2 million subscribers - this isn’t going to be easy. Here is my seven step plan to media moguldom, the HBO Plus plan – just change the descriptions for any other media.
Content – A mogul is nothing without something to sell, but sometimes you get lucky. Harassed by the FCC over unwritten additions to the seven dirty word list, the King of All Media Howard Stern was ready to escape the public airwaves. A very Sirius $500 million and an encrypted signal was all it really took to shake him (and Mel) out of Viacom’s control. I’ve been listening to Howard since his afternoon drive time at WNBC, an addicting decades long conversation with a best friend you’ve never met. I’ll follow him anywhere.
Indecency is hard to define, but even Howard admits he stoops because, “You try to be funny for four hours a day.” Baba Booey. Senator Ted Stevens of Alaska (didn’t Juneau they live for satellites up there) is trying to apply broadcast decency rules to cable and satellite, but fat chance of that happening. Even still, signing up a few million current Howard listeners probably only gets you to break even and not to the mass audience needed. Sirius needs a lot more. If you want to be like HBO, start ramping up your own content, and fast.
Distribution – A mass audience, even a paying one, is a chicken and an egg problem. Even though your satellite signal reaches to every nook and cranny, you still have to get new radio devices in the hands of listeners, one in three is currently stuck in traffic. Your car is your castle, your radio the jester. XM has signed up GM and Toyota, and Sirius has Ford. Give automakers free ads, their own channels (Muzak for your Pontiac), and make sure that every car sold is not just satellite radio enabled, but standard equipped. If I were Sirius, I would dangle another $500 million to break any XM contract. (If this doesn’t work, give the $500 million to XM in exchange for half their station slots. Do we really need two non-compatible radios so early into this market?)
OK, you know and I know that this isn’t REALLY going to work
The Lock – Once you’ve got that mass audience - wait check that, do this now – find some friendly Senators to file the 21st Century Satellite Freedom Act that, of course, freezes everything to where it is today. Every successful media company is based on some restriction of trade – TV was a mandated oligopoly, cable has local franchise rights, movies control theaters, music controls retailers, etc. Then go back to step one and instead of paying for content, extort it. This is what cable does today: “You want carriage? Sure, just give me 50% of your company.” Brilliant.
Technology – Radio is as old as Guglielmo Marconi, who crackled the airwaves in 1895. For goodness sake, change your name to Sirius Media Networks. And more than TV, radio is a local business, and a $21 billion business at that. Put a GPS device in every radio and pipe local ads to listeners. Add a color display and hmmm, video ads. Stick a disk drive in your radios too, and turned them into audio Tivo machines. That’s what we all really want. Get Apple to do it for you, call it iRadio, use teal cases, and you’ll sell millions. A unique ID in radios means messaging shouldn’t be hard to implement. Eventually, you should be able to get everything down to one secure, proprietary chip. Then write some drivers for Linux and watch 10 million Open Source programmers create cool new features almost daily.
Pricing – To be king, you must apply the secret to pricing: raise it whenever you get a chance, Friday afternoons, during major holidays, war time, while the Super Bowl is playing – just raise it early and often. XM recently changed their pricing by eliminating a basic tier, forcing all users to premium pricing. That a boy.
Wall Street – They love you now, but they won’t forever. You need a high stock price to pay for all this stuff, so positioning is key. Forget earnings (I see you already have) or PE or EBITDA or ARPU or even price per subscriber. Your current valuation implies some five million subscribers you may never have. Cable finessed this with a concept called homes passed, assuming they would eventually get them as subs. If every car has your radio, get Wall Street to value you on Autos Attached or some other stupid metric. They’ll fall for it.
Sell – OK, you know and I know that this isn’t REALLY going to work. Cellular networks are close to offering radio quality audio, to a billion customers worldwide. Internet infrastructure coupled with new technologies like WiMax may mean streaming audio into cars and cafes. Satellite is so last century. Fortunately, Sumner Redstone is as old as Marconi and Viacom will eventually pay almost anything to get Howard Stern and Mel Karmazin back. When the checkbook comes out, pretend to be offended and then hit the bid.
Mr. Kessler is the author, most recently, of “Running Money” (HarperBusiness, 2004).
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