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Lost in Space

The King of All Media and the smartest CEO in radio just moved to satellite. So why is Sirius poised to fall back to Earth?


Illustration by Darrow  

As showmen go, Steve Jobs and Howard Stern have about as much in common as Yo-Yo Ma and Neil Diamond (if Diamond told fart jokes, that is). But last month, the week after Stern’s new satellite-radio show started bouncing around the stratosphere, the King of Silicon Valley turned in a performance that got me thinking about the King of All Media—and even more so about his boss, Sirius CEO Mel Karmazin, and the venture they’ve undertaken together.

The performance was Jobs’s keynote at the Macworld Conference in San Francisco. Actually, it was just a sliver of that keynote, less than a minute long, in which Jobs unveiled, as is his wont, a nifty new gizmo—a remote control for the iPod that comes equipped with an FM tuner. “It’s a little thing that clips on your clothing,” Jobs explained. “You can set your pre-sets; it’s really nice.”

A remote control? BFD, you might say. But among those whose profession it is to care about the future of radio, the announcement was seen as portentous—as a signal that Jobs, with whom Karmazin was in talks last year to create a Sirius-enabled iPod, has decided to pursue another path. That he may be preparing to embrace an alternative technology, high-definition radio, which is being deployed by traditional broadcasters to stave off the advance of satellite.

Karmazin and his people at Sirius don’t seem worried about Jobs or HD radio. They don’t seem worried about much, in fact—and given the roll they’ve been on lately, who can blame them? Before Karmazin and Stern signed on with Sirius in late 2004, the company had 662,000 subscribers and a market value of $5 billion. Today, the figures are 3.3 million subscribers and $9 billion, and Karmazin expects to add 3 million more subscribers in 2006. (Sirius’s satellite rival, XM Radio, has 6 million subscribers.) “Clearly,” Karmazin told a group of investors recently, “on its own trajectory, satellite radio is going to be a great business.”

Maybe Karmazin is right. Maybe, after more than a decade in commercial purgatory, satellite radio’s time has come and there’s nothing but blue skies ahead. But color me a skeptic. Whether Jobs’s announcement turns out to be a footnote or the prelude to a more substantial passage in the history of radio, it hints at the unfolding of a less auspicious story line—featuring an onslaught of new competitors and technologies—both for Sirius and for Karmazin.

Unlike satellite radio, HD is free, and its receivers will have TiVo-like functionality— the ability to store and replay.

Karmazin, of course, has seen his share of plot twists in his four-decade career in media. Starting as a lowly radio ad salesman, he turns himself, by dint of sheer relentlessness, opportunism, and epic penny-pinching (“It wasn’t like I was a visionary or anything,” he likes to say), into one of radio’s two bona fide moguls (Clear Channel’s Lowry Mays is the other), building Infinity Broadcasting from scratch, selling it to CBS, maneuvering himself into the CEO’s chair at the Tiffany Network, then finally, and fatefully, engineering the $37 billion merger of CBS and Viacom—setting himself up, presumably, as Sumner Redstone’s heir apparent.

But the ascension never happens. Redstone, aged and evidently afflicted with Louis XIV syndrome (“Viacom is me; I’m Viacom,” he tells Fortune), refuses either to relinquish power or to simply keel over. In the meantime, he torments Karmazin until he finally departs in June 2004. Karmazin says he plans to retire. His retirement lasts five months. A few weeks after Stern—Karmazin’s cash-cow cornerstone in the old days at Infinity—signs on with Sirius, his once and future boss does the same.

For Karmazin, plainly, the Sirius gig is all about redemption. It’s a way for him to write his own last chapter—as opposed to having it written for him by an addled billionaire. It’s also an attempt to prove that you can go home again.

For Sirius, Karmazin’s hiring was also about intangibles—credibility, for a start. Now, in the popular conception, the meteoric rise of satellite radio has been driven mainly by the coming of Stern, along with Martha Stewart, Eminem, Lance Armstrong, and a slew of other celebrities, plus the NFL, the NBA, and (in 2007) NASCAR. It’s a “content is king” story.

There’s no doubt that all this programming has been essential to Sirius’s subscriber growth—according to analysts, Stern alone may ultimately account for nearly 2 million new customers—but there’s also little question that, when it comes to the company’s stock price, Karmazin has been a bigger factor. (In the days after the Stern announcement, Sirius shares jumped from $3 to $4; after the Karmazin announcement, they soared from $4 to $9.)

Wall Street’s crush on Karmazin is long-standing, and even legendary. The Street loves his tightfistedness, his deal-making savvy, his abject workaholism. It loves the fact that Karmazin puts his money where his mouth is: Not long ago, he increased his holdings in Sirius from 4.5 million to 5.5 million shares. He even gets credit in some quarters for plunging headfirst into new media, à la Terry Semel or Barry Diller; there’s no pansy-ass old-media hedging with Mel, no trying to have it both ways.


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