Posted by chicagomedia.org on July 05, 2009 at 20:01:21:
XM Sirius CEO Mel Karmazin prospers even when business is bad
Phil Rosenthal | Tribune Media
July 5, 2009
The struggle in writing about the media business is to not dwell on the negative, these being tough times and all.
So you take your good news where you can, and in this case you take Mel Karmazin, chief executive officer of Sirius XM Satellite Radio, which has earned its keep in the Rosenthal minivan despite budget pressures by providing Howard Stern, Major League Baseball and the kids channel that plays Laurie Berkner songs.
Well, that and the fact we're paid up in advance for quite a while still.
In any case, God bless, Mel. A master salesman, he gives everyone hope that no matter how bad one's business is, it's possible to prosper.
We're all too aware that this is an era of cost-cutting, plunging stock prices, job-slashing and salary freezes. Most people are relieved simply to stay employed. I know I am, and not just so I can continue to afford XM Sirius, Stern, baseball and that kids channel.
That's what makes Karmazin such an inspiration.
His five-year contract was to expire later this year. The pay-radio service reported its first-ever decline in subscribers in the quarter that ended March 31. It narrowly averted bankruptcy earlier this year through a $530 million loan from Liberty Media. The sale of new cars, a big way of reaching potential subscribers, has hit a speed bump. And programming changes made after the merger with XM to cut costs seem to have upset some loyal customers.
But Karmazin just scored an extension through 2012, according to a Securities and Exchange Commission filing.
He gets a raise from $1.25 million to $1.5 million a year.
He gets options for up to 120 million XM Sirius shares.
Now, a lot of people would look at Sirius XM, trading at 45 cents a share on Thursday, and dwell on the fact that its 52-week-high was $2.75 last July 24. But shares were trading as low as a nickel in February, so think of how it has surged in recent months.
Karmazin's option price is 43 cents, the price of XM Sirius shares with the close of the quarter on Tuesday, so imagine the windfall if he can get shares back to, say, $1.58. That was its price last July 29 (nearly a five-year low at the time), the day Sirius Satellite Radio acquired rival XM Satellite Radio Holdings in a $2.76 billion all-stock deal.
Critics have carped about how he shouldn't be able to profit like this, inasmuch as one would like to think he had at least some role as the share price slalomed down the mountain over the last 11 months.
My suggestion, unrequested, is that the stock options shouldn't be options at all. Karmazin should be required to personally buy the shares at the predetermined intervals specified in his new deal, regardless of whether it makes economic sense for him. If the shares tank, it should cost him. If they go up, well, at least everyone else's shares will rise with him.
Imagine if he gets the price to $4.72. That's what it was on Nov. 18, 2004, when Sirius announced he was joining the company as its new CEO. Or if he can get it into the $9 range it was in early December 2004, a little less than two months after Sirius signed Stern to a five-year deal as its chief attraction.
Now picture what happens if he can't reverse subscriber losses or re-sign his longtime friend and associate Stern, whose deal expires at the end of next year.
But you take your good news where you can. Someone got a big raise and a few more years of security. Imagine what Karmazin would get if things were going well.