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Mel Swings Back at NAB

FCC Chairman Kevin Martin captured broadcasters' attention last week saying that he was pleased that satellite radio companies Sirius and XM had agreed to offer their programming a la carte—if the merger is approved.

But he conceded that there's still a high hurdle for the deal: the FCC's previous conclusion that two satellite licenses should not be held by one company.

Martin says the FCC is shooting for a late-third-quarter decision on the merger abiding by its self-imposed 180-day shot clock, but made no guarantees of that timetable.

Meanwhile, the National Association of Broadcasters, which flies a banner at its headquarters that reads, “You do the math: XM + Sirius = Monopoly”, reignited its attack on the a la carte proposal, saying it would certainly lead to higher prices and “up-sells.” NAB says the government would be bailing out the business for overpaying for programming.

Sirius and XM fired back, claiming broadcasters were trying once again to protect their turf from competition.

Deal approval hinges partly on whether regulators believe the space XM and Sirius are currently competing in is satellite radio, or whether they are part of a larger “national audio” market that includes terrestrial radio, cable radio, music downloads to MP3 players.

Mel Karmazin took time with B&C Editor Mark Robichaux to fire back at the NAB, explain the merits of the merger and talk about Sirius' video plans.

Why is the NAB so ferociously against this?

I think that the fact that they are so against it really demonstrates that we're competitive to them. Their argument that this is a duopoly on a way to a monopoly is just bogus. We do compete with terrestrial radio.

Sirius Satellite Radio acknowledged in 1998 that we compete with terrestrial radio. Most of the public companies in the NAB say in their annual filing that they compete with satellite radio.

So, for them to say to the government that they compete with satellite radio and have the head of the NAB say we don't compete with them because it's a duopoly? The reality is they know what they've been saying is not true.

Think about it: You're driving in your car, you push a button, you can listen to an AM station, you can listen to an FM station, you can listen to the satellite radio, you can listen to your iPod, you can get some content on your cell phone. How can those things not be competitive?

What the NAB is doing is trying to demonstrate that they don't want satellite radio to be a better competitor than we are today. We are going to offer lower prices and more choice for the consumer. Well, the NAB doesn't want us to offer lower prices.

Right now we compete with free radio at $12.95. We want to be able to offer discounted prices, so we have an a la carte proposal that's at 46% less than the $12.95. Well, they don't want that because the odds are more people will subscribe and if more people subscribe they're going to have more competition for their AM/FM radio stations.

I believe the merger should happen, I believe it will happen and I am hopeful that we'll be able to close by the end of this year.

The a la carte plan sounds good for consumers the way you explain it, but that's not the way the NAB and others see it.

We've made it clear: nobody will pay more than $12.95. So assuming you take your packages and you build a model, your own choices that you're going to have, no one will pay more than $12.95.

So this isn't a game. We're not trying to discourage a la carte. We believe that, along with our basic service, which is $12.95, we're going to offer a number of other packages, including family-friendly packages as well as a la carte. So it's not about up-selling.

We want to have lower prices because we compete with free. Look at that stupid flag hanging from the NAB headquarters about our merger, you know? I mean that's who we are competing with. And we can't do it. Our companies have lost billions of dollars since [their] inception, and it's the efficiencies of the merger that have enabled us to lower the cost because the efficiencies of the merger are in the hundreds of millions of dollars a year. And, we said early that we're willing to pass along some of the synergies that we get out of the merger to the consumer in the form of lower prices.

On the subject of a new radio, it's not unusual, whether or not it be with digital television, whether or not it be with HD radio, that you need a new receiver. What we've said is that we're going to rush these receivers out because it helps our business model to have a la carte services out there. And the radios will not cost more than they cost today.

How do you make money with a la carte?

Average Revenue Per User, or ARPU, would probably go down because people will take a cheaper package. The hope is and the belief is that there'll be more subscribers so that the revenue will come up. About 3.4% of the audience is currently listening to satellite radio. So, by having lower prices we would generate more subscribers.

How soon would you roll out a la carte?

As soon as we can. We are highly incentivized to do it. The biggest time of the year is the holiday season, and if we received our approval by the end of the year, that we would have a la carte radios in stores before Christmas [2008].

How long will you hold prices where they are?

My hope is forever. More people bought plasma screen TV sets when the prices came down, not when the prices went up. And from our point of view, more people will buy satellite radio at lower prices.

What's the plan for video in the car?

They're going to start to be rolling out this summer. We've done deals with Disney, Nickelodeon and Cartoon Network. Chrysler is going to have minivans on sale in the late summer. The kids will get in the car and they'll be in the backseat and instead of popping in a DVD player you'll be able to watch live television. So I don't know how big that business will ever get. It's a bandwidth issue for us. We are using up some of our bandwidth to provide video there. In the backseat of a car on a small screen it's terrific.