Sirius' Karmazin: 'We'll Kick XM's Ass In Q4'

During Sirius Satellite Radio's (SIRI) earnings conference call this morning, Sirius CEO Mel Karmazin, had some amusing words for his 'friends' at XM Satellite Radio while addressing a question about a possible merger between the two companies:

Robert Peck - Bear Stearns

Congratulations. I have two bigger picture questions here. One is on a potential merger between XM and Sirius. We see that all over the press. I guess, Mel, I wanted to get your feel for what the pulse Sirius may have taken, if you think it's even feasible should both XM and Sirius want to do something like that? What is the feedback you're getting from your people?

Then number two, Mel, could you go into a little bit about the royalty situation, how you got to your 0.88%, what your view on the timeline of that playing out?

Mel Karmazin

I really don't have very much to say about any hypothetical combination that could or could not exist. I understand the basis of the question. There clearly would be a good amount of value creation that would be there, but regarding whether or not such a combination would take place, I really have nothing that I could say about it. You shouldn't take that to mean that it's possible or you shouldn't take that to mean it's not possible. You should just assume that we have nothing really to talk about.

You should assume that we will be looking to kick their ass in the fourth quarter, and we do that, and they are looking to do the same to us and we are competitors. Our business plan does not require us to do anything different than we are doing. We have enough cash on our balance sheet that gets us through to cash flow positive. Again, we feel very good about our company in a standalone mode and if in fact the opportunity ever came to create more shareholder value, it's something that obviously we would be interested in.

On the RIAA, we have worked closely with our friends at XM in putting together a response to the copyright royalty board. What we looked at were all of the things in the statute that you are required to look at and those certainly include what we are currently paying. It takes a look at the investment we have made in our infrastructure. It takes a look at a rate that would not be disruptive to the business, a rate that would be fair to those people holding the copyrights. We truly believe that our proposal was a very genuine, significant proposal that would give the recording industry a significant amount of money at just under 1%.

We think that their proposal is bizarre. I think they are making a proposal just based upon the fact that the music industry is having trouble, so if they are having trouble, maybe they should look to satellite radio to fix their problems, but we don't think that our role in life is to fix their problems. Our role should be to pay a fair price for material.

David is leading up our representation on the project and we feel very well represented and are confident that we will come to a mutual agreement sometime in 2007.

Robert Peck - Bear Stearns

Thanks, Mel.

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