This is a rush transcript from "Your World With Neil Cavuto," August 4, 2008. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST: Always love having this guest on. Soon, you may be able to get Howard Stern and Oprah from the same satellite radio service. The newly merged Sirius XM Radio will start combining channels from former rivals this fall, part of an agreement to get the government to sign off on the company's marriage. But, man, oh, man, this thing took a long time. Joining me now, the man who patiently orchestrated all of this. I'm talking about Mel Karmazin, the CEO of Sirius XM Radio.
Good to have you.
MEL KARMAZIN, CEO, SIRIUS XM RADIO: My hair was dark when I — when we announced this deal.
CAVUTO: Man, oh, man. What — what took so long?
KARMAZIN: Crazy. I mean, you would think that this was ExxonMobil.
You know, we are combining two satellite radio companies. Neither company had made any money yet. And we went through four congressional hearings. We went through 17 months of Justice Department and FCC scrutiny. But you know what? At the end of the day, we got the merger approved. And that is the important thing. And good things are worth waiting for.
CAVUTO: I remember the last time I had you on, Mel, I had asked whether the timing of your announcement was to get this done under a Republican administration. Was it?
KARMAZIN: Of course not. If in fact it was that way, I mean, look how long it took under a Republican administration. The fact is...
CAVUTO: But you did not think it would take that long, right?
KARMAZIN: I never thought it would take that long.
I must tell you, it seemed like a simple issue to me. It's either you think satellite radio is a duopoly. And we don't compete with other forms of other entertainment. And, therefore, if you believe that having two becoming one, you would never approve that deal. If you believe, as I do, that you compete with all these other forms of audio entertainment — and we do — then it should be a no-brainer. And it became very political. The broadcasters thought that this would be the worst thing that happened to them. Terrestrial radio believed that, if these two companies combined and became financially successful, which we will, that this would be really bad news for them. And they lobbied very hard. The NAB was a very strong organization.
CAVUTO: But it was the two Democrats who rejected it, right?
KARMAZIN: The two Democrats voted no.
CAVUTO: OK. So, it is feasible to argue that, under a Democratic administration, this would never have happened?
KARMAZIN: Well, it is feasible to — I mean, I do not know what would happen as to who the three Democrats would be in a Democratic administration.
But all I could tell you, that this deal, though painful, got done because the three Republicans saw the benefits of the merger, even with some voluntary conditions that we agreed to.
CAVUTO: Voluntary? I mean, it was like a "Sopranos," take this offer or get shot.
KARMAZIN: Yes, but take a look at what we have agreed to. There are things that we agreed to that we would have done anyway, things that we said voluntarily. We compete with free over-the-air radio, so we said that we were not going to raise our price. We do not want to raise our price. If anything...
CAVUTO: But you're not going to raise it for three years.
KARMAZIN: Yes. But the idea is, when you complete with free, isn't it more attractive to be at a lower price than at a higher price? And why would we, as a growth company, want to raise a price, when, in fact, the first thing that you would say, Mel, you're here to talk about raising your price, how many subscribers are you going to lose because of your increased price?
Our goal is about getting more subscribers. Today, Neil, we have more subscribers than every subscription business, except Comcast. So, Comcast has 24.5 million subscribers. Sirius, XM combined has almost 19 million. We have more subscribers than DirecTV, EchoStar, Time Warner Cable.
So, you know, and the fact is that we only have less than 20 percent penetration. So, our growth is really good. We're not going to raise prices. The fact that we committed to it — I think we should not have had to commit to it. The Department of Justice said...
CAVUTO: But you did. You did.
KARMAZIN: But we did.
CAVUTO: Could I ask you this, though? Does it change, not in ownership, but a combination, negate some of the contracts you have? For example, your biggest star, Howard Stern, does that make his old contract null and void?
KARMAZIN: No. And all of the contracts...
CAVUTO: So, he can't wander anywhere?
KARMAZIN: No. All of the contracts are in place. The combined company has assumed it. We honor contracts. You should assume that Howard in the near future will be available on XM receivers pretty soon, when we have the best-of package. But, no, we're going to honor...
CAVUTO: How are you going to use him in marketing the combined product?
KARMAZIN: Have not talked about it. This merger, by the way...
CAVUTO: Has he talked to you about it?
KARMAZIN: By the way, I tried — I tried to delay this until you got back from vacation, so that we would announce it.
KARMAZIN: But we just — we just announced Monday night. We needed to raise $1,250,000,000 of new money in this very, very ugly debt market. We managed to do that, with a combination of debt and equity. It was a horrible deal.
CAVUTO: Well, something — though, you did something that a lot of your rivals in all different fields have not been able to do. You heard about Chrysler. They tried to recalibrate a lot of their debt. They came $6 billion short. This is getting to be scary.
KARMAZIN: Well, I think what is happening in the market is very scary.
The fact that we were able to do the deal, I think, was a tribute to the confidence that a lot of people have in satellite radio. The fact that the terms were not what we wanted to do was unfortunate. I believe that our stock got hit really badly. You should assume, in the very near future, that I will be in the market, buying stock, because I believe...
CAVUTO: You personally, or the company?
KARMAZIN: I personally. No, I — me personally, OK? Is that I have always been a believer of having skin in the game, and whereas a lot of...
CAVUTO: You already have a lot of skin the game.
KARMAZIN: Yes. I have bought, in the past, $20 million worth of stock personally. And you should assume that I will be back in the market pretty soon buying some more.
CAVUTO: At these levels, or you're waiting for it to inch up a little bit?
KARMAZIN: No. I'm going to buy it as soon as — I have been restricted for the last two years from buying stock.
CAVUTO: Right. Right.
KARMAZIN: So, as soon as the lawyers give me the permission, you should assume that I'm buying stock.
CAVUTO: In the meantime, as this whole battle ensued — like you said, it was incredible. You would think you were like these multi- behemoths combining. But it is what it is. HD radio has gotten a lot of attention. Pandora and some of these other Internet radio sensations have gotten attention.
CAVUTO: The very technologies you said were out there and would not be getting in a way of the merger. But now they're threats.
KARMAZIN: Well, I think there's always been threats to radio. Today, Sirius XM has $2.4 billion of revenue. So, when you take a look at where we rank in the whole audio entertainment, only Clear Channel, only Clear Channel, has more revenue today than we do, more than CBS, more than any of these other radio companies.
There is nobody — nobody — better positioned in this whole area of audio entertainment than we are. It is competitive, but Pandora, any of these companies that you want to name, and compare to the $2.4 billion of revenue we have. We need to make money. The synergies of this merger, even with the ugly debt that we had to do — so, let's assume — we believe that there's $400 million of synergy.
The additional debt cost us roughly $70 million a year. You take the additional over $300 million of synergy, you suddenly take a look, and, suddenly, now, for the first time, for 2009, the companies are EBITDA positive. And that is on its way toward being free cash flow positive and toward being a very successful company.
CAVUTO: Well, I have no idea what you said, but it does sound brilliant.
CAVUTO: But, seriously, let me ask you this.
KARMAZIN: And I was talking sort of in English for...
CAVUTO: Right. Right. Right.
CAVUTO: GE was saying, ahead of the Olympics, it has no intention of selling NBC. Do you buy that?
KARMAZIN: Well, I mean, I have a lot of respect for Jeff Immelt. And if that is what he said — he has no intention — yes. But that was the intention before the Olympics. I would like to know what the intention is after the Olympics.
CAVUTO: What do you think after the Olympics?
KARMAZIN: I think GE is a conglomerate. I think people understand it's a conglomerate. I think that you have a mixed asset base when you're a conglomerate.
And I do not know if they have to. If somebody is willing to pay them more than it is worth — so, you think about what it's worth to GE. And if somebody comes along it is willing to pay more than it's worth, then sure. I think GE, a smart company, would sell it. If someone is not willing to pay more, then you keep it and you take the benefit of the money that it throws off.
CAVUTO: But, in this environment, you think it is unlikely to see big deals of any sort, right?
KARMAZIN: I will tell you, the debt market is so bad, and the growth rates of some of these traditional media companies, is so dreadful — so, Sirius revenue in the last quarter was up 25 percent. I mean, CBS' revenue was down 9. Clear Channel's is down.
CAVUTO: Very good point.
KARMAZIN: So, you know, if in fact you are in a business that is growing, it is a great time to be in a growth business. And I think the digital world has got that as an opportunity.
CAVUTO: Real quick, who is your presidential pick?
KARMAZIN: Well, unless something happens between now and then, I do appreciate the fact that the three Republicans voted for my merger.
KARMAZIN: So, the Democrats are going to have to do an awful lot to get me back.
CAVUTO: Mel Karmazin, thank you very much.
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