Gary Parsons

Chairman of the Board, Sirius XM Radio Inc. of

New York

These are uncertain times for a lot of companies, but for Sirius XM Radio of
New York
the seas look especially rough. Created July 28 by the controversial merger of Sirius Satellite Radio and XM Satellite Radio, the company faces serious challenges stemming from the sharp economic downturn that has all but brought consumer spending to a halt.

For example, more than 50 percent of Sirius XM’s new business comes from purchasers of new cars, and the auto industry is mired in the worst slump anyone can remember. Meanwhile, the company continues to face stiff competition from iPods and other personal entertainment devices.

Nov. 12 brought more troubling news about Sirius XM’s health and long-term viability. In a filing with the U.S. Securities and Exchange Commission, the company said it lost nearly $5 million during the 2008 third quarter due largely to a write-off forced by a sagging stock price. The company also said it had some $1 billion in debt maturing in 2009 that it was seeking to refinance. An inability to do so, the company warned, could result in a default that could force it to cease operations. That sent Sirius XM shares tumbling further; they were trading at around 18 U.S. cents late Nov. 26.

The filing was not all doom and gloom: Sirius XM revenue and subscriber rolls continue to grow and the company expects to have $1 billion in positive cash flow by 2012.

Gary Parsons leaves the financial dealings to Sirius XM Chief Executive Mel Karmazin, who previously led Sirius. Parsons, the former XM chairman who says he lives and breathes technological advances, now is focusing his efforts on content and behind-the-scenes planning for the future of the new company.

He says that despite the obvious signs of trouble, there are many things Sirius XM has going in its favor, including its widespread adoption by the auto industry, an ability to offer subscribers the best of what Sirius and XM were able to offer as separate companies, and inherent advantages over iPods and free radio.

A telecommunications industry veteran, Parsons earned his wings in the satellite business in the 1990s as chairman and chief executive of American Mobile Satellite Corp. He currently serves as chairman of that company’s successor, Mobile Satellite Ventures, which is trying to deploy a hybrid space-terrestrial communications network serving
North America

Parsons spoke with Space News staff writer Becky Iannotta before Sirius XM reported its 2008 third quarter results. He declined to answer follow-up questions.

What is the economic forecast for satellite radio?

I think the future of satellite radio in
North America
is still quite promising. Clearly one of the primary aspects or desires from the merger was to create a financially stronger company with a better combined content offering and a clearer path toward profitable operations.

I will have to say post-merger it has created a stronger company with a better content lineup and a clearer path toward profitable operations. But obviously no one in management or the board of directors is particularly pleased with the stock performance or the current financial environment in the middle of these troubled credit markets. But operationally, I believe there is strong reason to be optimistic about the future operations and cash flow and EBITDA (earnings before interest, taxes, depreciation and amortization) potential for the company. I’m no longer the point person to Wall Street or the financial markets so I won’t comment on that, but I know Mel is certainly focused diligently on rectifying that situation.

Will Sirius XM consolidate its satellite fleets?

I think from a technological standpoint it’s critical to understand that both constellations and both networks have to continue to operate and be maintained for an extensive period of time because there are upwards of 10 million subscribers or active radios on each one of those two networks.

What people have seen is an immediate effort to take the very best, most attractive programming on each of the services and ensure that that programming is available to the subscribers who previously did not have access to it. You do that by placing it over both sets of constellations and infrastructure and that provides the most immediate consumer benefit.

The XM constellation has been most recently refreshed with two new birds and a ground spare, which is nearing completion. The Sirius constellation has some near-term launches upcoming. But clearly those are close enough in that you could not do very much to impact the overall architecture and design of that. So refreshing the combined constellation is sufficiently far off in time that it’s not really worth speculating on at this time.

Will you consolidate your ground operations?

We will in fact try to consolidate the operation of our two ground infrastructures. There’s no need to have two separate backup facilities and two separate primary uplink facilities when you can share backup capabilities to the extent that we can share repeater sights for jointly hosting repeaters. There are a number of significant economies and savings that can come from integrating the two networks, but for an extensive period of time they will remain two separate constellations.

Where does the majority of your subscriber base come from?

Half of all new cars will have factory installed satellite radios in the coming year. Each purchaser of a new vehicle gets a promotional period of free service. At the end of that promotional service they have an opportunity to continue with that service but pay us for it or return to whatever their other listening alternatives were. The real competitive decision at the end of the promotional period is have we provided the consumer a compelling enough listening experience to warrant them paying for it.

That is more than 50 percent of our new subscribers on a monthly basis, so more than half of the people who experience our product want to purchase it. That’s obviously a continuing positive.

How does the auto industry slump affect your business?

Certainly, the health of the auto industry has some impact on our growth trajectory, but it’s not a direct impact. While the number of new cars sold has gone down over the last two years, and is projected to in the following year, our number of new consumers through that channel has actually gone up each year because the auto industry is including a larger and larger percentage of new vehicles factory-installed with satellite radio. So where it used to be 20 percent, then 30 percent, then 40 percent and now 50 percent during the upcoming year, even if their overall sales of new vehicles is down, our percentage, our penetration rate, our total number of gross additions has tended to still be positive.

We’re in virtually all new cars. While various manufacturers are still in the process of rolling out into new models, virtually all auto manufacturers are on board or positively supportive of satellite radios as a factory-installed feature of their vehicles.

How will you compete with iPods, MP3 players and free radio?

We feel from a content standpoint that the single most compelling thing that we can do is put forward premium, exclusive or unique content that simply is not available anywhere else, whether that is Howard Stern, Oprah Winfrey or Bob Dylan, or any of the specialty shows. With music, we put forward a vast array of deeper play lists, more diverse music programming and commercial-free, versus free over-the-air radio where play lists are fairly limited, the number of formats is fairly limited and the commercial congestion is objectionable. Then, compared to CDs and MP3 players, there’s a musical discovery aspect and there’s an ease of use aspect. As new artists appear and new content appears on satellite radio, you are discovering it without effort on your part to have to find it, hear about it from a friend, download it and pay for the download. Also, the advantage over iPods and MP3 players is the whole immediacy aspect of the talk news and information sports programming.

Will the number and types of stations contract?

There likely will be an expansion. That’s the benefit of adding greater numbers of choices and a greater content lineup. By the same token it doesn’t make economic or programming sense to have two separate, nearly identical blues or classic rock stations. You want to combine the best program directors, music directors and on-air talent into a single channel that provides the best possible listening experience for the consumer. So you will see some consolidation of channels but on each service you will not see a decrease in the number of channels, and you will also hopefully see an improved quality and diversity of lineup by being able to consolidate the best programming content.

Will you have to lower prices to expand the subscriber base?

It’s obviously too early to tell the receptivity we will get to the discounted packages, but the bigger take-away point is that only a few months after the merger we have our first true set of offerings that are discounted packages. We’ll see how well those go toward adding new subscribers. What we are clearly seeing is some excitement and energy among our existing customers to the best of offerings. For a long time there has been a desire for one set of subscribers or the other set of subscribers to have access to some of the premium content on the other system.