CNBC Press Releases

DAVID FABER: THERE ARE SOME INVESTORS WHO, AGAIN, HAVE RAISED THEIR EXPECTATIONS IN TERMS OF THE PERCENTAGE CHANCE YOU WILL GET THROUGH THE REGULATORY REVIEW. BUT ARE CONCERNED PERHAPS YOU HAVE GIVEN UP TOO MUCH, THAT THE MOVE TO A LA CARTE PRICING WHICH MAY SATISFY CHAIRMAN MARTIN ULTIMATELY WILL HURT YOUR BUSINESS, HURT YOUR AVERAGE REVENUE PER USER AND SO HEY, THEY GOT THE DEAL DONE. TOO BAD THEY GAVE UP EVERYTHING.

MEL KARMAZIN: YEAH, I THINK THE ANALYSTS DON'T GET IT AND IT'S NOT SURPRISING SOMETIMES ANALYSTS DON'T GET IT. A LA CARTE IS A GREAT BUSINESS MODEL FOR US. WE HAVE LEFT -- LESS THAN 5% OF THE PEOPLE IN THE UNITED STATES ARE SUBSCRIBING TO SALT RADIO. THE MAIN REASON THAT THEY ARE NOT SUBSCRIBING IS A HIGHER PRICE, THEY HAVE TO PAY $12.95, BECAUSE OF THE MERGER, IF THERE ARE SO MANY EFFICIENCIES THERE, WE'LL BE ABLE TO LOWER THE PRICE. WE SHOULD BE ABLE TO GET MORE SUBSCRIBERS, OFFERING A LA CARTE, GIVING CONSUMERS A GREATER CHOICE, GIVING THEM A CHOICE NOT JUST ON THE PROGRAMMING BUT THE PRICE THEY PAY, WITH A LA CARTE WE CAN LOWER OUR PRICE 46%, YES, THE RPOU WILL BE ADVERSELY AFFECTED BUT WE'RE IN THE BUSINESS GOFTING MORE AND MORE SUBSCRIBERS AND THE BUSINESS YOU FOLLOW A LOT, CABLE AND SATELLITE ARE FULLY DISTRIBUTED. I MEAN, THEY ARE NOT ABOUT GETTING MORE SUBCRIBERS DESCRIBE -- SUBSCRIBERS, THEY ARE ABOUT GETTING MORE RPOU AND OURS IS THE A LA CARTE ALLOWS US --

DAVID FABER: SO ITS THE OLD ADAGE YOUR GOING TO MAKE IT UP IN VOLUME.

MEL KARMAZIN: TALKING ABOUT PROFITABLE VOLUME BECAUSE OF THE EFFICIENCIES CREATED BY THE MERGER. AND AS WE GET INTO THESE ADDITIONAL SUBSCRIBER NUMBERS, OUR GROSS MARGIN IS VERY ATTRACTIVE AND A GOOD CHUNK OF THAT ADDITIONAL REVENUE FALLS TO THE BOTTOM LINE.

DAVID FABER: LET'S TALK ABOUT PROFITABILITY AND GENERATION OF CASH FLOW BECAUSE THERE IS ALSO A CONCERN HERE THAT ULTIMATELY THESE COMPANIES, WHETHER TOGETHER OR APART WILL NEVER GENERATE SUFFICIENT AMOUNTS OF CASH FLOW REFLECTIVE AT LEAST OF THEIR CURRENT VALUATIONS, THE REASON IS AND THESE ARE DETRACTORS SAY PUT THEM IN CARS AND PEOPLE GET THEM WHEN THEY BUY THEIR CAR AND EVERYBODY SHUTS IT OFF AT THE END OF THE CONTRACT WHEN YOU ARE NO LONGER SUBSIDIZING IT AND THE CHURN IS WAY TOO HIGH ULTIMATELY TO MAKE IT WORTHWHILE IN TERMS OF CASH FLOW BUSINESS.

MEL KARMAZIN: DAVID, I DON'T AGREE WITH THAT. I THINK THAT OUR SELF-PAY CHURN IS 1.5% MONTH WHICH IS IF YOU LOOK AT SUBSCRIPTION SERVICE, THAT IS A VERY LOW NUMBER. THE CONVERSION RATE IS REPORTED ABOUT 50%. YOU KNOW, THAT IS A HIGH NUMBER OF PEOPLE WHO ARE BUYING A CAR, 16 MILLION PEOPLE, BUY A CAR EVERY YEAR, IF YOU TAKE THE PENETRATION AND THEN APPLY ABOUT A 50% THAT MEANS MILLIONS OF ADDITIONAL SUBSCRIBERS ARE BEING ADDED EACH YEAR BECAUSE THEY ARE BUYING A NEW CAR

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