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FCC says approval is unlikely, but the two satellite radio giants have struck an agreement

Today Sirius and XM announced that both companies have entered an agreement in which the two will merge to form the largest satellite radio service provider in the country. Under the terms of the merger, the single entity formed by Sirius and XM would amount to a total organization value of $13 billion USD. XM shareholders will also receive a fixed exchange ratio of 4.6 Sirius shares for each XM share they own. When the merger is complete, Sirius and XM shareholders will each own 50 percent of the combined company.

According to representatives from both companies, the new combined company will have 12 directors including the current CEOs from both Sirius and XM. Both companies will also continue to operate independently until the merger is complete. As of this writing, a name has not been determined for the new company as is where the new headquarters will be.

DailyTech last reported on rumors surrounding the merger of Sirius and XM. The FCC voiced its opinion early on in the talks between Sirius and XM, indicating that it did not approve of the two companies merging because it would create a satellite radio monopoly. FCC chairman Kevin Martin indicated that an approval of the merger would be unlikely. According to both Sirius and XM however:
The combined company will benefit from a highly experienced management team from both companies with extensive industry knowledge in radio, media, consumer electronics, OEM engineering and technology. Further management appointments will be announced prior to closing. The companies will continue to operate independently until the transaction is completed and will work together to determine the combined company's corporate name and headquarters location prior to closing.
Previous reports on both Sirius and XM indicated that both companies were suffering from losses, especially in 2005 going into 2006. Revenues were dropping and subscribers were leaving from both companies. A merger of the two companies would make sense from a corporate stand point but both companies have to pass grueling anti-trust regulations before the two combine.

Gary Parsons, Chairman of XM Satellite Radio and Hugh Panero, does not seem deterred by the FCC's statements.  "We are excited for the many opportunities that an XM and SIRIUS combination will provide consumers. The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced since the Federal Communications Commission (FCC) first granted our satellite radio licenses a decade ago."


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Good news...
By masher2 (blog) on 2/19/2007 6:41:12 PM , Rating: 3
This is good news for Sirius, for XM, and for consumers. For pretty much everyone, in fact, except for Howard Stern, the MLB, and the NFL, who'll no longer have the benefit of a bidding war to drive up their contract prices.




RE: Good news...
By stromgald on 2/19/2007 7:20:06 PM , Rating: 2
No, no, no. This would be very bad. Without competition means that the price will go up for consumers. A monopoly would also make it more difficult of other companies to get in the market (with two it's already almost impossible for a new entrant).

Sure, the NFL and MLB will get bigger contracts in a bidding war, but that's also part of the competition. The price of the contracts for MLB, NFL, etc. is dependant on how much value having that content is to XM or Sirius and ultimately, their customers. With a monopoly the new company will dictate the prices and although MLB and NFL will get less money, that money basically goes to the XM-Sirius' bottom line.

The merger will benefit XM/Sirius greatly, but hurt consumers (in price, not content) and all suppliers to XM and Sirius (MLB, Howard Stern, etc.).


RE: Good news...
By Reflex on 2/19/2007 7:59:51 PM , Rating: 2
Lets keep in mind here that Sattalite radio is a tiny fraction of the overall radio market. Thier primary competition is not each other, but terrestrial radio, which is stomping the hell out of both of them. A combined company may be the only way to get costs low enough and get the subscriber base large enough to stand a chance. As it stands today, we simply won't have sattalite radio in a few years.

Not that I'd care, the poor quality is enough to keep me away from sat radio.


RE: Good news...
By Moishe on 2/20/2007 7:58:46 AM , Rating: 2
I've never heard Sat radio, I thought it was supposed to be like the difference between cable and over-the-air broadcast tv? (in other words, very clean compared to regular radio)

Those satellites have got to cost a fortune. I don't know how they've managed to stay in business this long. Maybe it's just me, but I don't see much real benefit in satellite radio. I know there is more of what you want... but I rarely listen to the radio anyways. With the price and ease-of-use of mp3 players, I can drive across the country and rarely listen to the same song twice. If I get bored I can tune into a local station and see what's on.


RE: Good news...
By h0kiez on 2/20/2007 8:34:28 AM , Rating: 2
I've never heard Sat radio

Maybe it's just me, but I don't see much real benefit in satellite radio.

Well...at least you advertised yourself as clueless. I have Sirius and wouldn't be without it...much like the majority of people who have tried it.

I also use an MP3 player in my car sometimes, but it's sort of hard to discover new music from your mp3 player. And as for tuning into a local radio station while driving across the country, are you kidding? In a handful of major metro areas, you might have a chance of finding a station that plays some decent music (that's low quality and full of commericals)...in the other 90% of the country you're gonna hear country tunes and static.


RE: Good news...
By SmokeRngs on 2/20/2007 1:19:21 PM , Rating: 1
quote:
Well...at least you advertised yourself as clueless. I have Sirius and wouldn't be without it...much like the majority of people who have tried it.


If you're going to call that guy clueless, I'll have to call you deaf. A friend of mine has Sirius in his car. We were driving around one day when he changed from the radio to Sirius due to the Christmas music that came on. After about a minute I wanted to plug up my ears with something. The sound was extremely flat and sounded like a low quality, joint stereo mp3. I couldn't stand it and it did cause me discomfort. As it was his car, I didn't say anything but I was very relieved when he changed it back to the FM radio. Without a MAJOR quality improvement there is no way I'll go near satellite radio.

quote:
I also use an MP3 player in my car sometimes, but it's sort of hard to discover new music from your mp3 player. And as for tuning into a local radio station while driving across the country, are you kidding? In a handful of major metro areas, you might have a chance of finding a station that plays some decent music (that's low quality and full of commericals)...in the other 90% of the country you're gonna hear country tunes and static.


Yes, it is hard to discover new music when listening to an mp3 player. However, many would argue that there isn't much in the way of good new music out there anyway. Not to mention I can find new music on the FM radio. Also, your personal taste in music has little to do with the variety of music in areas other than your own. It's not much of a point to argue in your favor. I already addressed the quality issue.

I normally don't listen to commercials all that much while in my car. However, I do find some of them entertaining and informative. It's also interesting to listen to the commercials in other areas. The variety in local commercials from area to area can be a source of amusement. The difference in local personalities for DJs is also nice. Also, radio allows me to hear location specific news/events/weather. I can't get this with satellite radio.

Satellite radio does not fit my needs or the needs of many others. It's entails extra equipment costs (not a big deal to me since I replace the stereo system in every car I own anyway) and monthly fees. Those are turnoffs to a lot of people.


RE: Good news...
By sprockkets on 2/20/2007 11:14:50 PM , Rating: 2
It used to sound good, but XM added more channels, but they still had the same amount of bandwidth, so they reduced the bitrate of the music. They use AAC, which sucks even at around 128kbps. In fact, in some tests, the latest LAME encodes sound better. So now, even normal radio sounds better. Even peoples voices on XM sound metallic.

AAC is also what HD radio uses. Basically, they traded high frequency response for pre echo artifacts.


RE: Good news...
By masher2 (blog) on 2/20/2007 8:48:04 AM , Rating: 3
> "Those satellites have got to cost a fortune. I don't know how they've managed to stay in business this long..."

Massive infusions of cash, primarily. And they're spending more on buying content at the moment than they are on their satellite constellations.


RE: Good news...
By masher2 (blog) on 2/19/2007 8:31:48 PM , Rating: 3
> "Without competition means that the price will go up for consumers..."

At the consumer level, the competition here is not betweeen Sirius and XM, but between satellite radio, vs. terrestrial vs. advanced competitors on the horizon.

Right now both Sirius and XM are hemmorhaging cash, which doesn't bode well for their customers. They're also fighting tooth and nail for exclusive programming deals, which means subscribers of one service are locked out of content. Want to listen to NFL *and* the MLB? Sorry...unless you subscribe to both, it ain't happening.

A merged entity will be able to buy more content for less and, once their operating costs are reduced through retirement of one of the two satellite constellations, lower price to inflate their market share. That's something that neither Sirius nor XM will ever be able to do on their own.


RE: Good news...
By AlexWade on 2/19/2007 8:38:16 PM , Rating: 2
Sat radio HAS competition. Free FM, iPod's, and CD's. If the price gets too high, or the service too lousy, then they would lose customers and be out of business.

I personally have XM. There are some channels on XM I love, some channel on Sirius I love. Hopefully, I can get both now. I want the NFL of Sirius and college basketball of XM. Howard Stern can pound sand for all I care.

I think the ones who win will be the consumers. If they jack the price up, I'll say bye-bye, I will play my iPod.


RE: Good news...
By GonzoDaGr8 on 2/19/2007 10:30:00 PM , Rating: 2
quote:
Howard Stern can pound sand for all I care.


Thank god... Somebody agrees with me on this.


RE: Good news...
By KaiserCSS on 2/19/2007 9:17:20 PM , Rating: 1
quote:
This is good news for Sirius, for XM, and for consumers. For pretty much everyone...


Read: Monopoly.


RE: Good news...
By Reflex on 2/19/2007 9:20:19 PM , Rating: 2
Except they won't have one. The primary competitor, as pointed out above, is terrestrial radio, not the other money losing sattallite provider.


RE: Good news...
By TomZ on 2/19/2007 10:00:28 PM , Rating: 2
I disagree - terrestrial radio is only semi-competitive with satellite radio. It's like the difference between conventional broadcast TV and satellite TV. Satellite gives you national coverage with a large selection of channels. Local AM and FM just give you a handful of channels with only a small local broadcast range.


RE: Good news...
By Reflex on 2/19/2007 11:12:56 PM , Rating: 2
You can disagree, but clearly that is their prime competition. The sattalite radio industry seems to believe that its like cable vs. terrestrial television, but they are not adding enough value to be worth the proposition at the price they are charging, not when most major markets supply about anything anyone could want for radio.

If they were a serious competitor they would not have a nearly non-existant customer base, and would be able to turn a profit. As it stands now, they and Tivo and a lot of other services companies likely will not exist in a few years if they continue to stick to their current business models.


RE: Good news...
By ultimatebob on 2/20/2007 8:48:25 PM , Rating: 2
Yes, I agree. Comparing satellite radio to terrestrial radio is like comparing terrestrial TV broadcasts to cable and satellite TV. Sure, they have some content overlap, but there is a MUCH wider range of channels and content on the pay services.


RE: Good news...
By Schadenfroh on 2/19/2007 11:07:04 PM , Rating: 1
It was going to end up as one either way, one was going to go out of business, they were both losing too much money for it not to be the case.


RE: Good news...
By themadmilkman on 2/20/2007 12:39:15 AM , Rating: 2
Sort of... Yes, they have a monopoly on satellite radio, but they certainly don't have a monopoly on RADIO. And having a monopoly is not necessarily bad, and is certainly not illegal. Abusing that monopoly to stifen competition and hurt consumers is.


RE: Good news...
By TomZ on 2/20/2007 10:31:30 AM , Rating: 2
Well, one thing we can all be sure of is that satellite radio service costs will probably increase after such a merger. While I'm sure they can consolidate redundant resources between the two organizations to cut costs, a more effective way to help the bottom line is to increase the average revenue per subscriber. And since there is no longer any competition for satellite radio, they have more ability to set prices in the market since there is not any direct alternative for customers.


RE: Good news...
By masher2 (blog) on 2/20/2007 11:49:16 AM , Rating: 3
Why would subscription rates increase? Sirius and XM aren't competing with each other on price...they're both competing against free terrestrial radio. A rate increase shrinks their customer base dramatically, a fact both companies realize, which is why they're already pricing their service below cost.

I'm confident that, should this merger be approved, it will mean no change to rates in the short term, and a small decrease in the mid-to-long term. They can't afford to raise rates, else they'd price themselves out the market entirely.


RE: Good news...
By masher2 (blog) on 2/20/2007 11:51:10 AM , Rating: 2
I just want to add that, should the merger be denied, the end result will stil be only one company in satellite radio. Both Sirius and XM are losing cash fast; one of them will be out of business soon.


RE: Good news...
By TomZ on 2/20/2007 3:30:50 PM , Rating: 2
I just figure that, as it is today, neither company could really have rates any higher than the other, since to most consumers who have decided to get satellite radio, the monthly cost would probably be an important decider between the two. Now, the combined company will be free to increase the price up to the point where fewer people will choose to buy, which I assume is higher than the price is today.

I would see this as the same as cable TV rates. I can't believe that the operating cost justifies rates in range of $50-100/month that most people pay, and I really believe that if there was some competition in these markets, the costs would come down.


RE: Good news...
By masher2 (blog) on 2/20/2007 4:37:00 PM , Rating: 3
The difference here is that XM and Sirius combined still only have roughly 12M subscribers in North America-- a small fraction of the total populace. Whereas over 2/3 of all households subscribe to cable. So clearly most consumers are choosing terrestrial radio over satellite, and thus increasing rates results in a "Laffer Curve" style revenue decline.


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