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Both companies have a tough crowd to please before their merger can go through

Since the rumors of the XM and Sirius satellite radio merger were confirmed in 2006, the two entertainment providers have been met by resistance from the National Association of Broadcasters (NAB). The two providers state that the merger, along with their proposed a la carte plan, would drive costs down for consumers, as well as offer more options for content.

However, in the face of the NAB's protests, XM and Sirius aren't the only entities in favor of the merger. The Parents Television Council, a group of lobbyists, feel that the merger would not only benefit consumers with more affordable subscription options, but contends that the proposed a la carte programming can be used to block adult programming, a very favorable option for parents.

The merger still has a few hurdles on the track. The Department of Justice has yet to rule that the merger does not break anti-monopoly laws, and this appears to be the backbone of the NAB's case against the providers. The NAB argues that a merger would, contrary to XM and Sirius's plans, eventually drive the cost of programming upward as well as provide fewer program options and less local programming to subscribers.

The second major obstacle lies in FCC approval of the merger. The companies recently convinced former FCC chairman Mark Fowler of their need and he stated in a New York Times article that if the companies “need to combine to be more effective competitors in an audio entertainment marketplace teeming with technological change and innovation, the government should not stand in the way.” What remains for the satcasters is convincing the current FCC chairman, Kevin Martin.

In recent interviews, both companies' leaders came across as optimistic of the merger. Mel Karmazin, CEO of Sirius Satellite Radio felt confident that the FCC and DOJ approvals would come, as well as shareholder approval. Gary Parsons, chairman of XM Satellite Radio conveyed that though he feels the merger will be approved, XM does not need the merger – it will be beneficial to the provider, but not necessary in the face of their climbing subscriber growth.

The satcasters' line of reasoning lies in that the merger will allow customers more choice at a better cost, while allowing the companies to be more profitable and move forward with technology and more strongly into other existing markets such as streaming mobile and internet radio. They will need this profit margin and technology to compete with other popular forms of audio entertainment, such as iPods and other portable media devices, as well as terrestrial radio.

The coming months could prove interesting for XM and Sirius as the providers lobby for DOJ and FCC approval with support from various organizations, while the heavyweight NAB collects the opposing view of others to further its case.


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Monopoly
By therealnickdanger on 9/19/2007 2:50:41 PM , Rating: 2
If there's one thing that the game "Monopoly" taught me, it's that owning everything on the board doesn't necessarily make you greedy. Sometimes it allows you to lower costs drastically low, to the point where competition would not be beneficial for the consumer and you can still be profitable.

Half-price Boardwalk Thursdays!

I welcome the merger of these two services, even though I'm currently content with the 7 channels I listen to and the low price I pay.




RE: Monopoly
By MatthewAC on 9/19/2007 3:40:07 PM , Rating: 1
They would have complete control, but they know enough that if they jacked the prices they'd be sued in a milisecond for breech of monopoly and anti-trust laws.


RE: Monopoly
By Ringold on 9/19/2007 4:15:03 PM , Rating: 2
As long as any other firm could buy spectrum and launch a satellite I still wouldn't see it as a monopoly. The only barrier to entry is the fact the business doesn't generate much profit.

I'd suspect eventually they would see a new competitor enter the market.. but two is too many right now.


RE: Monopoly
By AlexWade on 9/19/2007 10:00:22 PM , Rating: 2
quote:
They would have complete control, but they know enough that if they jacked the prices they'd be sued in a milisecond for breech of monopoly and anti-trust laws.


Actually, if they jacked up the prices, customers would leave in droves and returned to free commercial radio, CD's, and iPods. I have XM, and if they raise the fee any more, I'm leaving. Plus, now that they are together, they won't need to compete getting new exclusive rights deals, like with NFL, MLB, and so on.

I want this merger to go through. There are some things on Sirius I want and some things on XM I want. I have had XM almost since it launched. And I want the best of both worlds.


RE: Monopoly
By acer905 on 9/20/2007 12:53:12 PM , Rating: 2
This is exactly true. Its not as if this is the only option for people. If they charge more than people are willing to pay, those people just won't pay and they will have to either lower prices or totally fail. the market tends to balance itself so that everything costs the maximum amount that customers will pay


RE: Monopoly
By TomZ on 9/20/2007 5:00:19 PM , Rating: 2
But with the current duopoly, consumers who have decided to get satellite radio can at least compare between one of two large providers. Post-merger, consumer choices will be between pay whatever amount they are asking, or not at all. My intuition is that this will lead to higher prices.


RE: Monopoly
By Schadenfroh on 9/19/2007 10:29:07 PM , Rating: 2
Either one of them ever turn a profit?


RE: Monopoly
By Ringold on 9/19/2007 11:33:49 PM , Rating: 3
quote:
Adjusted operating loss decreased from $94.7 million in the six months ended June 30, 2006 to $74.4 million in the six months ended June 30, 2007.
...

Net loss $ (175,747 )


XM Satellite's most recent quarter. Also rapidly increasing customer acquisition costs..

quote:
Net loss $ (134,147 )


I just hunted down Sirius' net number; I assume the same trends exist for it.

Their adjusted loss numbers are similar; $79,299 loss, in thousands, for Sirius, compared to the aforementioned XMSR ones.

So to answer your question: Not even close.


RE: Monopoly
By TomZ on 9/20/2007 4:57:33 PM , Rating: 2
I would be surprised if these two companies could merge and achieve profitability without raising subscription fees. Despite the claims to the contrary, I'm sure both companies know full well that with only a single player in that space, they'll have more ability to raise prices.


RE: Monopoly
By ChristopherO on 9/20/2007 8:02:48 PM , Rating: 2
Perhaps, but DBS satellite was the same way. DirecTV and Dish didn't start making a profit until they had subscriber numbers in the high millions.

Both companies are pretty solid these days. The only question is if a single foot-print in the market will contain enough users to cross the threshold.

On the bright side their content costs should be much cheaper. Sports like the NFL, NASCAR, MLB, won't be able to get them to out-bid each other.

In general, I think they should be okay, but they are probably 4+ years off from being cash-flow positive it they go-it-alone. Given the fact we're going into a tighter credit market, this might be disastrous to one or both of them. I also believe they will have little reason to raise rates, other than to test out the logical equilibrium point. I personally have no problem with monopolies. More power to them. If the market turns out to be a cash cow, then someone else will come along.


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