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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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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
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..

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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