Tuesday, July 29, 2008

Sirius / XM Satellite Radio Merger-Smoke & Mirrors?

I've been an avid fan and faithful subscriber to Satellite Radio (SR) since first it launched back in December 2001 and I am considered by XM to be a "Charter" member, whatever that means. I loved having access to over 100 channels of non stop virtually commercial-free radio for under $10 a month when XM first launched nationwide (It's now $12.95 per month with over 200 channels today with many previously commercial free stations now serving up ads). Having radio stations that played non-stop 70's and 80's music exclusively (amongst many other formatted channels) was just what the doctor ordered. As an individual who is passionate about listening to music (way too loud some might say) and was a former Detroit on-air Disc Jockey as wells as one who played records (yes records!) at weddings as a mobile DJ for my own Mobile DJ service (Pop Muzik Productions), I can never listen to enough music! I personally maintain a current iTunes library of over 8,000 different songs-probably overkill from some peoples perspective, but I would say I LOVE 99% of the songs in my repertoire (This is not to mention having a collection of over 500 different CD's). Despite that extensive personal song library, having satellite radio come along and finally offering an alternative to the non-stop barrage of endless commercials and constant chatter on FM radio was a long time in coming. I can testify that FM radio has all but disappeared from my life since the SR services launched as I also became a Sirius Satellite Radio subscriber when it too launched almost year after XM did. My affinity for both services has its reservations though. I can't decide which service does a better job, but what I do I know is that I've become so used to listening to both services at home and on the road that I could never go back to listening to traditional radio. Satellite radio provides a wide variety of music, news, sports and local traffic & weather at a touch of a button.

About 18 months ago, Sirius Satellite Radio announced it was acquiring/merging with XM Satellite Radio to help stem the flow of losses that both companies were experiencing. XM and Sirius are the only two satellite radio stations licensed to broadcast in the US. Sirius SR cited competition from terrestrial radio, iPods/MP3 players and Internet radio amongst their reasons for the need to merge. The merger promised to provide subscribers with overall better service with more choices from a two companies working in tandem. Of course, what this does is eliminate any competition whatsoever in the satellite radio arena, i.e. monopoly. A couple years ago both DirecTV and Dish Network attempted the same merger in the video satellite business and were almost immediately thwarted by the government for anti-trust reasons. Why was this merger any different? Looking at this merger closely, it really wasn't. Satellite video has cable companies and terrestrial TV stations to compete with. Satellite radio has terrestrial and Internet radio stations to compete with. Whats even more bizarre is that the fact that both Sirius and XM had agreed to a pre-licensing approval condition that they could never merge or combine operations. So how could the government even consider this merger given this "No Merger" clause when both companies knew BEFORE going into this business, especially knowing what a rough road ahead they faced in becoming major players in the radio broadcast business. Both companies literally spent hundreds of millions of dollars procuring talent (Howard Stern got $500 million over five years at Sirius alone) and spent even millions more securing exclusive Sports broadcasting rights with the NCAA, NFL, NBA, NHL and Major League Baseball. So whose fault is it that XM and Sirius are in trouble? The answer is obvious. Will a merger fix this? Probably not, but time will tell. With a combined 18 million in paid subscribers, expenses will drop as they combine operations, however at the same time there are many subscribers who subscribe to both services, and they will ultimately decide to drop one or the other service thus decreasing revenues for the united entity. That's not even considering how many subscribers will flee altogether when hardware compatibility issues rear their ugly head in the coming years.

XM and Sirius had to do some serious last minute negotiating with the FCC to gain final approval for the merger. Sirius SR had to agree to some strict terms dictated by the the FCC (Federal Communications Commission), the Justice department and the FTC (Federal Trade Commission) which include having to hold down prices at current levels for at least three years, to provide smaller/cheaper ala-carte packages, as well as offer spectrum/airtime for public services and broadcasts. What is still unclear is how XM subscribers will be able to get Sirius broadcasts and vice-versa since both XM and Sirius use very different broadcast technologies in their transmissions as well as in their receivers, which are very much incompatible. Both companies promise at first there wont be a need for any new equipment, however for the merger to work and the consolidation be implemented, customer equipment upgrades will ultimately be necessary--unless Sirius decides to simply shut down one of their systems-something that isn't likely given the hundreds of millions of dollars spent in venture capital money that was needed to launch the satellites into orbit in the first place. Many questions still remain a mystery about the post merger consolodation and its respective fallout, however things should become clearer in the months ahead.

I personally have never thought that this merger was a good idea. However if the lack of a merger indeed would have led to the demise of both companies, then I guess one combined SR company is better than none. I for one simply cannot fathom going back to listening to FM radio in this day and age. Although HD radio (High Definition) shows some promise, no one sees it as a competitor to satellite radio, nor is it taking off as the terrestrial radio industry had hoped it would. The NAB (National Association of Broadcasters) and one of the US's largest radio station owners Clear-Channel Radio both fought tooth and nail to keep this merger from happening, but in the end, the FTC and FCC under the umbrella of the merger friendly Bush Administration finally allowed the marriage to be consummated. Lets just hope that the child that this union will ultimately bear doesn't end up being stillborn.

1 comment:

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