04 January 2007

will sirius acquire xm?

A story at Engadget references the New York Times and suggests that Sirius and XM may be on the path to a merger:

Sirius wooing XM into merging

Is this just the retelling of an old story? Maybe, but I haven't yet speculated on this subject, so here's my chance.

For those of you still reading, I found it interesting that Sirius has a larger market capitalization than XM. My perception until now was that XM was the major one and Sirius was more like a scrappy upstart.

What are the possible results of such a merger? Neither company is currently profitable, so the merged company would not be profitable right away. Without the need to compete for subscribers, though, advertising costs could decline. The combined company would not need to lie about subscribers by including the number of cars sold that included their receiver even when the purchaser did not activate the service. There could be less of a rush to link up with popular electronics manufacturers to exclusively handle one service or the other, allowing for more focus on providing an excellent experience for the users. Now I wonder when we'll see the new Eton Sound product line materialize.

How about the content? Each service has some unique channels that would likely survive a merger, such as the MLB and NFL channels. Howard Stern's channel would stick around, but things could get crowded for lesser personalities and formats. With less competition for content, the combined company might not have to pay their talent as much as they might have in a competitive market. That will only help when hiring new talent or when it comes time for contract renewals, though. Existing contracts still stand unless the individual companies were able to do sneaky things with their lawyers.

On behalf of all satellite radio enthusiasts, I'll hope that the combined company does not try to keep too many existing channels by squeezing even more channels into the limited bandwidth of just one of the two services, further degrading quality.

What about the satellites? Would one of the two services be effectively shut down to save costs, or would both services remain operational in a hybrid setting? This seems like a potential for financial losses: providing incentives to existing customers in the way of discounted or free electronics so that the combined company can achieve its goals faster. Or, shut down one service and realize a loss on the satellite investment for the other service.

XM and Sirius both hold satellite radio licenses issued by the FCC. Assuming the combined company only operates one of the two services going forward, would the merger allow for the sale of one of the two licenses, or would the FCC revoke one license and find a new buyer on its own?

3 comments:

Anonymous said...

I am a very early adopter of both Sirius and XM (quit using xm) and I really dont see this going down. The technology is not compatible (different codecs at a minimum) and Sirius frankly has little to gain with a merger. In a few years they will probably just run XM into the ground, so why buy now when it will be on sale soon enough?

XM and terrestrial stations spread a lot of FUD about sat rad/sirius so it will be interesting to see how this plays out, but I think its all pure speculation, perhaps by XM investors looking to short the XM stock. Remember a month ago when 'credible' reports were saying Howard Stern was considering a return to FM? Well...I listed to Howard as I code at my desk all day and belive me...it was all BS spread by a consultant to FM radio stations. Zero credibility, but the main stream media picked it up as fact and ran with it. I think the merger rumor is the same thing.

weatherall said...

I actually didn't hear the rumor about Howard Stern returning to FM. And you're most likely right that XM will continue with a gradual decline. I didn't think about it in those terms (why buy now) when I wrote the article.

Have XM or Sirius made any moves to try to attract their rivals' customers?

LinuxSense said...

The rumor about Howard went around late November, early Dec. Fox news and CNN both reported on it like it was a fact...oops...guess they should not take press releases concerning sat-rad from consulting groups that work for FM stations as fact ;-)