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Satellite Radio Gets the Urge to Merge

The news of satellite-radio competitors XM and Sirius proposing to merge is all over the papers today; the parties involved all say that this combination can only be good news for consumers.

I'm a little skeptical about that. History has taught that anytime two large corporations assure everybody that they can only serve us better by combining, you'd better hold on to your wallet. Last I checked, paring the number of competitors in the banking, cable-TV, event-tickets and oil businesses hasn't cut prices for customers; why should it be any different with satellite radio? And what about diversity in programming? Although the XM and Sirius channel lineups might look like mirror images, in practice they sound and feel substantially different, as my colleague Frank Ahrens noted in an essay in 2005.

I also have questions about the basic viability of the proposed XM-Sirius combination. Not only does each company use its own satellites, they're not even in the same orbits. So in a merger, do one company's birds wind up as space junk? In addition, the chair of the Federal Communications Commission has voiced his skepticism of the proposed merger--recall that government opposition helped scuttle a planned combination of DirecTV and Dish Network.

For these reasons and others, some observers of the satellite-radio business had earlier predicted that an XM -Sirius hookup would never happen.

On the other hand, it's fair to say that XM and Sirius have never offered that much competition against each other. By focusing much of their marketing efforts on bundling deals with car companies--for XM, such companies as GM, Honda and Toyota, while Sirius claims Audi, BMW, DaimlerChrysler, Ford and Kia--they have often taken the choice out of shoppers' hands.

(Disclaimer: I'm not a subscriber to either firm and am not likely to become one--I don't drive to work, and my Metro soundtrack is either provided by my iPod, the yammering of my fellow commuters or the voices inside my head.)

I'll have more on this--and the broader topic of customer choice in telecom--in the paper this Thursday. In the meantime, what do you think of an XM-Sirius (Xirius? SirXiM?) combination?

By Rob Pegoraro  |  February 20, 2007; 11:00 AM ET
Categories:  Telecom  
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Comments

Actually, I'd like to hear more about these voices inside your head...

Posted by: Ged | February 20, 2007 2:53 PM | Report abuse

I think that potentially at least, it's a good idea. I've always felt that 2 competing satellite-radio systems is an unsustainable concept. Should of never happened in the first place.

Satellite-radio competition is not from within, but from terrestrial radio, IPODS, video games, HDTV and PCs, other leisure time tech pursuits.

Posted by: Anonymous | February 20, 2007 2:58 PM | Report abuse

I would understand the usefulness of being able to pick up a favorite station anywhere in the country if I travled across country with any regularity, and I can understand the desire to listen to a specific genre of music or information without commercial interuption, but, since I have only a 60 mile daily roundtrip commute, I can tolerate pressing the radio dials, especially in a market with as many stations as D.C. has, I have no need for nor desire for satellite radio. But, as Rob said, is there any expectation that prices won't go up for those that do have satellite radio?

I understand the desireability, or need, to consolidate resources and maximize subscribers from a financial perspective; investors don't want to keep pouring money into a failing enterprise, and stockmarket speculators don't wish to lose their investment (after all, all stock holders want and expect profits only, a sure thing, not a possible loss of investment).

But, maybe there just isn't that big a market for satellite radio, not that big an audience for 500 radio channels, etc. While I agree that commercial radio has too many niche formats, too many formats that are tightly focused (i.e., the same 30-40 records repeated over and over, the same performer repeated over; is there really that big a market for golfers (note: the two sports radio stations in DC have extensive golf coverage at the same time on Saturday mornings), is there really that big a market for auto racing or bass fishermen, etc.). And even if there is such markets, maybe the price has to be "subscriber beware". It appears that people with fancy ideas, satellite radio, invested in the idea, like people invested in 8 track and quad stereo, and Beta video, in the Yugo and Edsel, that might not work out. But I hate to see the FCC give a monopoly to groups that combined just because their marketing plans were flawed.

Posted by: Jeff | February 20, 2007 6:37 PM | Report abuse

What about proprietary equipment?

How long will both sets of satellites be maintained, and listeners' existing equipment for both services be supported? Free or subsidized replacements for portables and tabletop receivers may work, but there are a lot of in-dash models that can't be easily replaced.

Many satellite listeners started because it was just there already when they got a new car or stereo. Many of these subscribers will probably give it up before they take their cars in an for extra service visit.

Posted by: Ann Anemas | February 20, 2007 7:23 PM | Report abuse

Does anybody care about this?

as far as i am concerned, this is a premium service offered to the very rich few capable of paying for cable-like offering of radio. All you end up having is more stations to flip through.

Radio nowadays are nothing but advertising & talk. very little music. Ipod is the way to go for listening music. at least i don't have to sit through a bad song to get to the next one. All under my control.

what are the reasons for paying 11.99 a month to listen to the radio?

Rich people really don't know what to do with their money. and the rest of the subscribers are all poseurs trying to fit in.

combining the 2 companies is a good idea. they are more likely to survive now than before. but still...

if a tree (XM) falls in the forest and nobody is there to hear it, does it make a sound?

Posted by: G | February 21, 2007 12:46 AM | Report abuse

I'm a long time (3+ years) Sirius subscriber, and I think the merger makes sense. The amount of debt that both companies have incurred building market share probably isn't sustainable long term, and the market's probably not at a point where 2 companies can be profitable. Satellite radio really competes against all the other music offerings (traditional radio, CDs, mp3s, etc), not just against each other.
IMO, it blows regular radio out of the water, and whenever I find myself having to live without it (like in a rental car, etc), I definitely miss it. I think people who blow it off as being a waste of money should give it a shot (I'm sure people thought the same thing initially about cable tv).

Posted by: Dave | February 21, 2007 7:24 AM | Report abuse

Why not let them go into Chapter 11 so that they can cut their expenses. Let those who "invest" take the hit rather than create a monopoly. When airlines get into trouble the employees and retirees take the hit. When companies without a lot of employees get into trouble they merge so they can raise their prices. Let them reorganize rather than protect their investors.

Posted by: chick | February 21, 2007 7:39 AM | Report abuse

Why not let them go into Chapter 11 so that they can cut their expenses. Let those who "invest" take the hit rather than create a monopoly. When airlines get into trouble the employees and retirees take the hit. When companies without a lot of employees get into trouble they merge so they can raise their prices. Let them reorganize rather than protect their investors.

Posted by: chick | February 21, 2007 7:40 AM | Report abuse

ROB -- THAT VOICE IS ME.

Posted by: God | February 21, 2007 8:23 AM | Report abuse

It'll be interesting what their long-term goals will be. If the XM/Sirius merger were to happen, would they go into video broadcasting also? Directv already offers a dish and receiver that is able to be mounted to an SUV or RV. Will this merger bring competition to Directv? Probably not on a large scale but there has already been talks by both companies of broadcasting childrens channels through their satellites. With the combo of both companies satellites could they offer both audio and video? I think the main question is if they do merge will the prices go up. Most people who have it now probably would never go back to regular AM/FM stations. I myself can't stand to listen to commercials anymore.

Posted by: Victor | February 21, 2007 9:19 AM | Report abuse

I became a fan of satellite radio three years ago when the CD player in my car broke. I had to wait more than a week for the dealer to replace the unit. In that time I found myself driven mad by the lack of variety, decent music, and non-obnoxious on air personalities. Regular radio has morphed into a giant wasteland. Satellite radio brought me a variety of commercial free music that I could enjoy while stuck in DC traffic. I believe competition is healthy, however if our choices are one large sustainable company or one- potentially two defunct companies I vote for the former. With the current status of the balance sheets at both companies we have to ask if there is room in the market for two. As of today if we want true landline service we still generally only have one choice around here that being Verizon. However, with the birth of new technologies like the cell phone, VOIP, etc there are more options.

Posted by: Ian | February 21, 2007 9:20 AM | Report abuse

I'm a long time Satellite Radio subscriber, currently XM, but previously Sirius. I signed up when I moved to rural appalachia from the Boston area. My family is far from rich, I work for a non-profit my wife is a school teacher, for us it was worth it to continue to be able to recieve a variety of programming that just was not available in our new home area, and I drive considerably for work, as well as multiple trips back north every year.

I think that the merger makes good business sense, the two companies have never been the primary competitors with each other. They both compete against traditional radio, and other new technologies (emergeing digital radio, I-Pod and other MP3 players, and other entertainment devices that have become much more portable recently) much more so than each other. In fact around here, for a very long time, traditional radio stations would run industry group ads attacking satellite radio as many people moved away from the limited choice available in a smaller market to the greater choice available through a satellite provider. I'm not sure if the anti-trust laws really apply in a situation such as this one.

I do have concerns however; the two providers do provide content that is similar but distinct in many important ways, will this proposed merger expand the availability of diverse content or do away with many choices? The technology question, having gone through the technology switch from one provider to the other already is a concern. Of course, there is also the cost concern, since this was the one area that the two providers really did act as a control on each other in, this of course being the best argument against the merger and the application of the anti-trust laws.

Posted by: Todd | February 21, 2007 9:35 AM | Report abuse

I subscribe to both. XM has deeper playlists and better equipment (their SkyFi2 gets a signal and locks on everywhere except tunnels and ginormous rock formations on the side of the road that block the signal - my Sirius One receiver constantly loses the signal on the saturated radio dial that is the NY/NJ area.)

My costs would probably drop as I pay for two subscriptions now. I'd like to get my baseball AND football jones satisfied from one provider. Oh, and thinking that there was no way either could fail in the long term, I bought a couple grand worth of stock in both towards the kiddies' college fund.

That being said, as much as I would love the merger to go through (so they stop trying to kill each other with these Howard, Oprah, and Martha Stewart deals that do nothing but make rich celebrities richer), I don't think there is any way the feds will allow it to go through. They killed the Dish Network/DirecTV merger and they'll do the same here.... I'm trying to decide whether to cash in the stock now before everyone else figures this out.....

Posted by: Bob M. | February 21, 2007 9:48 AM | Report abuse

Well, I have always been dissapointed that the promise of true musical diversity was abandoned by both XM and Sirius in a seeming effort to identically mirror each other's programming. That and the hyper focus on minute sub genres of rock (what exactly is the difference between Hard Attack, Buzzsaw, and Octane?). SO, hopefully, by combining, they will now have the courage to branch out again and achieve some true variety since they won't have to compete head to head with one another. But no doubt I am just naive.

Posted by: Roald Euller | February 21, 2007 11:00 AM | Report abuse

the merger is a big mistake and cannot be allowed. it would be a monoploy and the consumer would get the screws to them. let them fight it out in the marketplace and whoever is standing at the end is the winner. plus for the comsumer not big business.

Posted by: marty | February 21, 2007 11:24 AM | Report abuse

I lived in the DC area for many years and found the terrestrial stations, for the most part, to be mind-numbingly dull, repetitive and with very uneven geo coverage. Now, I live in an area 170 miles from the nearest major market with few stations at all. XM has been like a buffet of really good food. There's something for everyone, the programming is generally thoughtful and not repetitive, the signal is excellent. It's been a long time since radio steered me toward new artists whose music I'd want to buy and XM does that routinely. As a long-time Bob Edwards fan, the quality and "driveway" level of interest is worth the monthly subscription fee alone. As one who jiggled AM radio dials for years to bring in St. Louis and other MLB cities, the baseball channels are a fantasy fulfilled. That being said, I don't like this merger. Corporate beancounters acting in "our stockholders' interest" will inevitably undermine the existing incentive at both services to out-program the other. When has a Mel Karmazin-managed broadcast entity ever been acclaimed for the quality of its programming? The combined service will become the Clear Channeled satellite equivalent of vanilla.

Posted by: MileMarker17 | February 21, 2007 12:11 PM | Report abuse

I tried XM radio for a year or two. I didn't find it worth the money. What I wanted was to be able to choose a program and play it whenever I wanted. I can do that online for most programs in which I have an interest.

Posted by: yomama | February 21, 2007 12:37 PM | Report abuse

One way to view XM and Sirius is that they are like cable TV. They provide a digital pipe to the car instead of the home. Comcast has been an effective monopoly for many years, and of course, it was argued that it needed this protection to finance such a massive build out of infrastructure.

It appears that the same financial problems exist with XM and Sirius. The start up costs have been enormous and the "build it and they will come" philosophy has not worked.

So, it could be argued that the value provided by Satellite radio is not wanted by consumers, or at least by enough of them to justify the business. Like cable, it takes time for people to value better reception and then new content or replays of old content. The problem, as I see it, is that the only real market for XM and Sirius is: people in their cars, and the service has not tapped into its real strength, a digital pipe to the car that can provide real-time access for information that drivers need or want. Both companies could invest in infrastructure improvements like really real-time traffic speeds, on-demand maps or other driver services that would become "must haves". No one REALLY needs or WANTS more music, sports, news or talk. Drivers need better information relating to the fact that they are: DRIVING SOMEWHERE!

Imagine a digital connection that tells you the current speeds up to the minute on any major road. Make a decision on your route based on accurate road conditions not some lame report about an accident that happened 30 minutes ago. Would you subscribe to that? SURE and so would millions more.

It is acheivable, and until XM or Sirius provide more relevant information to the driver, even a combined company will struggle.

Posted by: nappytown1 | February 21, 2007 1:00 PM | Report abuse

One way to view XM and Sirius is that they are like cable TV. They provide a digital pipe to the car instead of the home. Comcast has been an effective monopoly for many years, and of course, it was argued that it needed this protection to finance such a massive build out of infrastructure.

It appears that the same financial problems exist with XM and Sirius. The start up costs have been enormous and the "build it and they will come" philosophy has not worked.

So, it could be argued that the value provided by Satellite radio is not wanted by consumers, or at least by enough of them to justify the business. Like cable, it takes time for people to value better reception and then new content or replays of old content. The problem, as I see it, is that the only real market for XM and Sirius is: people in their cars, and the service has not tapped into its real strength, a digital pipe to the car that can provide real-time access for information that drivers need or want. Both companies could invest in infrastructure improvements like really real-time traffic speeds, on-demand maps or other driver services that would become "must haves". No one REALLY needs or WANTS more music, sports, news or talk. Drivers need better information relating to the fact that they are: DRIVING SOMEWHERE!

Imagine a digital connection that tells you the current speeds up to the minute on any major road. Make a decision on your route based on accurate road conditions not some lame report about an accident that happened 30 minutes ago. Would you subscribe to that? SURE and so would millions more.

It is achievable, and until XM or Sirius provide more relevant information to the driver, even a combined company will struggle.

Posted by: nappytown1 | February 21, 2007 1:01 PM | Report abuse

When I bought my new car last fall, it came with XM included and I re-upped my subscription. While I like the choices I have (MLB, NHL, a radio station that actually plays punk - Fungus53) I don't get the NFL or English Premier League.

If the exclusive agreements between the sports leagues and either provider didn't exist, I probably wouldn't care but I'm excited about the prospect of getting all of the sports leagues.

Howard Stern would be a nice bonus but it's the split between MLB (XM) and the NFL (Sirius) that bothers me the most right now and if this merger would eliminate that, I'm all for it.

Posted by: Jason F. | February 21, 2007 1:05 PM | Report abuse

Here are the problems I see with this merger (as a customer of XM):

- (As you point out) They have two sets of capital infrastructure (satellites, terrestrial repeaters). They have two sets of incompatible customer receivers.

- If the gov't demands half the bandwidth back, then they have to replace the hardware for 1/2 of their joint customers, and write-off 1/2 of their investment.

- They now will have to program all of their contractual programming (AOL channels, sports, and talk ... like Howard Stern) into each system (or one system if they lose 1/2 the bandwidth). This means that ironically the converged XM/Sirius will have substantially less bandwidth available for music. They will have MLB, NFL, Nascar, NHL, College, etc, etc, all competing for bandwidth. They'll have to cut something that they don't have contracts to carry, and that will be music.

- As a monopoly, they will raise their rates, and lower the quality of service and programming. Without competition they can do what they please. Experience (in the form of Cable TV, which is a monopoly, versus Satellite TV, which is a duopoly), shows what will happen.

The result is that XM + Sirius = less music, less programming diversity, and higher costs.

Posted by: Worried XM Subscriber | February 21, 2007 4:00 PM | Report abuse

Here are the problems I see with this merger (as a customer of XM):

- (As you point out) They have two sets of capital infrastructure (satellites, terrestrial repeaters). They have two sets of incompatible customer receivers.

- If the gov't demands half the bandwidth back, then they have to replace the hardware for 1/2 of their joint customers, and write-off 1/2 of their investment.

- They now will have to program all of their contractual programming (AOL channels, sports, and talk ... like Howard Stern) into each system (or one system if they lose 1/2 the bandwidth). This means that ironically the converged XM/Sirius will have substantially less bandwidth available for music. They will have MLB, NFL, Nascar, NHL, College, etc, etc, all competing for bandwidth. They'll have to cut something that they don't have contracts to carry, and that will be music.

- As a monopoly, they will raise their rates, and lower the quality of service and programming. Without competition they can do what they please. Experience (in the form of Cable TV, which is a monopoly, versus Satellite TV, which is a duopoly), shows what will happen.

The result is that XM + Sirius = less music, less programming diversity, and higher costs.

Posted by: Worried XM Subscriber | February 21, 2007 4:01 PM | Report abuse

I also wonder how one can split "rock" into (at last count)14 "discrete" genres. I've been an XM sub since the first week it hit the NYC area in 2001. I'm afraid their target market seems to be slowly moving towards the brain dead. Who needs to listen to all this "talent". It's MUSIC I want and commercial free. Add commercials, I'm gone. In fact I don't even like the use of disc jockeys and their constant jabbering. Just play the music.

Posted by: apr | February 21, 2007 4:54 PM | Report abuse

Rob, On the question of people's XM or Sirius receivers becoming obselete, I thought I would relate a true story. I have an elderly cousin (age 87) who lived in New York City as a kid. At some point (1930s?) New York City's power grid changed from DC power to AC power where my cousin lived in Manhattan. Everyone had to bring in their DC powered Radios and were able to exchange them for an AC powered one. Maybe SeXM or whatever the new name will be should have an exchange program, bring in your brick and you get a working sat radio.

Posted by: Dan | February 22, 2007 10:21 AM | Report abuse

Touching on one commenter's thought that us satellite subscribers are either rich or poseurs... i am neither. I travel a lot and it's awesome to be able to listen to your favorite stations for the entire trip. Talk shows that don't broadcast on terrestrial radio, sports packages - I could go on, but the thought that you are rich or a wannabe if you have satellite radio is illogical. Does that argument hold true for cable television subscribers as well? What about those crazy "folk" that actually buy pasteurized milk and have indoor plumbing?

As a Sirius subscriber and lifelong Yankees fan now living in DC, I'm thrilled at the possibility of being able to hear every game of the season clearly (finding just the right spot in Arlington to park my car to tune in CBS880 AM NY is a hit or miss proposition).

What I AM worried about are prices going up (they will) and the "consolidation" of some programs. While the things I listen to will probably be safe, I'm concerned for other subscribers. In truth, I'm sure a lot of us are paying for only a handful of channels/programs (I listen to about 6 channels on a regular basis). I'm fine with paying my yearly fee for that. I don't care that there are 400 channels. But get rid of - or radically change - one of the 6 that I DO listen to, well, I'd have a big issue with that.

Posted by: A. Cipollacia | February 22, 2007 1:38 PM | Report abuse

To quote Firesign Theatre:

How Can You Be in Two Places at Once When You're Not Anywhere at All

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Posted by: Stinky | March 7, 2007 9:46 PM | Report abuse

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