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XM - Sirius Merger?

Frank Ahrens

UPDATED: See below.

Today, Chris Kirkham writes about merger buzz between the two satellite radio companies, New York's Sirius and Washington's XM.

Note that the buzz is coming largely from one side: Sirius. It started a year ago when Sirius lured Mel Karmazin away from Viacom to handle Howard Stern. Mel is a consummate salesman and he knows about making a big splash. Almost instantly, he threw out the "m" word.

The thing about merger talk: It pumps up stock price.

Both stocks could use a bump. Both have been in decline since the beginning of the year, though XM has staged something of a rally over the past month.

The question is: Who needs a merger more, XM or Sirius?

XM is the leading in subscriptions, but Sirius has been closing the gap, largely thanks to the addition of Stern.

XM is in better shape, profit-wise: It has said it finally will break into the black sometime next year. XM has more long-term debt, but Sirius has been spending like a drunken sailor to acquire content; notably, $500 million for Stern.

I have had XM for five years now and can't imagine life without. I've also tested Sirius for extended periods of time. Two services is good for customers. For instance, when I tested Sirius, they had a groovy electronica channel that XM did not. Shortly after, XM added its own version of the channel. Each keeps slugging it out to acquire high-profile talent. Competition is good.

It would be up to the government to allow or strike down a merger attempt. If the FCC and Justice Dept. look at the two services as sat radio companies, then it's what's called a two-to-one merger, which they likely would kibosh, just as they killed the proposed merger of Dish Network and DirecTV a few years ago.

But each company has recently introduced new radios that add mp3 functionality. If they can persuade the feds that they are not just sat radio services but also iPod-like devices, the government might smile on a merger, particularly if one business is in danger of going under.

UPDATE:

Colleague and tech columnist Rob Pegoraro brings up an excellent objection to a potential merger between the two sat radio companies that I have not seen discussed elsewhere: Their satellites are in totally incompatible orbits.

XM's birds are geo-stationary. Sirius's are on a big elliptical orbit. Which is why, when I tried Sirius a couple of summers ago, I had to move the antenna from one side of my house to another as the day progressed. You don't have to move your antenna with XM, but its birds are in a lower angle to the Earth and sometimes their signal gets blocked by mountains, buildings and trees.

If the two companies merged, presumably they'd have to abandon one set of satellites, a tremendous -- and tremendously expensive -- waste. (Unless they were to sell or sublet them to another satellite start-up, I suppose.)

Today In The Post:

* Ellen Nakashima reports that Hewlett-Packard will pay $14.5 million to settle a civil action brought against the company for its spying activities. It's interesting to me that Wall Street has essentially shrugged over this scandal: the company's stock has risen steadily since the news about corporate spying started leaking out then continuned to escalate.

Elsewhere:

* In the hey-me-too dept., Russia wants to join the U.S. effort to establish a lunar outpost. Say what you want about the Russian space program during the Cold War, those cosmonauts were tough on Earth re-entry: Instead of landing in the ocean like our astronauts, they landed smack on the ground in Russia. Splashdown, Schmashdown.

* More bad news for Sony: The company has missed its shipment targets for the new PlayStation 3 game console. Consequently, Nintendo's Wii has outsold the PS3 by a more than 2-to-1 margin.

By Frank Ahrens  |  December 8, 2006; 12:09 PM ET  | Category:  Frank Ahrens
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Comments

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Hey, Frank, don't knock the Rooksi space program too much. They *still* land those Soyuz on the ground after servicing the ISS. And they do it with the space tourists on board.

And the new Orion CEV that will be bringing American astronauts home from the moon? It'll land on the ground, just like the Rooskis (though it can land in the water in an emergency).

No word on if either XM or Sirius will be made available on the Orion.

bc

Posted by: bc | December 8, 2006 4:19 PM

Nothing like competition to keep prices down. Unless the business models are flawed and neither can ever reach a profit level.

XM periodically offers me hardware at bargain basement prices (or for feee sometimes). The hook naturally is the subscription. The retail cost for the hardware is recovered by them in 10 - 14 months; naturally even sooner given their wholesale cost. After that it all goes to cover the cost of content for which they've already paid.

Personally, I wish Good Luck! to both of them. Sirius can have Stern. They can have Oprah too, for all I care.

Posted by: MLB Guy | December 8, 2006 4:49 PM

Frank-
>
I have both services, XM and Sirius, and I cannot imagine being without either. Sirius has NFL, XM has baseball. Both have a Chill channel, but it's weak that XM could not come up with a better name than Chill, the name of Sirius' channel.
>
I don't know if I'd welcome a merger. What would the business model look like? Would they continue to offer two services? Would they make me spend another $100 per device and then double my subscription rate?
>
Wait, I already pay for both. Never mind.
>
Technology-wise, XM is better. The equipment is more reliable and I lose my Sirius signal when I'm under an overpass or in a tree canopy on the GW Parkway. Also, the Sirius unit gets very hot. The Sirius is superior at startup though. With the XM device, you have to listen to 5 seconds of radio static (the channel your radio is set to) before the unit starts to broadcast. The Sirius unit 'instant ons,' silencing the static, and then wait 5 seconds to start transmitting content.

Posted by: Ben | December 8, 2006 4:49 PM

I have Both Services as well. I've had XM for 4 years now and Sirius for 2, and like a few others on this board I could not Imagine my life without satellite radio either. I haven't listned to terrestrial radio since and don't plan on it again. We all have to remember that satellite radio is still in it's infancy. It has been one of the fastest growing consumer products to ever hit the market. When you think about having almost 15 mil subscribers between them in just 4 short years, that's pretty amazing. We all new it would take time, and To Be CFBE within the next Qtr or Two for both of these companies is a goal that will probably be achieved. Time will tell, but I do think there is a Bright future for Satellite radio. It just might take a little longer than we expected.

Posted by: Ron | December 10, 2006 12:35 AM

You may want to check out Orbitcast. They have a great article on why a merger will never happen and it backs up what your saying about incompatable satellites

http://www.orbitcast.com/archives/siriusxm-merger-5-big-reasons-why-it-wont-happen.html

Just FYI

Posted by: Jack | December 11, 2006 4:58 AM

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