XM and Sirius: Marrying the Only Available Partner
From the start, this was the merger everyone knew would happen someday. Perhaps it would come about as a result of technical necessity: If XM or Sirius satellite radio lost one or more of their incredibly expensive birds, surely the competing behemoths would go to federal regulators and ask for permission to marry. Or perhaps it would be a matter of economic distress: If Americans' fascination with the new programming and gadgetry of satellite radio went sour, the two big boys would find salvation in becoming one.
As it turned out today, it was a mix of forces that have compelled Washington-based XM and New York-based Sirius to propose a multi-billion dollar merger that promises to turn satellite radio into a more expensive commodity providing fewer choices in programming, all while giving the technology the time, funding and stability it needs to survive and thrive in a rapidly changing media world.
Sirius's Mel Karmazin was the public face and driving personality behind the merger talks, which started around the time it became clear that Sirius's late start in the satellite competition had left it at a big disadvantage to XM. But Sirius was not negotiating entirely from weakness; thanks to its enormous investment in Howard Stern and other big-name celebrities, and its high-quality programming, Sirius became the faster-growing of the two satellite choices in the past couple of years. And while XM was moving faster to gain some control over the wild spending that both companies engaged in to capture Americans' attention in this insanely-splintered catalogue of media choices that we all live in, the bottom line was that neither company was giving their big investors the return that they had once predicted.
And now that we are hurtling toward the day when some form of wireless internet will be available to drivers on a consistent enough basis to allow for cars to be equipped with web radio receivers, it's not entirely clear that satellite will be more than an interim technology. That interim could last a decade or two or even longer, but satellite's heyday could also turn out to be shorter, which makes it all the more imperative for XM and Sirius to turn themselves around soon, and to use their combined creative powers to establish themselves as reliable and alluring content providers across a whole slew of platforms.
That's why you're starting to hear XM and Sirius audio programming popping up not only at Starbucks and in restaurants and retail establishments, but on airplanes, on traditional broadcast radio and increasingly online too.
This merger is anything but a sure shot. The federal government's original deal granting licenses to XM and Sirius required the two companies to work together toward making their technologies compatible with one another, but expressly ruled out the idea of the two merging at any time. To overcome that original condition, XM and Sirius will now have to prove that they cannot make it on their own, which may be tough to do considering that satellite radio turned out to be the fastest-growing and most readily accepted new entertainment technology since the DVD.
Still, that success came at enormous expense, and both companies can show oceans of red ink on behalf of their hardship case. More impressive, satellite--despite its creative achievements, reviving the art of radio in so many musical genres that broadcast radio had long since given up on--probably cannot prevail against the competition of the iPod, digital downloading, and the ability of everyday listeners to create their own radio stations. Satellite, like the rest of radio, must instead carve out a niche as a supplement to the iPod, as a way to discover and learn about new music and a place to get programming that's not available anywhere else (out of town baseball games, out of town traffic and weather, full-length concerts, visits with recording artists, celebrity deejays, etc.)
The unresolved questions following hard on today's merger announcement include some very important ones for Washington:
-- Would the new company be headquartered here? XM's building at Florida and New York avenues NW is the heart of the emerging NoMa office and retail development sector. Certainly it would be more economical to use the DC headquarters rather than the midtown Manhattan home of Sirius. But for creative purposes, Sirius will likely argue that the talent is based in New York and the deejays and musical artists ought to be there. Yet XM has shown that it's easy in this digital age to put the physical headquarters anywhere and still be creatively vital.
--What would the surviving company's name be? XM is one of the best new brand names to come along in many years. The new management, even if it is dominated by Sirius folks under Karmazin, would be fools to discard such a stroke of genius.
--What would happen to the hundreds of deejays, talk hosts and other talent put together by XM and Sirius? The satellite companies, which became an employment service for three generations of radio talent that had been left to wander in the wilderness during broadcast radio's decade of cost cutting, would obviously cut back like crazy. The result would be that the best of the best would be retained, but hundreds of strong players in the radio biz would be cut loose.
What's next? Months and months of lobbying. Lots of money pouring into the coffers of lawyers and PR people. And probably a quick end to the bidding war for talent on both XM and Sirius.
As always, Howard Stern wins big--he got the big money before the big money went to the suits. More later.
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