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The XM-Sirius Merger: One Is Less Than Two

Sometime soon, when federal regulators decide whether to allow a merger of the nation's two satellite radio services, XM and Sirius, the government will have to take a stand: Would combining the two companies unfairly diminish consumer choice or, as the companies argue, turn losing operations into a profitable service with lower prices?

But while lawyers at the Justice Department and the Federal Communications Commission fight through a thicket of filings, the questions for listeners are different: Would a single satellite radio company produce more or less interesting and entertaining content? Would the menu of music, news, sports, comedy and talk programming get longer or shorter -- and at what price? Wouldn't reducing the satellite field to one company lead inevitably to service cuts and price increases?

Think about it: Can you name one example of a new consumer technology that was guaranteed to a single provider and still served customers well? (Don't everyone say "cable TV" at once.)

In 1997, when the feds gave the two companies the green light to launch satellites that would each transmit more than a hundred channels of programming across the country, the idea was to provide a far higher quality of music, news and other programming in categories AM and FM radio simply ignored. Satellite would serve up the blues, bluegrass, jazz, classical, dance music, comedy and dozens of other genres that barely exist on commercial radio.

But by the time XM fired up its $13-a-month service in 2001, a year before Sirius's start, the soundscape of the nation had begun to change. Today, the competition is no longer just old-fashioned, over-the-air radio stations, which cling to music formats that have barely changed in decades, but a whole raft of new media that let listeners create their own stations: iPods, Internet radio, podcasts, music blogs, music delivered to cellphones, and the broadcast industry's response to all of that, HD radio, which digitally inserts additional stations on the same frequency as existing ones.

The merger decision turns on this question of competition: When the feds approved satellite radio, they banned XM and Sirius from ever merging, because competition would protect the public from high prices and assure that the companies seek top-quality programming. But the two companies now argue that they no longer exist alone in a satellite silo; rather, they say they are content providers just like Yahoo, ABC, Clear Channel or The Washington Post, creating material that can then be consumed through all manner of technologies.

That's a fascinating question both legally and socially. Will Americans in a decade or two recognize any useful distinction among different media, or will broadcast, Web, print and phone all merge into one stream of information and entertainment?

XM and Sirius, which now reach about 13 percent of U.S. households, want to branch out beyond sending programming from a satellite into a radio. They want to deliver movies and other video to in-car DVD players. They own a transmission system that can serve cars, businesses and homes, but more important, they are already among the biggest producers of audio entertainment, and they want to sell that content wherever they can.

Sirius Chief Executive Mel Karmazin and XM Chairman Gary Parsons argue that since they have morphed into content providers competing against many different media companies, there is no longer any rationale for preventing a merger. The companies no longer compete mainly against each other and need size and financial prowess to take on Apple, Hollywood, TV networks and the infinite number of music sources on the Web.

But that same argument works against a merger, too, perhaps more persuasively.

The past decade has provided convincing evidence that corporate consolidation in radio and other media leads to dramatic cost-cutting, which results in less local programming and lower quality.

Why wouldn't the same happen in satellite radio?

Unquestionably, a merger would lower the satellite providers' fixed costs, let them quit their marketing war against one another and allow them to reduce spending on programming. Financial analysts say XM and Sirius could save between $3 billion and $7 billion by combining. Why else would the two companies pour so much money into this lobbying battle?

Karmazin, who would be chief executive of the combined satellite provider and is leading the charge for a merger, counters that listeners would benefit by getting the best of both services without having to pay for two subscriptions. To bolster that claim, the companies propose a menu of pricing options: Subscribers could keep their current service at the same price they pay now; add the "best of" the other service for an extra $4 a month; or choose to get fewer channels at a lower price. But while the companies tout these choices as the a la carte offering that cable TV has never consented to, the fact remains that if you want more channels under a combined XM-Sirius operation, you will have to pay more.

The danger in offering packages with fewer channels is the same risk cable TV companies have warned against for years: If consumers can pick and choose channels, that undermines the whole business, because inevitably, the bulk of the audience will spend most of their time listening to a relative handful of channels. Less popular channels, now subsidized by a flat subscription fee, would wither away.

With TV, according to an FCC report, the average cable household only watches 17 of the 100-plus channels they receive. On satellite radio, according to the first-ever satellite ratings report released by Arbitron this fall, a dozen of Sirius's 130 channels were clustered at the top of the heap, including the channels most similar to broadcast radio's offerings -- pop hits, oldies, new and classic country, Howard Stern and a couple of rock formats. On XM, similarly, 20 of the 170 channels drew by far the biggest audiences -- again, classic country; oldies from the '50s, '60s, '70s and '80s; current pop hits; light rock; classic rock; smooth jazz; and urban hits.

How long would more obscure, low-rated satellite programming such as Sirius's Underground Garage rock or NPR Talk channels or XM's Cinemagic movie music or choral classical outlets survive in a monopoly, a la carte system? And if the range of programming narrows, what is satellite offering that AM and FM do not?

Virtually anyone can start an Internet radio station these days and play an intriguing mix of music. But only XM and Sirius -- and National Public Radio, perhaps -- have the resources to produce a great range of creative, professionally produced programming: Bob Dylan's explorations in music and storytelling on XM; original radio dramas; XM's Artist Confidential series of sessions with big-name performers; and specialized programs for truckers, gays, Latinos, NASCAR fans, Broadway lovers, opera buffs, movie-music mavens, presidential campaign addicts and on and on.

That programming diversity is what justifies giving XM and Sirius a chunk of the government-licensed radio spectrum. Reducing the two services to a satellite monopoly will inevitably bring about a diminution of choices, along with higher prices. At XM's Washington headquarters, the number of producers and DJs would decline, meaning more formulaic programming -- if XM even remained here. How long would Karmazin keep production facilities in both the District and New York, where Sirius is based?

Both XM and Sirius say they can survive without the merger, even in fierce competition with all the other content providers scrapping for an audience today. Let them compete.

By Marc Fisher |  November 10, 2007; 7:50 AM ET
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Good article, but faulty in its analysis. As a listener of Sirius, I can assure you that I will never go back to terrestial radio. This is the fear that organizations like the NAB fear. I find it amusing that terrestial radio owners are all for consolidating ownership in their field, but desparately fear consolidation in satellite radio. I guess they are fearful of COMPETITION.

Posted by: Ed | November 10, 2007 8:42 AM

I don't have either XM or Sirius. I can't make a choice between the two because I want access to the sports programming carried by both companies. I'm willing to pay to have it all - that's why I support the merger. I'm willing to pay to get what I want but I can't get that now at any cost. Quit worrying about an extra $1 a month and let the consumers have access to all of the services. By the way, it would cost a lot more to subscribe to both to get those services.

Posted by: Wayne | November 10, 2007 8:49 AM

As a 4 year subscriber to Sirius, I fully support the merger. I cannot tell you what or is who is on terrestrial radio anymore. The programming on satellite is authentic and gives listeners the ability to choose what they want to hear, when they want to hear it. Terrestrial radio doesn't off that and they want to make sure satellite radio doesn't either. That's why they oppose the merger.

I can honestly say that I love Sirius, but would definitely pay an extra fee to get access to MLB programming that XM has, but I will not subscribe to XM only for baseball. The merger would provide me exactly what I want... even if it costs me a few extra bucks a month.

Posted by: CRF | November 10, 2007 8:56 AM

The limiting problem is that it's an either-or choice, difficult to change once you've invested in the radios. My XM hardware can't receive Sirius and vice-versa. Change the rules on the manufacturing of the radios so that users could switch back and forth from services more easily, or purchase some sort of bundles from each provider. Corporate competition and user choice would both be increased.

Posted by: Geezer | November 10, 2007 9:23 AM

A previous comment claims that Fisher's analysis is faulty, but doesn't explain why or how. I think Fisher is spot on.

Although I would like access to programming I currently don't receive on my satellite radio, I must oppose any merger on the principle that it would inevitably reduce competition as well as the variety of programming offered by Sirius and XM.

These companies don't have the best interests of consumers as their number one priority - it is the almighty buck that drives them. Only competition spurs them to provide content that has wide-ranging appeal. Lacking competition, they will simply cater to the lowest common denominator.

Posted by: tjshire | November 10, 2007 9:32 AM

Are you on the NAB's payroll?

Satellite radio doesn't compete with itself but also with FM and AM radio stations. Cable TV now competes head to head with Satellite TV. I see no problem with a merger between two companies seriously in the red.

Posted by: Spino | November 10, 2007 9:44 AM

I have XM and it came with my Element. Currently I pay $77 a year for XM and just renewed it at that rate. I had cancelled because the wouldnt renew at $77 when I called their 800 number and then spoke to a bunch or morns in India. I currently listen to Classic Rock, the soul station(the ebst station XM has), the jazz station which is better than Sirius with its Saturday morning show w/ Wynton Marsailis, and the blues station. On Sirius station I would want is Radio Margaritaville. No Howeird Stern please. he is still doing the same old shtick he had when he was on DC 101. You still cant see strippers on the radio even with satellite. If I lose the DJ on the soul station with XM with merger or the $77 a year rate I am gone. I will not buy any new hardware to get XM and Sirius. I dont ahve a problem with the merger as long as costs to subscribe come down and dont go up. If both disappear no great loss! Sirius big mistake was signing Howeird Stern.

Posted by: Anonymous | November 10, 2007 9:56 AM

If the result of the XM-Sirius merger is that programming choices are reduced and they're offering the same product as free, terrestrial radio, who would pay for the service? The very fact that they're competing against free service (and virtually free equipment as well) means that they have to offer a better product.

I listen primarily to a few channels on XM, mostly the oldies, rock, and country stations, but it is nice to have the option to flip over to comedy, or blues, or bluegrass, or even show tunes if I want to irritate the guys in the carpool. All of these are on my presets, and all of the buttons are getting a little worn out. If the options go away, I'll go away, and I won't be the only one. THAT is their incentive to maintain the diversity in programming.

Posted by: Tom | November 10, 2007 10:03 AM

I'm sorry I even commented. Who cares about this anyway. Let them merge. We still got young men being killed in Iraq because of this dumb administration and a runaway Congress that's bankrupting our kids' future.

Posted by: Ed | November 10, 2007 10:31 AM

Hey Ed why dont you renounce your US citizenship and go live somewhere else. has there been a terrorist attack since 9/11. How many deaths from terrorist attacks would there have been in US if Gore or Kerry were prez? Estimates say tens of thousands! Cant wait until the Fall of 2009 when we are wishing for the good ole days of W when there werent any terrorist attacks in US because thousands and thousands of folks in US perished because Bill Clinton was running the country again with Hil as de facto prez!

Posted by: Anonymous | November 10, 2007 10:36 AM

I find the proposed merger crazy. I don't like it and will not buy it if they merge. Their should be competition with two companies. I prefer XM over New York's Sirius. I feel that XM is larger than Sirius anyway. I prefer XM programming over Sirius. I'll be glad when all of this talk is over and nixed. Having a CHOICE is BEST! Just like when your looking for a new ride, you take what SAT radio is in the automobile. Why don't they just install a SAT radio and you choose which service you want.... Like the after market radios. (SONY, Kewwood and Alpine)

"NO Merger"

Posted by: QuietStormX | November 10, 2007 10:54 AM

(Sony, Kenwood and Alpine)....

Posted by: QuietStormX | November 10, 2007 11:09 AM

The theoretical argument of competition is fine, but the reality is that Sat radio as an industry isn't well established. Even in ten years, the combined projection of users won't crack 30M. So right now, it seems secondary to talk about competitive markets when the primary user base hasn't been established.

Take the beach first. Then worry about what happens.

Posted by: XM user | November 10, 2007 11:19 AM

I love the choice XM gives me as I sit in my car, surveying my next job. If they merge, so be it. Should the price rise, so will mine.

Posted by: southern hitman | November 10, 2007 12:05 PM

One aspect of the author's analysis, though not its focus, is clearly faulty. The merger will have no impact whatsoever on "localized" programing. Both outfits are national in scope and almost all of the localized programming they do offer is weather/traffic, which would not see reduced service, but perhaps more (Some smaller markets aren't currently served for cost reasons, but the utility of those channels is a marketing draw that a merger could overcome). In fact, you could soon see hybrid receivers that integrate map/traffic/weather systems delivered by sattelite.

Localized radio hasn't innovated much at all and their loss of market share in the entertainment media industry is a direct reflection of their narrow, weak innovation. They've poured alot of money into opposing this merger because they fear the competition.

The merger should be approved, as the Feds will have alot of egg on their face (what's new?) if one or both of them fail because they can't sustain the fight over a somewhat limited market. Subscription services competition against free radio will always require a premium service to gain market share, so I'm confident that a merged company would be able to maintain a wide diversity of content, but start doing so at a profit instead of the current losses.

Posted by: EJB | November 10, 2007 12:14 PM

The merger seems good in theory, to help both the consumer and the companies, but what we are forgetting to see is the methods the new company will use to attain this goal. In one of their initial presentations to the FCC, the companies placed an emphasis on the potential for revenue from placing advertisements on their networks.

Clearly, this is not a viable option now, as each lures in consumers by promising ad-free radio with more variety in music. With the combined company, there is no incentive to do this. Ads will pervade the music channels, making it, in my mind, no different from terrestrial radio. My impetus for purchasing my current XM subscription was to avoid listening to ads. Were this to change, I will be very likely to cancel my subscription.

In the end, the merger sounds great, but the truth is in the details. Only time will tell... but think about it: how else can two indebted companies become profitable without tapping an additional source of revenue?

Posted by: Jeff | November 10, 2007 12:28 PM

So, what happens if, say, one of the two companies fails? If they go under, not only will all those people with receivers get screwed, but there's a few billion dollars' worth of satellites up there with *no use* but data broadcasting. So, what'd problably happen then is someone would buy the birds for a fraction of the cost (or just take over the payments) and start up a new competitor with a lower debt load. Lower costs, competitive advantage. Then the same thing would happen a few years later to the other one. That's great for consumers and bad for the investors who knew the risks when they put their money in. THAT is how free markets are supposed to work.

Also, if XM and Sirius are dissolved (or file bankruptcy), they'll be able to get rid of those stupid exclusive hockey/nba/mlb/nfl/npr deals and both carry the good content. It's a great deal for consumers.

Anyway, I think the argument "we're both competing against cable!" is crap. Just total crap. They knew the deal when they signed up.

And if the NAB doesn't like it, there's a simple way around the problem -- PLAY MUSIC THAT DOESN'T SUCK. There's simply no excuse that Clear Channel (what the hell business does a billboard company -- a billboard company! -- have playing music??) owns 3-8 AM/FM stations in each market and still can't find any airwaves to play anything decent on. Like a previous commenter said, they own the transmitters, get the airtime for free, and regular radios are practically free. All you have to get listeners is put something out there that they want to hear. If nobody likes your product, don't blame MP3's and Kazaa, maybe you could make a better product.

Posted by: KevinR | November 10, 2007 12:35 PM

The FCC should be limited to managing spectrum and little else (that's a big enough job and someone must do it). As it is, they generally favor either the large telcos like Verizon and AT&T or the NAB. It's one of the worst of the "revolving door" agencies in DC, i.e. it's essentially corrupt. Get out of the way of content (H. Stern, D. Imus, J. Jackson) and business transactions. I am an XM subscriber and have zero fear of losing in a merger.

Posted by: Pro Merger | November 10, 2007 1:37 PM

I want to know who listens to the typical Clear Channel run station and says "Yea, that's what I love about radio".

Actually, with the exception of public radio, FM is unlistenable. Seriously. Nothing. Zero. Nada. Empty of any content worth listening to.

The best thing that could happen to FM is that most of the station go out of business and peoplel that care about content take over. Make FM the way it was in the late 70's and early 80's . But what we've got now is so horrible that it has to be changed.

Oh...and bring back the rules that one company can only own 1 station in a market. Make rules that content creators cannot own stations.

Fisher, you should support this, since it would make your job interesting rather than parrot the line of the NAB. Imagine the variety of programming that we might have.

As a side note, it would further diminish the role of record companies. A thousand flowers could bloom in the music business rather than the typical manufactured acts that dominate the RIAA companies.

Only good will come from this.

Posted by: Ombudsman | November 10, 2007 3:03 PM

The separate companies, XM and Sirius, actually limit choices, not promote them. I know of no one who has both so they are automatically limited in their choice of content. If the companies merge, a consumer would theoretically have a choice of their combined content. Sure, it may cost more than a current subscription but the consumer would be getting what he/she really wants. For many of us, radio is a very minor part of our lives - used while driving. If a merged company doesn't offer what we want at a reasonable price, we won't use it. It doesn't compare to cable TV. If competition was a cure-all, US companies would build better cars!

Posted by: NC | November 10, 2007 4:16 PM

This argument is so dumb and exactly what the NAB wants you to believe. I have both XM and Sirius and it will be better and cheaper if I can have all of my favorite channels (NFL, MLB, Stern, Opie and Anthony, etc) all in one place. Oh and by the way, the merged company will keep quality high and price reasonable because they need to compete with iPods, the internet, and terrestrial radio. Satellite radio is NOT a necessity so if you don't like it anymore, you can cancel and that's the last thing they want.

Posted by: Sean | November 10, 2007 6:02 PM

It's interesting that the majority of the people who oppose this merger don't subscribe to either service. Does the writer subscribe to either service? The fact that the majority of the subscribers support the merger says a lot. Geezer mentioned something about hardware not working, don't worry. Both systems will stay in place. You don't have to go and buy a new receiver.

Local content? Please. One reason I love DirecTv is that I don't receive those stupid channels (paid for by taxpayers) showing Little Precious who can't sing and dance and the overweight, overpaid county board members' meetings.

Also, I don't think Sirius thanks hiring Howard Stern was a mistake. Look how many subscribers he brought. No, you can't see the naked chicks on radio but it is theatre of the mind.

Posted by: Bitter | November 10, 2007 6:08 PM

As an investor, neither of these companies have turned a profit nor will they anytime soon. Satellites, Howard Stern other talent are expensive. Stock values have plummeted and paying to listen to music someone else programs seems like a waste of money since one can just buy their own music from places like iTunes, Rhapsody. Listen to sports? Boring.

Posted by: Investor | November 10, 2007 6:39 PM

Broadcasting, when people tell you what to consume, at a given time, being on FM, AM, TV or printed paper will die/fade to give way to on-demand (when you choose) e.g downloading or streaming music, movies, text- what, when you want it.
Ok, what to do when you are a captured audience in a car/truck? You download, in a minute or two, all you need for the week, at a WiFi hotspot or at home before you leave. Automatically. For your iPod, Nokia N800 or similar device.

Finally no commercials....

Posted by: Larry | November 10, 2007 6:48 PM

Hey, 10:36 a.m.,

Why don't you wake up and go to a country with one govt. approved radio station? That's the kind of myopic driver you might like since you don't seem to understand basic American concepts like encouraging or tolerating dissent.

As you'd probably say, if you don't like it here with that long historical basis, go back to Russia!


Posted by: Constitutional Conservative | November 10, 2007 6:51 PM

...typo correction... that would by "myopic drivel" in reference to 10:36 a.m.'s anti-democratic rant.

Posted by: Constitutional Conservative | November 10, 2007 6:51 PM

What I don't understand about Marc's argument is how having two financially weak companies that are each hemorrhaging cash will result in more choice for listeners.

Posted by: WA2CHI | November 11, 2007 9:38 PM

Exactly analysis Marc. It's pretty clear that this proposed monopoly would be bad for consumers. After all, when have monopolies ever been GOOD for consumers?

I do some work with NAB, and we have a great website detailing some of the hidden costs of this proposed monopoly. Check it out --

Posted by: Chinook | November 12, 2007 10:54 AM

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