XM-Sirius Merger Clears Major Hurdle

by: Julia Boorstin posted on: June 17, 2008 | about stocks: SIRI    
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XM (XMSR) and Sirius Satellite Radio (SIRI) -- the nation's only two satellite radio operators -- have cleared a major hurdle: FCC Chair Kevin Martin recommended approval of their merger. This puts them one step closer to the deal that's now valued at roughly $7.5 billion dollars, based on recent stock prices.

This follows the Justice Department's approval of the merger in March. The theory behind Martin and the Justice Department's approval hinges on the idea that creating a monopoly in the Satellite Radio space won't hurt consumers because Satellite Radio also competes with a range of other media -- from traditional radio, to Internet radio, even MP3s.

This whole new approach could set a new precedent for the way future media mergers work, though future mergers will also depend on how a new presidential administration weighs in.

That being said, Martin is requiring some concessions to protect consumers, and the companies have already agreed to them. The companies have to turn eight percent of their satellite channels--24 of them--over to non-commercial and minority programming. They have to put a price cap on the combined company's service fees for three years. They'll also have to offer new options for a la carte pricing, so you can pay just a couple of dollars per channel for the few you want to subscribe to.

And perhaps the biggest gesture to encourage competition, the combined company will have to create an "Open Radio" standard-- licensing their technology to other manufacturers within a year of the deal's close, so other companies can create compatible radios.

Both stocks -- SIRI and XMSR -- traded up on this news. The word on the street is that while these two companies are in big trouble if they're on their own, together, they'd save billions of dollars, and have a real chance at success. But the battle isn't won yet. Mergers can be tough, and RBC Capital Markets analyst David Bank tells me he thinks it'll be about five years before investors see any real big benefits from the merger. He also points out that in a rocky consumer economy the companies--combined or separate--still face the challenge of adding subscribers, convincing people that this high-end radio service is a must-buy.

Now three of the five FCC commissioners must approve the deal. Though the debate could drag out for another month or so, it seems that eventually, the necessary three will get on board.

This article has 6 comments! Add yours below...

Julia Boorstin

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This article has 6 comments:

  •  
    21st century
    Jun 17 05:04 AM
    I still think siri and xm shoud make satellite free. Some of my friends talked about it over superbowl weekend and they aren't sold on the idea of paying for radio. Even if it's commercial free..

    If satellite becomes free, they should go world wide and have niche markets in china, brazil, russia, india, etc and sell adds. This is why the radio stations are so afraid. If the satellite company's play it smart, they can take over the radio waves. Beating them over the head and putting them into extinction.

    Can you imagine having the ability to listen to satellite radio all over the world anyplace you go. This fits in with our global economy agenda.. Not sure if it's a good idea, but thats where the world is heading. Besides, isn't google doing someithing like this. Make everything free and gain a world wide audience and than charge ad sales and add more profits to the google economy. Please tell me we have a real vision for satellite radio. I'm a small share holder and merging and cutting cost is not a real game plan to me...
  •  
    voogie61
    Jun 17 05:57 AM
    Free Satellite?? And how would they stay in business if they offer free radio? Maybe we should start with "free" cable tv and see how that works out. I think 13 dollars is pretty cheap for 180 stations of music, talk, traffic, weather, comedy and just about anything under the sun. Hell, people are willing to pay 5 dollars for a Mocha Frapaccino at Starbucks, or 5 dollars for a case of bottled water at the grocery store but won't squeeze out 43 cents a day for all that SatRad has to offer.
  •  
    163888
    Jun 17 06:12 AM
    21st Century, Well they would first have to get over the other rule that the FCC has which is that satellite radio has to be a subscribtion based company. I dont think that is a biggy though.

    voogie61, I agree.
  •  
    Freep
    Jun 17 08:06 AM
    The Congressional Black Caucus seems to agree with 21st Century since they are demanding 60 channels to push their agenda. Actually these hacks are owned lock, stock, and barrel by the NAB and are demanding the 60 channels because they know it would be a deal breaker. Enough of this BS already. Just approve the merger. If they don't, one or both companies will be bankrupt in a year and the only winners will be the NAB.
  •  
    21st century
    Jun 17 05:17 PM
    Well how does radio stay free?
  •  
    voogie61
    Jun 18 05:52 AM
    21st Century - Radio is free......terrestrial, that is. But if you want better content and commercial free music, you gotta give up a small amount of squibbage to partake. Pretty simple concept, but somehow several Congressmen and State's Attorneys wanna make it into something much more elaborate and complex.
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