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XM and Sirius Announce Merger
Posted by: Dale Franks on Monday, February 19, 2007

After a fairly long period of speculation, XM and Sirius have made it official:
XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. have agreed to merge, the two companies said Monday.

The deal would consolidate the only two companies in the emerging business of subscription-only satellite radio, and is sure to face tough scrutiny from federal regulators. Investors and analysts have been speculating about a deal for months.

The two companies said in a statement that Mel Karmazin, the CEO of Sirius, would become chief executive of the new company while Gary Parsons, the chairman of XM, would remain in that role. XM's CEO Hugh Panero will remain to oversee closing the of the deal, they said.

The deal would face significant regulatory hurdles in Washington, including a Federal Communications Commission rule that clearly states that one satellite radio provider cannot buy the other one. However, that rule could be waived.
It'll be very interesting to see of the FCC does anything other than slap the proposal down. But, when you look at the two companies, one has to ask whether one big satellite company is better than no satellite radio at all.

Neither company has ever made a profit, and looking forward, analyst's estimates for forward PE are -4.6 for Sirius and -5.5. ROE for XM is -13,777.97 and -625.18 for Siruis. Similarly, income for Sirius is currently -$1.17 billion, with a net profit margin of -223.47%, while at XM, income is -$738.98 million with a net profit margin of -85.59%.

Both companies have seen recent income growth, but they're still hemorrhaging money like nobody's business.

The thing I'm not sure of, though, is whether the merger helps solve those financial problems. The sum of two money-losing companies isn't automatically one money-making company. However, deeply cutting admin staff, and really cutting advertising expenses, theoretically would dramatically lower the cost per subscriber, which would at least stem the tide of red ink, assuming subscriptions continue apace.

It'll also be interesting to see how the tech differences between the two companies shake out. Technically, XM is hands-down superior in terms of the end-user tech.

Of course, all this assumes that the FCC is willing to grant a single company monopoly for satellite radio. With the makeup of the current Congress, that's by no means certain.
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Previous Comments to this Post 

I don’t think improved efficiency is the biggest benefit of this merger: reducing user confusion is. Many people, myself included, have been hesitant to get on either satellite-radio bandwagon lest they find they’ve wasted their money on the next Betamax. Now that’s not likely, and I think a lot of people who have until now stayed out of the turbulent water might be more easily persuaded to take the plunge. Early consolidation might, for once, prove to be good for consumers.
Written By: Platypus
I’ll make a bold prediction: if the FCC allows this merger, Dish Network and DirecTV will merge.
Written By: steverino
I think (and kinda hope) the FCC blocks the merger - The fact that the businesses main issues is how they are run in terms of money paid to talent and other licensing... both ’might’ be profitable if they actually tried to live within their means.

As for end user tech - have to admit I really like the Stiletto 100 from Sirius... now if reception could just be a little better...
Written By: Bill
URL: http://
No, the real thing to follow will be to see if Stern and his buddy Mel try to screw over O&A like they did in the old days. (Or to see if Stern decides he wants to be relevant again and go back to terrestrial radio)
Written By: shark
URL: http://
No, the real thing to follow will be to see if Stern and his buddy Mel try to screw over O&A like they did in the old days.
Oh, yeah, I’ll definitely be listening to O&A tomorrow.

But then, I listen to them every day, so really, situation normal.
Written By: Dale Franks
Of course, all this assumes that the FCC is willing to grant a single company monopoly for satellite radio. With the makeup of the current Congress, that’s by no means certain.
It seems to me that that depends rather completely on how much money the resulting corporation is willing to provide for the reelection of Democrats.

A crass statement? Perhaps.
But don’t discount it.
Written By: Bithead
URL: http://
Steverino, I disagree. AFAIK Dish and DirecTV are both profitable, so there is no "failing firm" defense to that merger, as there may well be in the case of Sirius and XM.
Written By: Xrlq
One thing that needs to be emphasized for the benefit of non-subscribers: Sirius and XM might have musical categories that overlap in name, but they are absolutely NOT the same.

For the most part, Sirius music channels are hit-oriented radio. They sound just like "normal" radio stations, but without the commercials. Popular songs in heavy rotation get played every 2-6 hours, unpopular songs never get played. Every song on an "oldies" channel was a #1 hit (or close to it) at some point in the past. With Sirius, there are no surprises. Tune to the channel of a genre you like, and you’re probably going to like whatever is playing on it, and just about everything else they play on it for the rest of the day. Sirius customers tend to live on one, maybe two, channels and rarely feel much need to explore others.

XM, in contrast, runs most of their channels "jockless" (no DJ), and makes a point of playing popular songs no more than once a day, and rarely even playing songs by a single artist more than a few times per day. To Sirius subscribers, XM channels sound like somebody stuck a random pile of CDs into a changer and hit the "shuffle" button. If you like being exposed to obscure music, that’s great. Otherwise, you’re going to spend half your listening time madly searching up and down the channels trying to catch the last half of a song you like (and won’t hear again on XM for days).

Making matters worse, Sirius wants XM for exactly one reason: it wants the extra bandwidth to waste on low-res seatback video. So any thought that a merged company will retain both Sirius and XM’s content is pure fantasy. What’s worse, Sirius video will be a total waste nearly guaranteed to flop miserably, because there are already two companies poised to launch DVB-H mobile video services in the US over the next few months, with a big chunk of 700MHz spectrum to burn everywhere in America. So... they’ll ruin the one thing satellite radio does well (music programming content not available from local stations that accommodates both groups of listeners), and fail miserably at something they can never seriously be competitive at (video).

Plus, there’s another point: both Sirius and XM’s investors knew they wouldn’t be profitable for their first 10-20 years, and that they were making long-term, high-risk speculative investments. So, why exactly is it that merger is so critically important NOW that both companies are actually on the cusp of becoming profitable for the first time?

I’m generally loath to cheer on government regulators, but in this case I think the FCC should stand its ground and ensure that both SDARS licenses are owned by vigorously-competing entities. Or at least categorically prohibit SDARS spectrum from being used for anything remotely resembling video, so a merged company really WOULD have to offer its customers the expanded choice it wants people to believe a merger will make possible. A merger might be great for investors, but will ultimately destroy SDARS by creating a monopoly that can flop and flail around without real competition until its antagonized customers finally find a good alternative.
Written By: Miamicanes
URL: http://

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