Feeds

XM and Sirius dance towards a merged US satellite monopoly

Let's get together and feel all right

Secure remote control for conventional and virtual desktops

Comment First it's on, then it's off. The potential merger of the two US satellite radio companies XM Satellite Radio and Sirius Satellite Radio, has been the talk of the US digital media community this week, with the FCC pointing out that it would breach both sets of existing licenses, and then hinting that perhaps that's not too much of an obstacle.

We think it is most definitely on, because the two operations are both beginning to slow down both in their ability to acquire new subscribers, and the enthusiasm with which they are burning money attempting to build their subscriber base.

Together they have now convinced about 14 million people to throw away their old car radios, and for some his includes their iPods and MP3 portable music players, and instead take between 120 and 150 channel satellite radio services.

The model is flawed in several ways. First the price of the subscriptions, at a monthly subscription fee of $12.95, is way more than many music subscription services and the price point at which cellular operators and mobile TV operators are planning to pitch new services. Mobile TV services such as Qualcomm's MediaFLO are almost certainly going to target music as one of the data services that it adds to basic video.

So there will shortly be more competitors with the kind of US-wide footprint these companies are enjoying. This will slow subscriptions further.

Another point is that advertising has been virtually banned from their services, and at some key point in the future the two businesses will both need a reason to allow it back in, wholesale. One way to do this is to orchestrate tiered radio services, with tiered pricing, which would also help the rate of customer acquisition. But to do that, it is likely that either one would require more spectrum.

The best way for the two to get more spectrum is to merge their two efforts, which use virtually contiguous spectrum slices and share the services across both sets of players, cutting the less popular services. The US has some 13,000 radio stations and these are either being devalued, going quietly bankrupt, or simply suffering leaner times, much of it as a direct result of the arrival of these two huge footprint services.

Much of the advertising they carry is local advertising, not always available to other media such as internet ads and TV. There are already some local variation of services on XM and Sirius and there are constant calls for more. A merged spectrum profile might makes this easier and add the prospect of satellite radio being both the up market, ad free replacement and the classic US wide ad serving service.

We also know that both of these organisations have been talking to mobile TV equipment makers, ascertaining the possibility of adding multiple video services alongside their radio only offerings. Since the services are understood to use a modified DAB protocol, DMB based TV would be exceptionally easy to run across them, but once again, more spectrum would be ideal for one service.

Finally, the price of players has been a major stumbling block, and the main way these services have been able to sell is by bundling the price of expensive devices into car purchase prices. There are precious few large ticket items where a $350 player price can be conveniently lost and these two businesses are going to need to diversify their offerings to justify higher retail prices for devices.

To us this all points to a way to get skittish investors back on track and when Mel Karmazin, the well known and well respected CEO of Sirius, who used to run operations over at Viacom, says he sees significant benefits from a combination of the two companies, he will find the investment community eager listeners.

Between the two companies there is over $1bn of debt and if they cannot be carved into something that is overnight cash generative (they are each on the verge of cash positive operations), that debt might hold it back for years to come.

Federal Communications Commission (FCC) chairman Kevin Martin said recently to that under current regulatory rules there can be no merger of the two, since there is a ban on a single owner for both satellite services built into the regulations when the licenses were issued.

But the FCC has changed its mind and its rules before, where it was seen in the interest of a large investment group, and given that there are billions of dollars tied up in the market capitalisations of the two companies, it seems likely the FCC will find it possible to waive any objections it has, despite the fact this will make radio owners the length and breadth of the US very angry.

There would also be other obstacles to such a merger, mostly from financial regulators. But if the risk is that both of them are to become financially weak, these arguments are unlikely to hold the deal at bay.

Share prices have been gradually falling over the past year as the subscriber acquisition operations of each of the two companies has suggested that their appeal is topping out, and since the merger has been suggested, the share prices have become volatile, based on whether or not a deal seems possible or not to Wall Street. In recent weeks, the share prices of both companies had risen sharply on increased speculation about a potential merger.

Martin made it clear last week that there is no request on the table to look at a merger, but to us at Faultline, in a country that sees little wrong in agreeing the tripartite merger of SBC, AT&T and Bellsouth, this is a matter of time before such a merger happens, dictated entirely by investment logic.

Copyright © 2007, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

The essential guide to IT transformation

More from The Register

next story
Assange™: Hey world, I'M STILL HERE, ignore that Snowden guy
Press conference: ME ME ME ME ME ME ME (cont'd pg 94)
Premier League wants to PURGE ALL FOOTIE GIFs from social media
Not paying Murdoch? You're gonna get a right LEGALLING - thanks to automated software
Caught red-handed: UK cops, PCSOs, specials behaving badly… on social media
No Mr Fuzz, don't ask a crime victim to be your pal on Facebook
Ballmer quits Microsoft board to spend more time with his b-balls
From Clippy to Clippers: Hi, I see you're running an NBA team now ...
Online tat bazaar eBay coughs to YET ANOTHER outage
Web-based flea market struck dumb by size and scale of fail
Amazon takes swipe at PayPal, Square with card reader for mobes
Etailer plans to undercut rivals with low transaction fee offer
Call of Duty daddy considers launching own movie studio
Activision Blizzard might like quality control of a CoD film
US regulators OK sale of IBM's x86 server biz to Lenovo
Now all that remains is for gov't offices to ban the boxes
prev story

Whitepapers

5 things you didn’t know about cloud backup
IT departments are embracing cloud backup, but there’s a lot you need to know before choosing a service provider. Learn all the critical things you need to know.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.
Rethinking backup and recovery in the modern data center
Combining intelligence, operational analytics, and automation to enable efficient, data-driven IT organizations using the HP ABR approach.
Next gen security for virtualised datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.