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Why a monopoly is good for YOU
But let's assume XM and Sirius have a valid point. How then does a merger save them?
The fine details as to how a Sirius and XM union will eek out a profit remains a mystery. XM and Sirius' lawyers are on such tenterhooks now, they aren't talking. (Both companies declined to comment for this story.) But it probably involves heavy multiplication and maybe even a cosine or two — so let's step back. Like many intractably complicated problems, the logic can be boiled down to a simple equation:
F + F = P
Where:
P = profit and F = sinking ship of a business model.
There's a problem with the above math. Can you spot it?
While both companies have enjoyed steadily expanding revenue each quarter, neither has come up with anything resembling a profit. In their latest earnings reports, XM posted revenue of $264m but still managed to come out $122m in the red. Despite Sirius' $204m revenue, it posted a loss of $145m in the quarter.
While satellite radio revenue increases...
XM and Sirius have spent ridiculous amounts of cash trying to one-up each other with overpriced exclusive celebrities. Sirius payed $500m to ink Howard Stern for 5 years. XM countered with a $55m, 3-year contract with Oprah Winfrey. The spending increased losses at pace, but did precious little to boost revenue at a similar clip.
This deserves its own paragraph: Oprah didn't change anything. Oprah! The woman could bottle SARS and make a profit.
Total income remains in the negatives
Okay, forget the law and finances. What about the customer?
XM and Sirius assure regulators not to worry about price gouging. They propose to submit to regulations that temporarily lock prices to ensure customers won't pay more after the merger than they did before. Forgive us if a temporary ban before price self-regulation doesn't exactly foster the warm fuzzies.
Karmazin tells regulators that the merged companies will be able to sell more advertising. That's good for business, but not for one of the key appeals of "ad-free" satellite radio.
Being able to offer more channels is also a sticky wicket. XM and Sirius already use nearly all their bandwidth available for their current lineup. Some propose an a la carte option as a solution, but this usually leads to dividing content into lumps. Want sports? That's extra. Want comedy? That's a whole different package.
The merger would also impose the costs of new equipment. XM and Sirius use different satellite technologies, allowing units only to receive signals from one parent company.
As the regulators sloth their way toward considering this merger, they need to reach the obvious conclusion. XM and Sirius must fix their own business models separately. These companies don't make corn or even airplanes. They're not deserving of federal aid after abusing a government-created duopoly by over-spending.
There's got to be way to make money in satellite radio without eliminating customer choice and pissing on antitrust regulations.
Then again, if you can mess up with Oprah on your side, maybe it's time to throw in the towel. ®
COMMENTS
Obvious solution
If they want to merge, the government tells them to pick a hardware standard so that they're both on it. Afterwards, the government can grant a merger so long as one of the licenses are surrendered within 180 days of the merger. No worries about equipment, no worries about monopoly. Everybody gets transitioned to the same hardware, and now there's room for another competitor to come in and buy the other license.
Leave it to the United States government to screw that up, though.
There is competition
I switched to satellite radio (Sirius) in my car, and I would hate to go back to FM.
I have ten or so channels I usually listen to, but on long trips I might go through the spectrum a bit. There are good channels with good music on them. Its not perfect. The programming is very good but not great.
However, no commercials on the music stations I listen to. ESPN radio has commercials. Howard Stern has commercials (though they're really short and infrequent.) But, a) there's always something to switch to in commercials. I never go from a commercial to a commercial. b) I can see on the on-screen display which stations are on commercials and which are not.
I can listen to any NFL game. I can get notifications when scores change in anything except baseball.
Some of the music has stuff you won't find on any other radio station, except maybe some specific college radio shows. There is a classic hip hop station. There is a classic rock station (and it really is classic rock, not just Journey and Steve Miller.) And there's the BBC Radio 1.
Its worth my $10/month.
Regarding the merger, if it happens and they raise the price, I'll drop the service. Its not a utility. I don't need it, and neither does anyone else. So, let them merge. The worst case is they'll jack the price up, or add more commercials -- in which case they're out of business. I'd bet that most consumers of such a luxury item are totally sensitive to the price and quality of service. We do have alternatives. They suck, but they're alternatives.
Why did we start this anyway?
Sat radio was bust when it started. Gobs and gobs of elevator music that are the equivalent of Soma (see book: 1984) pills. What a waste of something that is expensive (how much for the radio?, and you want me to pay more every year?) and doesn't perform that well.
I can get a nice portable FM radio for about $20 that will work quite well. It even has an AM section that will tell me the local traffic (lots here in sillycon valley!). My nice "personal transporter" (it has a V8 in it!) even includes one already installed, and it is FREE after that. Satellite radio isn't that high quality and it will fade out in the drop of a hat (or overpass).
I might add that this "high definition" stuff is even worse. It doesn't work either and with the cost of radios that will receive it, that is dead as well.
What will probably happen is they they might let them merge, and when commercials are added (necessary to make money!!) the users will just say "why bother".
Let them die in peace as they are.
Remember how satellite phones were supposed to work? The only way they function now is because the original companies went "titsup". Sell the stock NOW!
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