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Summary:

It was starting to look like the merger that time forgot. For months, there had been chatter about a possible corporate coupling between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI). The discussion reached a fevered pitch in February, when it became clear that both […]

It was starting to look like the merger that time forgot. For months, there had been chatter about a possible corporate coupling between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI). The discussion reached a fevered pitch in February, when it became clear that both companies were in favor of a deal — not technically a merger, per se, but the acquisition of XM by Sirius for some $5 billion: Would it be a monopoly? Would it force FM radio to be more tolerable? Would the FCC tolerate it?

Enter FCC Chair Kevin Martin, wearing a black hat and twirling an imperial moustache. The deal wouldn’t be killed, but it would be cryogenically frozen. The chatter quieted, and the press moved on. The stocks of the two satellite radio companies wilted like neglected houseplants.

Nine months later, suddenly the marriage of Sirius and XM is waking up again. The Wall Street Journal reported Wednesday that “the deal might somehow pass muster” with the FCC after all. An official recommendation from the Department of Justice could come soon after Thanksgiving, according to the WSJ, with a recommendation from the FCC to follow.

Chief among the events that have shifted investor perception of the proposed tie-up, the Journal noted, came from the companies themselves: XM and Sirius are willing to accept pricing tiers, charging according to the number of channels their customers choose.

“The proposal was aimed squarely at FCC chief Kevin Martin, who has long made tiered pricing a personal crusade with cable-TV operators. Bringing such a pricing plan to radio could prove an effective cudgel for similar plans in cable. ‘In a five-dimensional chess game for Kevin Martin, it was a very important move,’ says RBC Capital Markets analyst David Bank. ‘He can go back and say, we want à la carte pricing, and satellite radio is doing it.'”

Rumblings of the Sirius-XM deal’s revival in fact came a few days earlier, when Rep. Rich Boucher (D-Va.) argued for its merits in a piece for BusinessWeek that read as though he was channeling a satellite-radio lobbyist. After arguing that the merger wouldn’t hurt consumers (who “don’t have to drive anywhere to find a competitive alternative, they just have to hit a different button on their car stereo”), Boucher went over some details on the new pricing menu.

“XM and Sirius…will offer eight different program packages post-merger, including several options that will enable consumers to select channels on an à la carte basis and to pay substantially less than the current subscription prices…One new programming option will let subscribers choose 50 channels for just $6.99 — a 46% decrease from the current standard subscription rate.”

Of course, if XM and Sirius were really interested in giving consumers the best offering, they wouldn’t combine at all. They’d also end all their exclusive relationships with MLB, the NFL and personalities like Oprah Winfrey and Bob Dylan, provide the kind of flexible pricing they are offering now only under duress — and let consumers choose.

That would be a true market-driven approach. This slowly brokered merger is the best we’re going to see. But if it helps push the cable companies to be more flexible, it would be worth the wait.

  1. “Of course, if XM and Sirius were really interested in giving consumers the best offering, they wouldn’t combine at all. They’d also end all their exclusive relationships with MLB, the NFL and personalities like Oprah Winfrey and Bob Dylan, provide the kind of flexible pricing they are offering now only under duress — and let consumers choose.”

    How ridiculous.

    Should fox allow NBC to show Idol?
    Should NBC allow the Olympics on PBS?
    Can this article also run on TechCrunch?
    Why not run Oprah on all the channels at 4pm (here in NY). No need for exlusivity after all.
    If so, why cant I just run an RSS feed of GigaOm and run some adds next to it?

    This argument makes no sense. How can you offer content that can then be made available on other outlets. What would they be paying for. This is a fundamental misunderstanding of the entire economics of the media business – and dare I say all business. Companies pay for exclusive rights to content, for exclusive broadcast rights etc., because it cant work any other way.

    Sometimes I think techies ought to just stick to writing about tech (and I am a techie). This is embarrassing.

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  2. @Hank Williams, the problem with the satellite radio “exclusivity” is not that programming isn’t shared by the same channels, but at the moment, the exclusive programming is attached to separate subscription services which are only available to equipment which is currently incompatible with one another.

    If XM and Sirius were serious of offering those packages to consumers, they should offer them NOW, before there is a merger. DirecTV and USSB were able to coexist for years, allowing both of their programming to be available with the same equipment. They don’t need a merger to do that (although DirecTV eventually bought out USSB). I want Howard Stern AND Major League Baseball. I’d also like to see Sirius offer a Howard Stern-only internet subscription for $5 per month.

    Additionally, if the FCC allows a merger, they should also allow a new satellite radio license. The merger should not be thought of as one company owning two licenses, but combining all assets, including licenses, into one, profitable company. This would open up space for a potential new competitor to the combined XM (I’m sure they’ll take the XM name, since its just genius).

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  3. [...] Generally I like Kevin Kelleher’s work, and that includes the first four-fifths of this piece on the proposed combination of Sirius and XM Satellite Radio: XM/Sirius: The Wedding March Goes On [...]

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  4. “@Hank Williams, the problem with the satellite radio “exclusivity” is not that programming isn’t shared by the same channels, but at the moment, the exclusive programming is attached to separate subscription services which are only available to equipment which is currently incompatible with one another.”

    huhh…?

    You mean when you are competing with someone, its not right to try to offer products their competitor(s) dont?

    So HBO should be required to offer their entire library to hulu since hulu requires “separate equipment” from HBO?

    Again. Ridiculous.

    The platform issues are interesting, but unrelated to the question of what is or is not appropriate to do in a competitive market. Your suggestion sounds like media socialism.

    Your analogy to to satellite TV is also wrong, because satellite (wisely) doesnt produce programming – they dont have to. The satellite radio market is so small that the networks have to create programming. Do you really think Oprah would have produced a satellite radio show without being paid big bucks? Do you think XM or Sirius would have paid for baseball or football if it offered no competitive advantage? Do you think MLB or NFL would have allowed their content to be broadcast nation wide (competing with local contracts) without big bucks?

    What you are suggesting would be great for consumers. But then again so would free satellite radio. So your ideas are very well intentioned, but they are not in any way based on business reality. In your world there would be no Satellite Oprah, or MLB, etc, because the neither company would pay for it.

    Oh and by the way – no one will be stupid enough to put up more satellites so “allowing” someone the privilege of having the other license is like “allowing” someone to chop off your left foot. Satellite radio is now a dumb, money loosing business that even combined, will barely eek out profitability against much more cost effective technologies.

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  5. I just can’t beleive how long it has been to approve this thing? A monolopy come on. If you dont want it dont buy it. And it it makes it cheaper for me to get the things I want to listen to why the hell not.

    Also why would they make it free? The fact I can listen to music without all the bullshit radio talent out there and no commercials is priceless. That’s one of the biggest selling points. And plus the fact that thwy will have the bandwidth to do video is even more impressive.

    I can’t wait until this happens. FCC open your damn eyes and ears for that matter.

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  6. Kevin Kelleher Monday, November 26, 2007

    Hank,

    First of all, let me say I have loved your music for most of my life. “Your Cheatin’ Heart” – it never gets old. “Lost Highway” – a chilling classic. “Lovesick Blues” – I can’t tell you how many times I’ve broken into that after a beer too many.

    I feel like listening to some of those songs now. Should I dig out the CD I bought in college? Or listen on Rhapsody? Or find it on Last.fm? Or iTunes? Or troll the FM dial until a country music station plays it? Or find it on a DVD whose soundtrack includes them? Or … well, you get the idea.

    You won’t find Idol on NBC, but you will find it on YouTube, or many places on the Net. There are old models for distributing media, and new ones. You (and NBC and Viacom and others) are arguing passionately for the old one. XM and Sirius are two companies posturing themselves as an innovative new media format adhering to old models. If Om wants to let TechCrunch or anyone else post my stuff that’s fine with me, as long as I get my due.

    Anyway, thanks for your thoughts. I’ll catch you on the jukebox.

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  7. What would make satellite radio more competitive would be if the radio could receive both and you pay for the shows you want….be it stations by sirius or XM. Pick packages, give the person a choice of say 10/20/50/100/200 stations, let them choose the ones they want from either so if the blues are better on Sirius and jazz is better on XM let me choose. I only listen to 5 different stations on a regular basis…if someone else is in the car we may listen to another. Satellite is not like broadcast networks(NBC/FOX/HBO) Oprah and others could make a satellite only show, if you want it pay and extra dollar or so a month regardless of which company you use.

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  8. The problem with the “a la carte” option is that it ends hurting niche genres (which is the main reason many of us flocked to Satellite in the first place).

    Say you are a fan of opera or bluegrass. If XMirius offers an a la carte packages, most people will sign up for the more popular genres (rock, pop..)and the company will end up putting more resources towards those channels since they are the main revenue drivers at the expense of your favorite channel. Channels like Opera and bluegrass will end up having a track rotation without any programming, personalities, etc… so, many of us will end up heading back to mp3 players and (gasp) CDs.

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  9. “You won’t find Idol on NBC, but you will find it on YouTube, or many places on the Net. There are old models for distributing media, and new ones. You (and NBC and Viacom and others) are arguing passionately for the old one.”

    Kevin,

    Your original argument is not about what the best model (as in business) is but what the “best offering” is. That statement did not sound like an argument for maximizing profit but for giving consumers what you think they want. Often what consumers want (i.e. free everything, no ads, etc) is not a very good model at all. Indeed, if I were a stockholder, I would be far more interested in “the old model” for broadcast media which is highly profitable, than the “new model” which essentially makes no money off of audio/video content. Certainly, if I am a satellite shareholder, I want my company to get more users than the other guy and therefore more revenue. And yeah, if beating the competition into the ground with every tool I have is old fashioned, I’ll totally cop to it.

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  10. @JAS2803

    “Satellite is not like broadcast networks(NBC/FOX/HBO) Oprah and others could make a satellite only show, if you want it pay and extra dollar or so a month regardless of which company you use.”

    The problem with this is it doesnt work economically. Not enough people would pay a la carte for Oprah to cover the cost of her contract. But she still has enormous economic value to the brand, and to the XM vs Sirius discussion which they are trying to impact with these deals.

    Its interesting to me that none of these arguments about what XM and Sirius should in any way take into consideration what would actually be good for the business. I know we’d all like everything to be free, but a little actual business discussion, instead of “I’d like this for me” would be interesting.

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