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Early Reviews of Proposed XM-Sirius Deal: Thumbs Down

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XM and Sirius are merging. Or maybe they’re not. (And, since Sirius is handing over $4 billion to XM, why are we calling it a merger?) While Sirius CEO Mel Karmazin and others make the case for the hookup, others are weighing in on whether they think the $13 billion deal will go through.
Let’s start with the regulatory problems. As Idolator notes in its bad-pun headline, the merger faces some “sirius” hurdles. After all, as the Associated Press points out, there is an FCC provision that specifically forbids the two companies to combine. A widely quoted FCC Chairman Kevin Martin made it clear that the commission wasn’t going to rubber-stamp the deal. In The New York Post, Jimmy Schaeffler of the Carmel Group likened the potential mix to the doomed attempted merger of EchoStar and DirecTV in 2003. Terrestrial stations are lining up against it, too. (It will be interesting to hear how Karmazin, who at CBS was once the king of terrestrial radio, responds to them.)
XM-Sirius would have to deal with the ramifications of its programming decisions. So far, the programming is either high-profile celebrity or, especially on the music channels, nearly identical. Many of the channels would become redundant (one “hair metal” station is certainly enough). Part of the reason the two networks are hemorrhaging money is that, as Adweek reports, “Sirius and XM have created their own problems by striking expensive deals in order to one-up each other.” Now, they would need to scale back because there is so much overlap in what the two networks offer. The content is expensive — maybe too expensive in the absence of competition. Howard Stern’s $500 million agreement over five years is famous, and a sign of how the bidding war hurt bottom lines is what happened when Sirius wooed NASCAR away from XM. The XM deal, now ending, was $15 million for five years; the new five-year deal, at Sirius is for $107 million. What are these deals worth when there’s no one else pushing up the price? “We will be taking every effort to find the best possible programming combination,” said XM chairman Gary Parsons, without giving much more detail.
And then there’s the technology question. As Wired News notes in its handy “10 Things You Might Not Know About the Sirius-XM Merger” post, “Sirius and XM’s receivers are incompatible: it won’t be elementary to combine the two services, and to get both, you’ll probably have to buy a new receiver.”
The big question, yet unanswered, is whether even a satellite monopoly that jumps over the regulatory, programming, and technical hurdles can make money. The Financial Times points out that the companies have spent more than $6 billion to attract 14 million subscribers. In the age of iPods and podcasts, it appears as if the radio programmers consumers trust most are — themselves.
Sirius-XM: Making the Case
Sirius-XM: FCC Chairman Martin and Defining Competition