XM/Sirius: The Wedding March Goes On

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.


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