XM and Sirius are officially merging, reports the front page of today’s New York Times. Though the $13 billion merger will cut significant competitive costs in sales and marketing, the combined company faces a number of problems:

“The two companies, which report close to 14 million subscribers, hoped to revolutionize the radio industry with a bevy of niche channels offering everything from fishing tips to salsa music, and media personalities like Howard Stern and Oprah Winfrey, with few commercials. But neither has yet turned an annual profit and both have had billions in losses.”

“A merger would require antitrust approval from the Justice Department and would have to be considered in the public interest by the Federal Communications Commission…Under their operating licenses, XM and Sirius were prohibited from ever owning each other’s license. The commission could waive that rule. But critics pointed to its rejection of the merger of the satellite television broadcasters EchoStar and DirecTV four years ago.”

Doc Searls hashes out other issues with the merger,

“I don’t care how diverse the programming becomes, it’s still coming from too few companies. When the choice gets down to one, I guarantee that programming will have a homogenous quality to it…Yes, satellite radio is live while most of the other choices are just stored files; but files are easier to distribute and lend themselves to iPod-style listening. As Dave says, listeners want to program their own “stations”. Many listeners, which we used to call “consumers” are now also producers, for themselves and others. Where does satellite radio fit in that picture? I don’t think even Mel Karmazin knows…The running costs of maintaining satellite radio infrastructure is high, to say the least…Subscriptions may be enough [to cover revenues]. But if they’re not, what will happen when something better obsoletes the kind of advertising that has sustained radio for the druation? I may be wrong about this but I’ve long believed that the inherent inefficiencies of broadcast advertising will doom the model in the long run.”

Discussion:

• Sirius-XM: FCC Chairman Kevin Martin and Defining Competition (PaidContent.org)
• XM and Sirius Finally Merging: Will it Matter for Long? (TechCrunch)
• Satellite Radio Firms Plan to Merge (Washington Post)

This entry was posted on Tuesday, February 20th, 2007 at 12:50 pm and is filed under Investment, M&A. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.