Sirius-XM Deal Moves

 

The proposed merger between satellite radio giants XM Satellite Radio and Sirius Satellite Radio seems closer to becoming a reality, following Federal Communications Commission Chairman Kevin Martin statement yesterday that "with the voluntary commitments [the companies have] offered, on balance, this transaction would be in the public interest." Martin asked for a total of eight concessions, including lifting restrictions on the hardware that is able to transmit the enlarged company’s broadcasts, and opening some channels to noncommercial and minority-owned broadcasters.

BusinessWeek has some analysis on how the FCC-imposed concessions may actually help Sirius and XM, and expand the reach of satellite radio:

 Some merger conditions may even help the combined company achieve its goal of reviving growth, which has slowed in recent months. Take the seemingly major requirement that the companies allow any hardware manufacturer to make and sell satellite radio receivers. This would appear to make it easier for consumers to choose between satellite radio, HD radio, music players, and other rival formats. Yet looked at another way, with satellite radio no longer limited to stand-alone devices, it might find its way into more gadgets, such as phones and music players. That, in turn, could widen satellite radio’s distribution. What’s more, Sirius and XM may be able to save money by no longer having to subsidize satellite radio players, as they do now.

Consider the requirement that Sirius-XM make 24 channels available for noncommercial and minority programming. "That can create demand for these users to sign up for the service," says James Goss, an analyst at Barrington Research. Yes, the condition means the two companies must get rid of about 8% of their current programming—but analysts estimate there’s as much as a 50% overlap between the XM and Sirius program lineups anyway. What’s more, by giving away 24 channels, Sirius-XM also may save on programming fees. "If anything, it should save Sirius-XM money," says April Horace, an analyst at Janco Partners.

Martin’s statement doesn’t mean the deal is done, however; "Martin needs at least two other commissioners to vote for the deal, and FCC sources tell BusinessWeek.com he hasn’t yet been assured he’ll get those votes."  And as a letter writer to the Wall Street Journal observes, there’s plenty of precedent for long delays from the FCC: 

[B]y FCC standards, the 400-plus days that the XM-Sirius matter has been languishing before the agency is not very long. Delay has been a serious problem at the FCC for as long as the agency has been in existence….

Just this month the FCC acted to affirm an action by its staff that was taken six years ago denying an extension of time for construction of a radio station that had originally been authorized in the early 1980s but had never been built. The six-year delay in taking action that the FCC, expert agency that it is supposed to be, should have [taken] six days, or at most six weeks.

And the LA Times reports that Martin’s conditions haven’t satisfied the merger’s fiercest critics: 

Two leading consumer advocates blasted the proposed conditions as failing to ensure that satellite radio prices won’t eventually rise. And Martin, a Republican, may have trouble pushing his proposal through the FCC….

Despite intense opposition from the National Assn. of Broadcasters, which represents traditional radio stations, the Justice Department approved the merger in March. Antitrust regulators agreed with Sirius and XM executives that their combination would not create a monopoly because iPods and other devices give people growing options for listening to music in their cars and elsewhere.

But Martin had said the merger faced a high hurdle at the FCC, which, to ensure competition, barred any future merger when creating satellite radio in 1997. Martin has pushed Sirius and XM to formalize some pricing promises made to lawmakers and agree to other conditions.

The companies first announced their intended merger, now valued at about $3.85 billion, in February 2007.

Leave a Reply