FCC Chairman Considers Sirius-XM Merger "in the Public Interest"

By Mike Caggeso

The dormant, yet important, proposed $5 billion merger of Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR) cleared a major hurdle, as Federal Communication Commission Chairman Kevin Martin backed the merger - with stipulations.

Concessions Martin recommended include: the stations turn over 24 channels to noncommercial and minority programming as well as a three-year freeze on prices and packages. Both satellite stations have already accepted Martin’s conditions.

“As I’ve indicated before, this is an unusual situation,” Martin said in a statement. “I am recommending that with the voluntary commitments they (the companies) have offered, on balance, this transaction would be in the public interest.”

Martin said Monday that he would propose the FCC approve of the conditional merger. Reuters reported that the proposal could be as early as this week, citing sources at the FCC. At least two more of the four remaining FCC commissioners need to approve of the merger for it to pass, and it’s possible they may add more stipulations.

Nevertheless, the news gave shares of both satellite radio brands a spike in pre-market trading Tuesday morning. By mid-morning Monday, Sirius was up 4.72% and XM was up 5.06%. Sirius closed up 8 cents for the day with an increase of 3.15% to close at $2.62. XM gained 40 cents, an increase of 3.68%, to close at $11.27. 

In March, the Department of Justice approved of the Sirius-XM merger, saying it would not violate anti-trust laws because the satellite radio providers face competition from AM and FM broadcasters, television, mobile phones and online music stores and radio stations.

That didn’t bode well for members of the National Association of Broadcasters - including billion-dollar media titans Hearst-Argyle Television Inc. (HTV), Gannett Co. Inc. (GCI) and Belo Corp. (BLC) - one of the most powerful lobbies in the world and an ardent opponent of the merger.

“We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius’s refusal to deliver on a promise of interoperable radios is nothing short of breathtaking,” The National Association of Broadcasters said in a March statement.

Should you buy?

Though shares spiked in hopes the merger will go through, the cons still outweigh the pros, said Lou Basenese, an M&A expert and editor of investment newsletters The Hot IPO Trader and The Takeover Trader.

Together, the companies boast more than 15 million subscribers, but both have lost money since they started. They hope the merger will save operating costs.

“Don’t buy either stock, even if they finally get FCC clearance. Ultimately, share prices follow earnings. And neither of these companies have any. Combining won’t change that fact,” said Basenese, who has been following the Sirius-XM merger from the beginning.

Moreover, while the premium content of each satellite radio provider is worth its suggested new price (from $6.99 a month to $16.99 a month depending on the package), a merger would combine the debts each station paid to have content from the likes of Howard Stern and Oprah Winfrey.

“Both companies overspent to acquire content in a bid to expand subscribership as fast as possible - a fatal mistake that will make sustained profitability (as independent or combined companies) impossible for years to come,” Basenese said. 

Comments

[163888]

Here is a thought, How many subscribers do you think hold both SIRI and XMSR right now, and are paying the 25.9 each month for both. I have to say, I think the percentage is very very low. Now how many subscribers do you think that have had all the content that they have been exposed to from ether SIRI or XMSR would go down to the 6.99 subscribtion that really only offers music channels. I think that percentage is very very low, as a matter of fact if they would go for that package then chances are there is a big percentage of those that would have (churned out) left anyway. Now how many people that pay 12.95 a month to get one would not mind paying 2 or 4 dollars more to get the SIRI/XMSR you have now plus the best 13 channels from the other. IMO, The al la cart will not only lower churn, but may actually bring up the ARPU. Give them a year and then you will have another price point that will offer, access to both full services, for some higher price.

Here is an example I think we all can agree with: How much did you start paying for your cable/satellite tv when you first got it. Now how much are you paying. I would be willing to bet most have upgraded to the extra package and are now paying more then they did when they first started it.

All I am saying is when you here analyst say the al la cart is going to bring ARPU way down think about what happen to your cable/satellite tv bill. Just a piece of common sense. I also believe Mel Karmazin has thought about it to.

[mgv11]

Lets see... CATV $20, now $180, which includes Internet and MLB programming during the summer. Further thought.... should I send my extra $5 to Siri or XM. 16388 your thoughts were much more relevent than Mr. Caggeso's rear view mirror.

[muley101]

Here is another thought. Car sales are slow because of the economy. Dealerships will include multiyear subscriptions in ALL new and many used cars in order to get them off the lot. Within a year, cars without satillite radio will be as common as houses without cable TV. Also, home stereo receivers without satilllite radio will be as common as receivers withour Dolby sound. Subscribers should double over the next two years. Thse stockholders are betting on the growth that will surely come and satillite radio will be profitable very soon.

[163888]

Stan, I like your comment except, and dont get me wrong I like satellite radio, just not enough to buy a car on.