Phrenzie.com

Well, in the never ending saga of the XM/Sirius merger, the FCC Chief, Kevin Martin, said he’s cool with the deal, especially after Sirius/XM proposed to freeze rate increases for three years. 

One of the commissoners, Michael Copps, said that he didn’t see how the merger would benefit consumers.

Well, I think that’s one of the reasons that explains why this deal has been held up.  Both companies, on their own, are not profitable (cash basis and GAAP), and there appears to be no reason to expect them to be profitable in the near future.

As a result, they will cease to exist. 

In my mind, that is worse for consumers…there will be no satellite radio at all if the merger doesn’t happen. 

Here are the other items that XM and Sirius have proposed (from Washington Post).

· Place price caps on programming and offer a la carte programming so that subscribers could pick programs they want and not have to subscribe to all channels or certain packages. Officials with XM and Sirius said they would offer radios configured for a la carte programming within three months of the merger.

· Open their technology standards to any radio-device manufacturer, paving the way for consumers to buy radio transmitters from retail stores. Currently, subscribers must buy directly from XM and Sirius, or through car manufacturers that have installed the devices in new cars.

· Provide interoperable radios. Current subscribers have radios that deliver programming from either XM or Sirius. Within one year of the merger, these listeners will receive radios that could access programming from both providers.

· Each set aside 4 percent of their radio spectrums, or 12 channels, for noncommercial services such as educational and public safety programming. They would lease another 12 channels for programming run by minorities and women, groups that are underrepresented in entertainment broadcasting.

XM released earnings today and, losses for the quarter were greater than expected.  Losses for Q1 were $129 million.  Sirius, on the other hand, also reported losses, but were less than expected and came in at $104 million.  What’s more important is cash from operations.  XM didn’t report this number in the press release, but Sirius did, which was a cash loss of $139 million.  I would presume that XM has a cash loss as well.

Damn!

When I first began to watch these companies in 2004, both expected to be cash break even in two years…so 2006.  It’s 2008 and it doesn’t sound reasonable to expect a cash profit by the end of the year.

I’m saying, why not allow them to merge.  There’s but so much debt and equity that the companies can issue. 

I don’t know that if together they will be better off in the short-term, because it’ll depend the level of short and long-term financial commitments (like the use of satellites), but presumably there are some operations that will provide considerable cost savings. 

I’d say, let them merge or expect them to die off over the next few years and then you won’t have any competitors in this space.  I can’t imagine someone buying them…except to cell off some of the assets.

There doesn’t appear to be much of an argument for keeping them separate on anti-trust grounds. 

Why is XM/Sirius Merger Still not Approved by the FCC?

The merger between the only satellite radio companies is still on hold, pending approval from the FCC.  What I don’t get is why the hold up?

Sure, on the one hand, there are two companies who own the satellite radio space.  Thus, on the surface, if the FCC agrees to the merger, then it would create an absolute monopoly, which is a no no.

But that presumes that there is no competition.  Not true. 

Satellite radio competes, in some cases, ineffectually, with terrestrial radio, MP3 players in cars, CDs, TV, internet, stereos and pretty much any other at-home or in-car entertainment system.

In general, it’s combining two companies in a space that doesn’t monopolize radio, or entertainment as a whole i.e., is a drop in the bucket among the litany of entertainment choices). 

So think of it like combining all the major movie theatres.  Theatres, like sat radio, mark a fraction of the distribution for movies.  People watch their movies on the internet, on their mobile devices, laptops, DVD players AND in theatres.  Like satellite radio, it’s an impact, but not a major one (not like having an oil monopoly.

So combining XM and Sirius does not create a monopoly in the broader sense.