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Sirius XM

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Sirius Satellite Radio logo
XM Satellite Radio logo

On February 19, 2007, Sirius Satellite Radio and XM Satellite Radio announced a merger that would combine the two radio services and create a single satellite radio network in the United States.[1][2] The merger would bring both companies a total of more than 17.3 million subscribers based on current subscriber numbers as of 2008.

Pending approval of the deal, each share of XM stock will be replaced with 4.6 shares of Sirius. Each company's stockholders will retain approximately 50% of the joined company. Sirius CEO Mel Karmazin will retain his CEO title in the new company, and XM chairman Gary Parsons will retain his.[3] XM CEO Hugh Panero stepped down from his company in August 2007.[4]

Merger status

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A Senate antitrust task force is also looking into the proposed merger.[citation needed]

  • February 19, 2007, the merger was officially announced to shareholders of the company.[5] This came after many months of speculation by industry watchers. On February 20, an open conference call was organized between executives of both companies.[6]
  • March 20, 2007, the two companies filed a "Consolidated Application for Authority to Transfer Control" at the FCC.[7]
  • June 8, 2007, the FCC's Mass Media Bureau gave "Public Notice" that it had accepted the application for filing and started its informal six month merger review clock.[8] The notice also set a pleading cycle requiring comments or petitions be filed by July 9, 2007, and responses or oppositions be filed by July 24, 2007. Since FCC review of major transactions takes approximately six months, a ruling should be issued in early 2008.
  • October 4, 2007, Sirius and XM satellite radio announced that both companies will conduct a shareholder vote. Sirius scheduled its meeting for Tuesday November 13, 2007, for shareholders to vote on the proposed merger. XM scheduled a similar shareholder vote in Washington D.C. on the same date.
  • November 13, 2007, Shareholders of Sirius Satellite Radio Inc. approved the company's $5 billion acquisition of rival XM Satellite Radio Holdings Inc. 96% of Sirius Satellite Radio shareholder's votes cast approved the acquisition.[9]
  • January 15, 2008, it was reported that the FCC expects to come to a decision in Q1 2008.[10]
  • March 19, 2008 Senator Arlen Specter announced on The Howard Stern Show that the FCC expects to make a decision on the merger at the end of this month.
  • March 24, 2008, the United States Department of Justice announced it closed its investigation of the merger of the two companies, citing no harm to consumers or competition.
  • May 23, 2008, FCC Chairman Kevin Martin said at a press conference that "the Commission could act by the end of the second quarter", which ends June 30, 2008. Earlier that week senators called upon the FCC to enact strict requirements on the merger such as returning some of the radio spectrum to competitors and open its service to all manufacturers of satellite radio players.[11][12]

Stated benefits

Cost

Since both companies will operate as one, this may reduce the cost of licensing the broadcast material. It will also almost certainly reduce the staff required to run the company. Also, programming can be spread out among the companies' combined satellite constellations.

Variety

If all of the non-duplicate channels are kept, this will result in more programming being made available to subscribers of both services.

New development

With only one company to develop products for, the new company can afford to spend more money to develop new products.[13] So far, services have been developed which were not even conceived of when satellite radio was launched. XM and Sirius now carry satellite weather and traffic, and Sirius launched television programming in 2007. Likewise, it is expected that new technologies and products will continue to be developed and integrated in to the combined infrastructure of XM and Sirius.

Opposition arguments

The main opposition to the merger is the National Association of Broadcasters (NAB) and the Consumer Coalition for Competition in Satellite Radio (a shill group run by the NAB). NAB representatives have been present at both Congressional hearings, and have produced several advertisements regarding the merger. The NAB's contention is that the merged company will be a monopoly, and that their increased market power will harm consumers. The NAB's main goal is to drive Satellite radio out of business and to reduce competition for terrestrial radio. Four primary concerns are proposed:

Cost

As the only provider of satellite radio, the new company could raise the subscription price, and subscribers would have no choice but to pay it if they want satellite radio service.[14] Sirius argues that the competition from terrestrial radio, Internet radio, and portable media players would act to moderate the cost. Sirius CEO Mel Karmazin has also offered to fix prices in order to satisfy regulators and consumers.

Innovation

XM and Sirius are constantly developing new products. The original satellite receivers were larger and offered fewer features than modern receivers. The argument is that XM's competition with Sirius has prodded this progress.

Competition

The proposed merger would reduce competition.[15] Arguments against the merger state that none of the economic studies offered by XM and Sirius prove that the relevant product market is any larger than satellite radio services under the Department of Justice (“DOJ”) and Federal Trade Commission’s long-established Horizontal Merger Guidelines. Therefore, because XM and Sirius are the only two competitors in the satellite radio industry, it has been argued that their combination would result in a merger to monopoly, clearly in violation of section 7 of the Clayton Act, which forbids mergers that may tend to lessen competition substantially.[16] The proposed merger of XM-Sirius deviates from the standard way in which mergers are analyzed. Because their merger cannot prevail under the standard established by the Merger Guidelines, XM and Sirius seek to apply a different standard.[17]

Programming

Sirius and XM have both used star power to attract consumers. Howard Stern, Bob Dylan, Opie and Anthony, Bubba the Love Sponge, Martha Stewart and Oprah Winfrey are among the stars that have signed contracts with one of the two companies. Exclusive sports programming (The National Football League, Canadian Football League and NASCAR on Sirius and Major League Baseball, National Hockey League and AMA Supercross on XM) also drives consumers to one network or the other. Sirius and XM executives hope to lower the cost of this programming by merging; critics argue that the lowered cost will result in less total programming being made available. In particular, marquee sports and talk shows could be offered a la carte, similar to premium digital/satellite television tiers and out-of-market sports packages.

Remaining hurdles

The proposed merger faces scrutiny by the Federal Communications Commission, Securities and Exchange Commission, and possibly other federal organizations. The FCC also poses a major hurdle: when the satellite radio service was first created by the FCC, one of the licensing conditions was that one company could never own both satellite radio licenses. In order for the merger to be approved, the FCC would have to waive this provision. The request for transfer was filed with the FCC on March 20, 2007.

The question at hand is whether the merger will create a monopoly. XM and Sirius both assert that the company would not be a monopoly, as satellite radio is only part of the larger audio entertainment industry, which encompasses traditional terrestrial radio, HD Radio, digital media players such as Apple's iPod, and on-line radio. The battle in Washington, D.C., is heating up, with the National Association of Broadcasters pitting itself against the satellite radio companies.

In a strongly worded press release on February 19, 2007, the National Association of Broadcasters decried the plan, stating that the merger would create a monopoly in the United States satellite radio market.[18] The NAB continues to be the merger's largest and most outspoken opponent, having taken out full-page ads in Washington, D.C., area newspapers. NAB critics point out that the NAB's strong and outspoken interest in this transaction validates the opinion that Sirius and XM do indeed compete with the NAB's members. Merger proponents also point to NAB's own President and CEO, David Rehr, who previously stated that terrestrial radio competes with satellite radio.[19][20] NAB itself said the same--the opposite of its position on market definition today, an inconsistency noted in Reason magazine.[21][22] And at a recent public hearing on media consolidation issues generally, FCC Commissioner Jonathan S. Adelstein--normally a skeptic about further consolidation--characterized satellite radio (along with Internet radio) as competitors to terrestrial broadcasters:[23]

The fact of matter is that broadcasting still dominates the media today. In the 2006-2007 seasons, broadcasters – not cable, satellite or Internet programmers – had the top 200 highest rated programs on television. And all but a handful of the top 500 programs were on broadcast television. On the radio, the two satellite radio companies have a total of about 16 million subscribers and 50 million American last used the Internet for music, while over 240 million people listen to terrestrial radio on a weekly basis.

Further, 18 months ago, the NAB itself said:[24]

From a competitive standpoint, hometown radio broadcasters have little to fear from satellite radio companies. With 96% of Americans listening to free, local radio once a week and three-quarters tuning in daily – and satellite occupying less than 1% of the market – hometown radio continues to be the dominant source for compelling audio entertainment.

Congress has held four hearings on the merger,[25] but has not come to any clear conclusions.[26] No additional hearings have been scheduled since the Department of Justice terminated its investigation of the merger.

Canadian counterparts

In Canada, Sirius Canada and XM Canada are partially owned by their American counterparts in joint ventures with Canadian companies. The two Canadian ventures have not yet agreed to a merger. Complicating matters is that Sirius Canada has nearly 80% of the total satellite radio subscribers in that country, and feels they deserve greater than a 50/50 split of the new company. XM Canada feels that their deal with the NHL warrants a significant amount of value in the new company. The Canadian musical content mix ratio would also have to be negotiated for a combined XM-Sirius/U.S.-Canada service.

The Canadian Radio-television and Telecommunications Commission (CRTC) and the Canadian Competition Bureau would have to approve any merger between XM Canada and Sirius Canada.

Given recent assurances that both XM and Sirius will continue to operate as separate brands in the U.S. post-merger, it is conceivable that the Canadian companies could continue to offer competing services after the American firms merge. The combined XM/Sirius would nonetheless own significant minority interests in both XM Canada and Sirius Canada.

Technical

Receivers

Currently, XM and Sirius use different compression and conditional access systems, currently making their receivers incompatible with each other's service, though both companies have guaranteed that existing receivers will be able to receive content from both services after a merger.

Executives from both companies have stated that XM and Sirius will continue to operate as separate services. Buying another radio to receive programming from the other service will be optional.[27][28][6] However, a unified receiver that can receive programming from both networks would allow subscribers to listen to the entire range of channels. Interoperable Technologies, a joint venture of both companies, was formed in 2003 and announced such a receiver in 2006. Mel Karmazin has confirmed the existence and operation of the radio, "We have one. It's in my office." Karmazin's dual system radio can expect competitors--according to tech-site Gizmodo, Onkyo is entering the interoperable radio arena.[29]

Satellites

There are currently 7 satellites in orbit: 4 XM and 3 Sirius satellites. Each company also has a ground spare, of identical construction to its first generation of satellite. Also, Sirius will continue its plans to launch its newest satellite, Radiosat-5.

There are no publicly available facts concerning the cross-compatibility of the satellites themselves. If it is possible to use XM satellites to propagate Sirius's signal, this would give Sirius immediate access to a second geostationary satellite, which would improve reception for stationary receivers, such as those at businesses and homes. In the long term, consolidating transponders on to fewer satellites will reduce infrastructure costs significantly: to build and launch one satellite can cost more than US$300 million,[30] with a lifetime of approximately 15 years. Once next generation of satellites begins construction, combining satellite networks could result in a savings of US$40 million a year.

Programming

  • The merger conference call announced that previously exclusive content, including sports and talk, will be folded into one unified service which offers "even more channel capacity" and a la carte ordering of premium services (the ability to order a single channel or small subset of channels).
  • CEO Karmazin said in an interview that both the XM and Sirius brands will be offered as separate brands/services for the next 15 years.[27] Any combined or unified services would be in addition to these separate services.

Financial

  • Both companies compete primarily with free services. Executives from XM and Sirius both made it clear that they do not want to slow down the adoption of satellite radio, so they hope to not increase the subscriber price, but to gain new revenues from new services: video, navigation, and advertising.
  • One concern voiced by some subscribers regards the Sirius lifetime subscription: for a one-time fee, Sirius subscribers were able to obtain a lifetime subscription for a receiver. This subscription is tied to the individual receiver, and there was a concern that the subscription may not transfer to a new universal receiver. However, Sirius' FAQ page regarding the merger states that "Any plan you sign up for now will be honored by the merged company." As they also have guaranteed that no radio will become obsolete, it is likely that this concern will be addressed via some new, merged signal.[31]
  • While both companies declare the deal to be a "merger of equals", Bloomberg reports Sirius will acquire XM for US$4.57 billion in stock.[32]

Milestones

The following milestones have been set for the merger:[citation needed]

Date Event Comments
February 2007 Execute definitive agreement Announced February 20, 2007
March 2007 File FCC application Filed March 20, 2007
June 2007 FCC places application on "Public Notice" (DA 07-2417) Comments/Petitions due July 11, 2007; Responses/Oppositions due July 24, 2007
Nov 13, 2007 SIRIUS/XM shareholder votes Announced October 4, 2007. 96% of SIRI shareholders approved the merger,[33] and 99.8% of XMSR shareholders also approved.[34]
March 2008 Receive regulatory approvals On March 24, 2008, the U.S. Department of Justice ended its investigation of the merger (i.e., decided against blocking the deal).[35]
Pending Close transaction Anticipated early-mid 2008

Notes

  1. ^ "XM and Sirius to Combine in $13 Billion Merger of Equals" (Press release). PRNewswire-FirstCall via Mediaroom. 2007-02-19. Retrieved 2007-02-19. {{cite press release}}: Check date values in: |date= (help); Italic or bold markup not allowed in: |publisher= (help)
  2. ^ "XM and Sirius to Combine in $13 Billion Merger of Equals" (Press release). PRNewswire-FirstCall via Sirius.com. 2007-02-19. Retrieved 2007-02-19. {{cite press release}}: Check date values in: |date= (help); Italic or bold markup not allowed in: |publisher= (help)
  3. ^ "SEC Filing by Sirius Satellite Radio" (Press release). Edgar-Online.com. 2007-02-21. Retrieved 2007-02-21. {{cite press release}}: Check date values in: |date= (help)
  4. ^ "XM Chief Executive CEO Hugh Panero to Step Aside" (Press release). XM Radio via PRNewswire-FirstCall. 2007-07-24. Retrieved 2007-07-24. {{cite press release}}: Check date values in: |date= (help); Italic or bold markup not allowed in: |publisher= (help)
  5. ^ "XM and Sirius Merger News". XMRadio.com. Retrieved 2007-07-31.
  6. ^ a b "SIRIUS Satellite Radio & XM Satellite Radio to Combine in Merger of Equals (Webcast presentation)". Corporate-IR.net. 2007-02-20. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  7. ^ "Consolidated Application for Authority to Transfer Control". FCC.gov. 2007-03-20. MB Docket No. 07-57. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  8. ^ "XM and Sirius Transaction Team". FCC.gov. 2007-06-08. MB Docket 07-57. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  9. ^ "Sirius Shareholders approve XM Deal". yahoo.com. Retrieved 2007-11-13.
  10. ^ "FCC Chairmain says merger decision in first quarter". Orbitcast.com. 2008-01-15. Retrieved 2008-01-16. {{cite news}}: Check date values in: |date= (help)
  11. ^ "Martin: FCC May Rule on Sirius-XM Merger by June 30". Radio Online. 05-23-08. Retrieved 2008-05-28. {{cite news}}: Check date values in: |date= (help)
  12. ^ Kang, Cecilia (May 24, 2008). "FCC May Be Near Decision on Merger Of Sirius and XM". Washington Post. pp. D01. Retrieved 2008-05-28.
  13. ^ Hazlett, Thomas (2007-06-14). "The Economics of the Satellite Radio Merger" (PDF). XMMerger.com. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  14. ^ Sidak, J Gregory (2007-03-29). "Expert Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc". Social Science Research Network. Retrieved 2007-08-01. {{cite web}}: Check date values in: |date= (help)
  15. ^ Sidak, J Gregory (2007-07-09). "Supplemental Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc". Social Science Research Network. Retrieved 2007-08-06. {{cite web}}: Check date values in: |date= (help)
  16. ^ Sidak, J Gregory (2007-10-1). "Third Supplemental Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc". Social Science Research Network. Retrieved 2007-10-03. {{cite web}}: Check date values in: |date= (help)
  17. ^ Sidak, J Gregory (2007-1-29). "Evaluating Market Power with Two-Sided Demand and Preemptive Offers to Dissipate Monopoly Rent: Lessons for High-Technology Industries from the Proposed Merger of XM and Sirius Satellite Radio". Social Science Research Network. Retrieved 2007-01-31. {{cite web}}: Check date values in: |date= (help)
  18. ^ "NAB Statement in Response to Sirius/XM Proposed Merger" (Press release). National Association of Broadcasters. 2007-02-19. Retrieved 2007-07-31. {{cite press release}}: Check date values in: |date= (help)
  19. ^ "The Future of Broadcasting" (Press release). National Association of Broadcasters. 2006-10-04. Retrieved 2007-07-31. {{cite press release}}: Check date values in: |date= (help)
  20. ^ "Speech by David K. Rehr" (Press release). National Association of Broadcasters. 2006-09-21. Retrieved 2007-07-31. {{cite press release}}: Check date values in: |date= (help)
  21. ^ "2006 Quadrennial Regulatory Review" (PDF). NAB.org. 2006-10-23. MB Docket 06-121. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  22. ^ Balko, Radley (2007-04-19). "Dinosaurs vs. Satellites". Reason Online. Retrieved 2007-07-31. {{cite news}}: Check date values in: |date= (help)
  23. ^ "Statement of Commissioner Jonathan S. Adelstein, FCC Hearing on Media Ownership, Tampa, Florida" (PDF). FCC.gov. 2007-04-30. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  24. ^ National Association of Broadcasters, Issue Paper: Satellite Radio
  25. ^ TheStreet.com staff, Cramer's 'Mad Money' Recap: Tired of Waiting on XM-Sirius, in Entrepreneur.com (2008-02-25)
  26. ^ "Sirius CEO visits congress". WikiNews. 2007-03-02. Retrieved 2007-07-31. {{cite news}}: Check date values in: |date= (help)
  27. ^ a b "Sirius CEO discusses post-XM merger service plans". USA Today. 2007-02-27. Retrieved 2007-07-31. {{cite news}}: Check date values in: |date= (help)
  28. ^ "XM Satellite Radio Q4 2006 Earnings Call Transcript". SeekingAlpha.com. 2007-02-26. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  29. ^ Ramirez, Louis (2007-04-24). "Onkyo Debuts World's First XM, Sirius, HD Radio Tuner". Gizmodo. Retrieved 2007-07-31. {{cite web}}: Check date values in: |date= (help)
  30. ^ "XM Could Launch XM-4 Satellite A Year Early". Forbes. 2005-06-09. Retrieved 2007-07-31. {{cite news}}: Check date values in: |date= (help)
  31. ^ "Sirius/XM Merger". Sirius.com. Retrieved 2007-07-31.
  32. ^ Stern, Christopher (2007-02-19). "Sirius to Acquire Larger Rival XM for $4.57 Billion". Bloomberg. Retrieved 2007-07-31. {{cite news}}: Check date values in: |date= (help)
  33. ^ Orbitcast.com, Sirius stockholders approved merger
  34. ^ Orbitcast.com, XM shareholders approve merger
  35. ^ Department of Justice, Statement of the Department of Justice Antitrust Division on its Decision to Close its Investigation of XM Satellite Radio Holdings Inc.’s Merger with Sirius Satellite Radio Inc.

See also

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