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RW Opinion: Should Satellite Radio Merge?

XM and Sirius have spent a lot on operations and programming even while moving back the target dates by which they expect to break even.

XM and Sirius have spent a lot on operations and programming even while moving back the target dates by which they expect to break even. Now, both are experiencing a painful trifecta of new circumstances as they enter their fifth and fourth years in service, respectively:

  • The FM modulator probe by the FCC has cost both companies time to market for some products and added expense for redesigns;
  • New subscribers aren’t coming on as fast as they had been, while more automakers now plan to add iPod adapters to their vehicles;
  • Automakers that install satellite radios are having a tough time selling new vehicles.

Wall Street analysts are asking whether the companies will ever be in the black. Some investors want a quick fix — like a merger.

A merger might make good business sense for shareholders; but it wouldn’t serve the public interest. With a monopoly in pay radio, there would be no competition for hardware or subscription prices.

Consider what competition has wrought. Both spent billions of dollars to get themselves up and running, building studios, launching satellites and subsidizing receiver development. Sirius in particular spent a nail-biter of a first operational year, with satellites in space but no radios in the stores.

They’ve paid millions for high-priced talent to produce original programming. They offer programming that is interesting and well presented. Much of what’s on satellite is good radio.

Sirius and XM are also using their spectrum for other businesses, such as real-time traffic and weather services, and both are developing the ability to deliver video.

So competition with each other has pushed innovation, to the benefit of consumers. Traditional radio, in turn, has been forced to adapt to the presence of satellite. That’s good. But a single pay radio service would enjoy unfair competitive advantage against traditional broadcasters.

Also, XM and Sirius paid for spectrum, but the FCC still regulates how it’s used; in exchange for approving a merger, the commission might decide one of those two chunks of 1.2 MHz of S-band spectrum needs to be returned for re-auction.

In the consumer electronics world, satellite radio is now an established product category. This means radio prices will continue to drop at retail and the cost to make products are dropping as well. Lower prices usually means more sales, but the satcasters would receive less per radio as they get a percentage of each product sold.

Satellite has a finite window to reach more subscribers and cut costs before investors demand changes. The fourth-quarter selling season is crunch time and this may give merger discussions a boost.

But the trial balloon deserves to be shot down. The public, and the broadcasters who compete with these new satellite services, deserve that.

— RW