The nation's two dueling satellite radio companies, Sirius and XM, say they will merge. The unnamed new company would be valued at $13 billion, promising a greater range of channels for subscribers and higher stock prices for shareholders. But there are indications that federal regulators will not look kindly on the deal.
XM and Sirius each charge subscribers roughly $13 a month for similar lineups of music, news, entertainment and sports stations. At XM, that has meant Oprah, Bob Dylan and major league baseball. At Sirius, it has meant the NFL and Howard Stern... and the rest of the lineup almost doesn't matter after Howard Stern. Sirius gave him a package worth more than $500 million to leave FM radio. Millions of new listeners signed up, reviving Sirius' fortunes.
Craig Moffett, a senior cable and satellite analyst at the investment firm Sanford C. Bernstein, says a merged satellite radio giant would have good incentive to keep subscribers happy.
"In this case, these competitors have been competing more against customer lethargy than against each other," he said. "They're trying to get customers to try a new service."
To date, Sirius and XM have never turned a profit and their stock prices have tanked. They face tough competition from broadcast, digital and Internet radio stations — and, of course, iPods.
The two companies believe they can save $3 billion to $7 billion by combining. Sirius CEO Mel Karmazin, who would become the new company's CEO, has been wooing XM's corporate board like a lovesick sophomore for months.
But analyst Craig Moffet says there is only a 50/50 chance the deal will go through. It relies on approval from anti-trust regulators at the Justice Department and from the Federal Communications Commission.
The FCC's top official said the commission would consider the merger, but added a warning:
"The hurdle here would be high, however, as the Commission originally prohibited one company from holding the only two satellite radio licenses," FCC Chairman Kevin Martin wrote. "The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices."
The National Association of Broadcasters, a powerful trade group of television and radio stations, also argued against what it said would be a new monopoly in satellite radio created from two struggling rivals.
"Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace," NAB Executive Vice President Dennis Wharton said in a statement.
National Public Radio has ties to players on both sides of the issue. Some NPR shows are currently carried on Sirius, while many NPR member stations belong to the broadcasters' trade group.
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