Woah. So XM and Sirius are looking to form a more perfect union. And, at long last, Howard Stern and Oprah fans will have something in common other than being married to each other.
Of course, there are lots of regulatory hurdles that could keep the ink from drying on the deal (a failed merger by satellite TV providers EchoStar and DirecTV immediately comes to mind), but lets assume, for argument’s sake that, that when it’s all said and done, two become one, as the Spice Girls sang.
Unlike most corporate mergers, which are typically only noticed by Wall Street Journal readers, this one will have a huge impact on millions of satellite radio subscribers–An impact in both what you listen to and what hardware you use (and whether your existing receiver becomes a brick).
One of the biggest questions facing consumers is the fate of their existing receiver. Is it going to be a piece of junk once the companies merge? As of press time, none of my contacts had any information about this, so I’m going to do what I do and speculate.
I will say that, soon after the merger, it is a near certainty that either the XM or the Sirius receivers (or both) that are currently on the market will be useless. There is not enough space on the spectrum for both services to simply combine their channel line-ups and pump all stations to all subscribers (nor is this likely for other reasons which I will get into below). So, depending on whether the new service uses the “XM Transmission Standard”, the “Sirius Transmission Standard”, or an entirely new standard, some subscribers are almost certain to be left with a very expensive paperweight.
And that lifetime Sirius subscription? Read the fine print—it’s the lifetime of your receiver. Ouch.
If the merger bricks receivers, the new company will have two options if they want to avoid a huge consumer backlash. I’m not quite sure on the technical issues associated with it, but their best bet is to offer some sort of firmware update that will allow existing receivers to tap into the new satellite arrangements. This would be far cheaper than replacing millions of useless receivers (not to mention less landfill-filling.)
The second option is to subsidize new receiver purchases for existing customers. The problem with this is that it will be enormously expensive, and ensures an almost certain exodus of casual subscribers who perhaps only signed up at the urging of a pushy car salesman.
Which brings us to the next big question mark: factory-installed car units. The largest battlefield for satellite subscription dollars has been Sirius and XM’s courting of car makers. These users may pay the same subscription fee (often with a nice trial period to lure them in), but they are not the techie early adopters who are ponying up for XM’s Innos and Sirius’ Stilettos. Replacing units built into cars is tough, and not something that the average guy can do on his own, even if he was willing. If the new combined service is not compatible with all existing XM and Sirius receivers, we will witness a virtually-overnight disintegration of millions of drivers from the satellite radio subscription base.
Match up the music programming lineups of XM and Sirius and it’s obvious how much they overlap. Simply combining the two lineups would result in illogical glut of seemingly-redundant microniche stations (although I love both XM’s Fred and Sirius’ First Wave, they are basically the same thing.) And while it would be awesome to have seven post-punk stations, it’s ridiculous for a company that will still be years from peeking its financial head into the black to give it to us.
So the question remains: What stations from each service will survive a merger? It’s impossible to say, but you better start lobbying now if there’s a station or DJ you are in love with.
SO CAN A MERGER BECOME PROFITABLE?
I have long been critical of satellite radio’s ability to even approach profitability before it becomes obsolete. However, as pro-competition and consumer choice as I am, a merger may be the only way satellite radio can ever pull a profit for three reasons.
First, one company means no split in the subscriber base. This is a matter of simple addition. Millions of XM subscribers plus millions of Sirius subscribers means even more millions of total subscribers. No competition also means less resources are wasted on marketing and advertising — something that has to bring a smile to a CEO’s face.
Second, no competition means no bidding wars for marquee talent. Right now, multi-hundred-million-dollar contracts are one of the biggest costs facing the companies. If they can shave even a small percentage off the cost of Howard Stern or Oprah’s next contract, that’s big savings.
And third, a single new company will need fewer satellites than two competing companies. Throwing satellites into space racks up NASA-like price tags. Even a small drop in this bill will mean instant savings for the new company. Not only will they will be able to consolidate their satellite operations, but they could even sell off extra ones for extra cash, like XM just did to the tune of a few hundred million dollars. Taken as a whole, it isn’t hard to understand why these guys want to merge.