XM+Sirius=Xirius? (and gun+LCD)

Listen to Tuesday's IT Blogwatch: in which XM and Sirius plan to merge. Not to mention the Brit who fired his CO2-powered BB gun at an LCD monitor...

Seth Sutel broke the news:

XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc., rivals in the fledgling satellite radio industry, have agreed to combine in a deal that investors hope will result in lower costs, assuming it overcomes significant regulatory hurdles. The companies billed the deal announced Monday as a merger of equals, with shareholders of both companies owning approximately 50 percent of the combined entity. However, Sirius will be giving $4.57 billion of its stock to XM shareholders, a substantial premium to the value of their shares.

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XM radio receivers can't receive signals from Sirius, and vice versa. But Karmazin and Parsons said in an interview that the companies are working on developing a receiver that could receive both signals. In the meantime, they said, assuming the deal goes through, the companies would make other arrangements to bring programming that's currently exclusive to one provider to listeners of the other, such as getting Major League Baseball games — currently only available on XM — to Sirius listeners.

Evan Blass adds:

It's been more than two years since we first reported that XM and Sirius were in talks to merge, and although the New York Post may have jumped the gun a bit way back then, it was certainly on the money today, as the two satellite radio pioneers have just issued a joint press release stating their intention to become life partners. In the proposed $13 billion deal -- which they'd like to go down by the end of the year but which still must pass rather daunting regulatory scrutiny and opposition from such heavyweights as the National Association of Broadcasters -- investors would get 4.6 shares of Sirius stock for each share of XM.

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As you might imagine, the companies are already trying to spin this as a big win for everyone from Martha Stewart on down, arguing that consumers will end up benefiting from more programming choices and better hardware, manufacturers and retailers will see increased sales, and of course shareholders would gain value through the economies of scale and elimination of redundancies realized from a merger. The new pals also took an opportunity to sneak in a mention about the growing number of choices consumers have for receiving audio content, from old school AM/FM to internet radio to the the still-nascent technologies of cellphone streaming and HD radio, clearly hoping to sway public opinion on that whole anti-trust thing.

Eric Bangeman:

The combined company will be made up of a roughly 50-50 split of shareholders from XM and Sirius ... The new board of directors will be made up of Parons, Karmazin, four independent directors designated by each company, and others ... both companies have heavy debt, relatively weak cash positions, and sizable market caps. A merger of equals would allow for an all-stock deal ... When the FCC first licensed the two companies in 1997, there was language included in the licenses prohibiting one satellite radio provider from "acquiring control of the other remaining satellite DARS provider."

Doc Searls knows a thing or two about radio:

Mel Karmazin, possibly the wisest guy in commercial radio, will be the CEO. Gary Parsons, currrent CEO of XM, will be chairman. There are a number of problems with this merger; but they're also problems with satellite radio in general:

  1. Antitrust. There are too few companies — just two — in satellite radio here in the U.S.; and soon there will be only one ...
  2. Program quality ... I find it hard to imagine how a drop in competition will improve anything ...
  3. Monoculture ... I guarantee that programming will have a homogenous quality to it ...
  4. Obsolescence ... On the "T" this morning here in Boston, I noted that a quarter of all the commuters in my subway car were listening to something on earphones. I'm sure it wasn't radio — satellite or otherwise ... Where does satellite radio fit in that picture? I don't think even Mel Karmazin knows ...

  5. Costs. The running costs of maintaining satellite radio infrastructure is high, to say the least ...

  6. Revenues ... the inherent inefficiencies of broadcast advertising will doom the [subscription] model in the long run ...

Miamicanes expands on that monoculture issue:

Sirius and XM sound NOTHING alike. Sirius channels sound like normal radio stations, but without commercials. XM channels sound like somebody took a random pile of CDs, shoved them in a changer, and hit the "shuffle" button ... Both have slightly different audiences with different expectations -- all of whom are going to be FURIOUS if their network mutates into the other. Even slightly.

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Ultimately, we'll be stuck with one mediocre provider whose financial position is only slightly better than before, and now has hundreds of thousands of angry and pissed off former customers saying bad things about it and discouraging their friends from subscribing. This is horrible news for the customers of BOTH services. I expect to see an outpouring of anger from customers of BOTH Sirius AND XM demanding that the FCC NOT allow a merged company to own both frequency bands in a desperate effort to derail the whole merger.

Herb Greenberg follows the money:

For users, once the dust settles over the long-term, the merger of XM (XMSR)/Sirius (SIRI) should be great news. For shareholders, however, the consideration should be whether this is really a move out of desperation ... A key comment in the press release about competition shouldn't be lost on investors:
In addition to existing competition from free 'over-the-air' AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies.
All of that is obvious, but it's intriguing that it's in the press release as an argument in favor of the deal.

Mark Evans writes from the Frozen North:

Money-losing XM and money-losing Sirius will tie the knot in an effort to avoid becoming this decade’s Iridium, which went into bankruptcy protection less than a year after it launched in 1998 ... the satellite-radio business is dead in the water. Fundamentally, the idea of paying $15 or $20 a month for commercial-free radio service will not generate enough customers to cover the cost of operating the business. If you dig deep into the number of subscribers, how many of them are trial customers who got satellite-radio free for a year when they bought a new car. How many of these people are really going to re-new their contracts?

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Don’t get me wrong, the idea of commercial-free radio is, in theory, great - particularly compared with the crap on most commercial stations as players such as Clear Channel work to homogenize what was once a lively, free-wheeling medium. But just because you build something, doesn’t mean people will come

But WarlockD disagrees:

Sorry, I use it ALL THE FREAKING TIME. Ask any trucker if they will part with their Satellite radio. I drive close to 300 miles a week in the DFW area and local radio stations just don't have enough content to keep me intrested. Except for a few talk shows that I listen to, I need a sat radio to keep sane. Yes, I do have an ipod loaded to the gills with music, but to be frank, without Satellite, I wouldn't have any NEW content to keep me awake.

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Previously in IT Blogwatch

And finally... Gas gun vs. LCD monitor

Richi Jennings is an independent technology and marketing consultant, specializing in email, blogging, Linux, and computer security. A 20 year, cross-functional IT veteran, he is also an analyst at Ferris Research. Contact Richi at blogwatch@richi.co.uk.

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