XM + Sirius = Xirius?

By HoosAdvantage: Kara Ivy Goldberg, Thomas K.M. Li, Wei (Grace) Song, , Cheung Fai Yeung

The potential future marriage of Sirius and XM would bring together the nation’s only two satellite radio services and this proposed horizontal merger has ignited heavy debate on either side of the issue. However, a union between the two competing firms must first gain approval from the Federal Communications Commission (FCC) as well as the Justice Department. Much attention will be devoted to whether or not the deal violates antitrust laws and the company’s pricing structure will be a big focus of the Justice Department’s review. Both companies currently compete in Cournot equilibrium, and charge their subscribers $12.95 a month. When discussing the future of their merger, neither party would comment directly on whether the combined company would seek to raise prices.

With approximately 6 million subscribers, Sirius is most well known for being the home of shock jock Howard Stern, Martha Stewart, and National Football League games. By the end of last year, the larger XM service closed their books with about 7.6 million subscribers and it airs the popular Opie and Anthony show, Oprah Winfrey, Bob Dylan, and Major League Baseball Games.

Sirius Satellite Radio CEO Mel Karmazin and the XM chairman, Gary Parsons, presented analysts with one of their main arguments to support the merger. They argued that along with satellite radio, all forms of mobile entertainment - including digital music players like Apple’s iPod and music-playing cell phones - will comprise the true market that the future merged company will face.

Given the strong antitrust concerns, many analysts are doubtful that the deal will be approved by the Justice Department. FCC chairman, Kevin Martin, has expressed his strong support of the current FCC rules that prohibit a union between the two companies. In an interview, one antitrust lawyer called the chances of regulatory approval a ‘long shot.’ Furthermore, numerous sources in Washington have hinted that the chances of gaining approval for the deal by the first quarter of 2008 are less than 50 %.

The future of satellite radio is becoming the focus of much concern and the stakes are high. A horizontal merger between Sirius and XM runs the risk of hurting consumers with the possibility of a significant price increase for future subscribers. However, the battle to merge will be tough insomuch as terrestrial radio will fight to block it, Kevin Martin will fight to block it, digital music players will fight to block it. And logic should block it.

Source: http://money.cnn.com/2007/02/20/news/companies/xmsirius_reaction/index.htm?postversion=2007022010