It was, for the past two years, the merger that dared not speak itsname.
That was partly because any combination of the companies' names --
XM Satellite Radio
Sirius Satellite Radio
--would be awkward to pronounce: XMSirius? SiriusXM? SM Radio?
And indeed, when the engagement was finally announced, the pressrelease was artfully, if still awkwardly, phrased to cover up the embarrassinglittle fact that the merged entity still had no formal name. It wasalternately called "the combined company" or "together, Sirius and XM" --neither of which is the raw material from which great brands are forged.
However, a hint of which brand is going to be the dominant one camein the actual structure of the merger: XM shareholders would receive 4.6shares of Sirius common stock. Although "XM and Sirius shareholders willeach own approximately 50% of the combined company," as far as the market is concerned it will be Sirius' corporate DNA that will prevail.
And that's just how Sirius CEO (and soon to be CEO of, um, "the combined company") Mel Karmazin saw it last summer. In a conferencehosted by
The Daily Deal
, Karmazin hinted it would be Siriusbuying its larger rival XM, not the other way around.
(Karmazin, still remembering bruises from his run-ins with SumnerRedstone during the merger between
that he helped broker,said somewhat famously in the same interview, "If we do another deal,I'm gone.")
Karmazin's comments last summer started a smoldering of speculation about aSirius-XM wedding that finally reached full flame last month, with bothstocks rallying in early January amid analyst assertions that a mergerwas not only more likely, it was more likely to win approval by theFederal Communications Commission.
On Jan. 17, FCC Chairman Kevin Martin came as close as a bureaucratcan to a flat-out declaration that the merger would not be permitted.The two stocks fell between 7% and 10% in a single day.
And therein lies the biggest reason why the companies, despite twoyears of on-and-off rounds of corporate footsie, hadn't unequivocally said they would merge.
But on Monday, hours after the companies jointly announced theirintentions to merge, Martin gave a more equivocal view: "The hurdle here... would be high as the commission originally prohibited one companyfrom holding the only two satellite radio licenses."
But he left room for an opening that the merger could maneuverthrough: "The companies would need to demonstrate that consumers wouldclearly be better off with both more choice and affordable prices,"Martin said.
What changed? It's hard to say for sure, but it likely involved themarket's insistence that any merger-induced monopoly on satellite radio wouldn't hurt consumers -- and would quite possibly benefit them.
In the past, whenever a Sirius-XM merger was discussed, talk soonturned to the precedent set by the proposed merger of
merger that the FCC shot down in 2002, citing a negativeimpact on consumer choice.
One key point mentioned in the FCC's 2002 decision was that, under an EchoStar-DirecTV merger, "in almost all areas reached bycable, the number of competitors would drop from three to two. Inalmost all other areas, the proposed transaction would create aneffective monopoly."
But in the case of satellite radio, the dynamics are different.While dish and cable television providers offer many of the samechannels, XM and Sirius offer competing programs.Consumers unsure of which one to choose -- how can one rationallybe expected to decide between the NFL and MLB, or between Howard Stern andBob Dylan? -- often held off from subscribing to either.
It may be that the FCC started to take more seriously the questionof who really is a competitor to satellite radio. The consumer caresmore about what media it can hear than the vehicle that delivers it:iPods, Internet radio, etc.
Then there was the loophole that was present even in the decision tonix the EchoStar-DirecTV deal: the allowance made for strugglingcompanies. XM and Sirius have so far survived the push-and-pull between continuing losses and solid subscriber growth, but their stocks are down more than half from the highs posted in 2005. By going it alone, each was sure to deteriorate further.
In the short term, a merger of Sirius and XM could help bothcompanies cut infrastructure and customer-acquisitioncosts. That could allow them to slash subscriber fees while stillbeefing up profits. Customers would benefit from more programchoices and lower rates. Investors could reap returns from the increasein business, and the satellite radio industry could finally reach maturity.
That's the short term. Longer term, once the satellite-radioindustry does mature, a Sirius-XM monopoly could hurt the consumer. TheFCC would be wise to leave room for correcting such a monopoly, but thecombined company of Sirius and XM -- whatever it's finally called -- wouldbe even wiser to ensure such regulation is never necessary.