Yesterday, the Department of Justice approved the merger between XM Radio and Sirius Satellite Radio. However, this is only the first step before a merger can actually take place. It still needs to be approved by the Federal Communications Commission (FCC).
The merger was officially proposed over a year ago, but faced several legal roadblocks – the main one being the ruling the FCC gave when they issued XM and Sirius operating licenses. It stated they were not allowed to merge due to anti-competitive reasons.
However, the two companies have been losing money for years (have yet to turn a profit, actually), and proposed a merger in order for both companies to survive. They argue they are currently at the point where they need to merge or die.
Is the XM-Sirius Merger Good For Consumers?
Pros. It will now be possible for subscribers to get access to all the major professional and college sports packages, as well as access to the most popular DJs who are currently locked into exclusive, long-term deals. Currently, satellite radio listeners have to choose from providers that have exclusive rights to sports such as Major League Baseball (MLB), the National Football League (NFL), NASCAR, and certain college sports divisions, as well as popular DJs such as Howard Stern and Oprah.
Cons. The big question everyone is asking concerns subscription prices. Will the monthly subscription fees change? The current prices for each service is $12.95 for a basic subscription. However, because FCC approval is needed for this merger to occur, the management teams from both XM Radio and Sirius Satellite proposed allowing subscribers to create their own packages and pay as they go. The a la carte option should range from about $6.99-16.99 per month, depending on features.
How will an XM-Sirius merger affect shareholders?
The initial response on Wall Street was positive. XM ended the day up about 15.5% and Sirius was up about 8.5%. However, if the merger is not approved by the FCC, it is likely those gains will drop. If it is approved, these companies have a much better chance at long term survival and profitability.
Is the proposed satellite radio merger a good idea?
The satellite radio companies believe they cannot survive without merging, but several opponents point out this will create a monopoly and it will be anti-competitive. The satellite radio companies argue their main competition doesn’t come from each other, but from land based radio, HD radio, interneet radio, mP3 players, iPods, cell phones, and hand held video games.
Is it anti-competitive? Personally, I don’t think a merger is a bad thing as long as the subscription prices remain affordable for the consumer. What do you think?
Disclosure: I own about 13 shares of Sirius Satellite’s stock. I got a $50 bonus to sign up for ShareBuilder a long time ago and used the bonus to buy $50 worth of Sirius. It is worth a lot less than $50 now.
Also, don’t buy anything based on this article. Use your own judgment.