Tuesday, March 25, 2008

DOJ Approves XM-Sirius Merger

By Chris Haak


Yesterday, the Department of Justice (DOJ) approved the merger of XM Satellite Radio and Sirius Satellite Radio, Inc. The two companies announced their intention to merge in February 2007 in a deal that many observers considered to be unlikely to be approved. There is still one major regulatory hurdle to clear, however - the FCC also has to approve the merger. Their action is expected in the coming weeks, and it is possible, though unlikely at this point, that the FCC could still scuttle the combination.

In spite of facing long odds initially (including an explicit rule from the FCC at the time the companies' broadcast licenses were initially granted that stated that they may not combine), XM and Sirius successfully convinced the DOJ that they are not only competing with one another, but with other entertainment media, including regular broadcast radio, HD radio, iPods and other MP3 players.

Interestingly, the Justice Department actually ruled that the two companies did not really compete with one another. Their rationale, according to Thomas Barnett, the assistant attorney general for antitrust investigation, was twofold. First, a large number of customers come directly from car manufacturers, who are mostly locked into long-term contracts with each provider. GM, Honda, and Hyundai are in the XM camp, while BMW, Chrysler, and Ford are in the Sirius camp, so from the standpoint of making a choice when buying a new vehicle, the companies aren't really competing. Investigators were also unable to determine whether satellite radio buyers at Circuit City and Best Buy were only choosing between the two satellite radio companies, or also considering alternative in-vehicle entertainment choices as noted above.

For its part, the FCC was believed to have been initially opposed to the merger, as was I, but apparently Chairman Kevin Martin has become more inclined to agree to it after the companies agreed to introduce less-comprehensive a la carte channel choices at a lower price than the normal $12.95 per month.

With the FCC's approval, the companies will have to prove to customers and shareholders that they are actually improving their service offerings - giving them more programming options and better customer service. They also have to give something totheir long-suffering shareholders that has heretofore been elusive in the satellite radio business: profits. The companies face some formidable technical hurdles in getting more than a few of the other service's channels into their lineups, as Sirius radios are not currently able to receive XM, and vice-versa.

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