Sirius-XM Merger Finally Approved After 16 Months
Sirius and XM announced their intention to merge in March 2007. A year later, in March 2008, that they still expected the merger to be approved, and finally when the Department of Justice approved the merger on antitrust grounds. The last remaining obstacle – albeit a theoretically formidable one – was the FCC. The FCC voted on Friday to allow the merger to proceed, so it’s likely to close as quickly as the companies are able – even as soon as next week.
The FCC is composed of five commissioners – three Republicans and two Democrats. At the time that the FCC granted the licenses to the two satellite radio companies, the agency had a formal rule on the books that said the companies could never combine. Meanwhile, in spite of growing their audience to just below 20 million users combined, both companies remain mired in losses and have become sob stories for their long-suffering shareholders.
In spite of the no-merger rule, nearly everyone expected the deal to eventually be approved, but with some conditions attached to it, because without a merger, neither company is probably viable for the long-term without significantly cutting back on programming and marketing expenditures. The companies successfully argued that their combination was not a monopoly, because they not only competed with each other, but also iPods, CDs, terrestrial radio, and now HD radio.
The conditions that the companies had to agree to in order to secure the merger’s approval included settling enforcement actions (fines) regarding unauthorized terrestrial signal repeaters and too-powerful transmitters in portable radios that the companies had previously sold to consumers. The total cost to settle will be $19.7 million, which is peanuts compared to the cost savings the companies will enjoy by combining operations. Other concessions the companies agreed to were a three-year price freeze, the addition of some a la carte programming choices (allowing customers to, in some cases, pay for only the channels that they want), and setting aside eight percent of their combined channels for the public interest and minority programming. Further, the companies agreed to release an interoperable radio that receives both services within one year, and to have an open standard on the technology that allows more innovation in radio development, hopefully bringing more device manufacturers into the fold in the future.
As I said before, I was initially opposed to this merger based on my expectation that it would give the combined company too much pricing power, but I really do enjoy satellite radio service, and if prices will be frozen, with the possibility that I could eliminate several unwanted channels from my lineup and potentially save some money, plus the availability of the best of Sirius on my XM radios at some point, it might not be all bad. Now, if my six month old portable XM radio (a Pioneer Inno) stops working before it’s worn out, or the built-in XM radio in my Honda is no longer compatible with the combined service, then I reserve the right to change my mind and complain about the merger. I also promise to complain – loudly – if the companies jack up prices in three years. But, based on the premise that for the next three years I should get more programming for the same price, or less programming for a lower price, I’m glad that the FCC finally approved the merger.