So far no-one has shot a hole in the merger between Sirius Satellite Radio and XM Satellite Radio in the US, although some have threatened it, claiming anti-trust. And this week the merging entities put some skin on the bones of promises they have made to the FCC over consumer protection, which are designed to alleviate those anti-trust concerns.
In essence the two CEOs just stood up and told reporters that in its FCC filing sent this week, it lays down detailed a la cart pricing which takes the minimum subscription from $12.95, right down to $6.99. That particular offer is simple, choose any 50 radio stations from over 100 offered by each of Sirius or XM.
While this particular packages means selecting of one of the two services, other options allow consumers to mix and match and a new combined offer is 100 channels that will cost just $14.99, and the companies continue to say that no equipment upgrade will be required. Now given that even a merger of this size cannot change the laws of physics, it sounds as if what’s really happening here is that some of the more popular radio stations are being duplicated on spare capacity on the other system, otherwise they would be the offer all stations on one device. Perhaps this can be done with a software upgrade, perhaps it can’t.
The two companies argue that this option would normally cost $25.90, or the price of two subscriptions. There is a further offering of everything Sirius and select XM stations, which goes up to 140 stations, and which costs $16.99
Other things that were being touted by the merged company are family friendly packages, and mostly music and mostly sport and news packages as well as the ability to choose a package, but block any adult content and in return get a discount.
When this deal was first announced we felt that it would go through, simply because the two companies were running out of steam in their ability to acquire customers and it was likely, in the short run at least, that it was only possible to run a single paid satellite radio service profitably, not two.
Investors therefore would be FOR this deal. And CEO select of the combined company, Mel Karmazin, has highlighted in the past that there are 13,000 US radio stations, many of which are doing rather well, plus countless other sources of music, some of it in-car music, which demonstrates that the merger cannot be anti-competitive, because the two companies combined cannot be considered dominant.
So it’s still our opinion that this deal HAS to happen, or the FCC and other regulators will be responsible for a huge loss for American investors, for no real reason other than obstinacy.
The move to allow a la carte options has been widely hinted at by Karmazin and it may indeed have been forced upon him by the FCC, in order to give the go ahead for the deal, and for the FCC to issue a waiver over the combining of the spectrum licenses, which were never meant to be held by the same company.
A la carte menus for entertainment are at the heart of a long running battle with US cable operators. The cable networks which supply cable TV channels, which in turn rely on advertising, only agree pricing on their channels with cable operators if they agree to take their poorly attended, as well as well watched, TV channels. That way they have more advertising inventory to sell.
Various attempts over the past five years to bring in a la carte video has all failed, with the FCC concluding that forcing cable operators to offer it would lead to increased pricing for consumers, to make up for the lost advertising opportunities.
In satellite radio there is not such lost advertising opportunity but there is the possibility that a la carte options might all lead to massive trade downs from existing customers, potentially putting a huge hole in combined satellite radio revenues. The number of people likely to trade up to the more expensive packages is unlikely to balance this out, so it may well be that some of these new options are only available to new subscribers, at least for a time, until the merged satellite radio business can gauge how many people are likely to want to downgrade to a cheaper package.