The merger between XM Satellite Radio and Sirius Satellite Radio moved two steps closer to becoming a reality this week when shareholders voted in favor of the merger and as the Federal Trade Commission closed its enquiry into the merger without action.
Faultline predicted at the initiation of the deal that it would likely pass scrutiny and go ahead and complete, due largely to the fact that customer acquisition costs have become so high that it is unlikely that either one will become profitable without a merger, resulting in strong shareholder pressure.
However the Justice Department and the FCC have yet to give the deal the all clear, and either one can spike the deal, although that would likely lead to legal action by the two companies and their shareholders in our view.
The merged operation will have more than 14 million paying customers, and has made various public promises about keeping its pricing down, ensuring that both services can be received on existing devices and making bundles of both services cheaper.
There remain 13,000 US radio stations, with the bulk of advertising revenues spread among the top 3,500, nearly all of which have either taken the step towards digital HD radio or have made plans to do so. However the monthly paid business model versus advertising driven remains a key difference between these services and that may end up as a critical factor in gaining approval for the merger.
Once XM and Sirius get a firm commitment to merge, we expect to see the new entity, which will trade under the name of Sirius, to free up more spectrum and begin offering more video services. The two said they still expect the deal to be complete by the end of 2007.