XM/Sirius Merger Still a Long Shot

It has come to the point with XM Satellite Radio (XMSR) and SIRIUS Satellite Radio (SIRI) where decisions from the DOJ and FCC can be anticipated, with some degree of confidence, in the very near future. This is not based as much on the FCC's projection or the companies' general statements on timing, as it is on the perception that the regulators, companies, and third parties have essentially exhausted their arguments for and against the merger. This is also the general time frame this publication has projected since very early in the transaction, so we are obviously relying heavily on the entire deal file in assuming the DOJ and FCC will act soon.

Of course, there is literally no way to determine if events will occur over the course of the next two weeks as appears to be the prediction du jour. The first quarter end is an attractive point of speculation, but it has no real bearing as far as the FCC or DOJ is concerned. This was made abundantly clear when the respective reviews continued into the new year with virtually no material developments. Put another way, slippage into the second quarter would come as very little surprise.

That being said, there continues to be very little solid evidence to suggest that regulatory approvals will ultimately be granted. Despite the obligatory optimism expressed by the companies today and recently, both regulators have been amazingly efficient at controlling leaks and offering indications either way in this case. This is rare indeed for a transaction of this magnitude and constant publicity. It is also perceived by this publication as foreshadowing of either rejections from both regulators or approvals with conditions beyond what the companies may be willing to accept.

In short, this publication has seen no legitimate information to suggest that the initial assessment of this proposed combination should be altered. With or without concessions, it is still very difficult to conceive of DOJ approval of the merger based on the relevant market involved. While the companies and supporters have gone to great lengths to show that alternative technologies present competition to satellite radio, not a single case has been made that any one product or service can adequately offer radio broadcasting comparable to all the advantages that satellite radio offers. Ironically, this is essentially the message the companies, particularly SIRI, highlight in their national advertising campaigns.

For example, any consumer can download music to an iPod and claim that is every bit as enjoyable as a satellite radio station. However, that same consumer can not use the iPod product to listen to live broadcast of sporting events or talk shows, which the companies rely on heavily for subscribers. Similarly, while many consumers are now able to listen to live broadcasts via various Internet technologies, these technologies are dependent geography which is not an issue for satellite radio. An individual driving from Boston to New York during the Super Bowl would not be able to listen to the game, without interruption, using a mobile Internet service, or for that matter terrestrial radio, which would require a variety of stations.

This concept is true of literally every alternative offered as competition to satellite radio. Combined, every alternative product/service could conceivably represent a substitute; separately, there is not one device or current service which can provide the national coverage, variety, and overall convenience of satellite radio. That is precisely why consumers choose to subscribe to the services in the first place.

The Department of Justice certainly has the option to define the radio market broadly in reviewing this potential combination. The fact that the HSR process is nearing the one-year mark is a very strong indicator that market definition for this deal has been as complex as anticipated. A narrow-market definition -- if that is in fact the DOJ's inclination -- should have resulted in a conclusive decision by now. This suggests that the narrow-market definition is not winning the day at Justice.

This concept seems to be bolstered by the FCC's veiled frustration with the timing of its own review, which will not move forward until the DOJ has provided something definite to Commissioner Martin, et al. Third-party filings are still coming into the FCC on a fairly regular basis, but it is rather apparent there is little more information supporters and opponents can now provide to the regulator. Thus, it is not surprising that the FCC has indicated a decision is possible during the current quarter.

This will possibly be the final detailed analytical entry for this transaction. The expectation now has changed very little from day one, and until information surfaces from one or both regulators to contradict the original expectation, it will remain essentially unchanged. The successfully completion of this merger was a long-shot from the start (in terms of major merger transactions), which the companies themselves openly acknowledged more than a year ago. It remains a long-shot in the opinion of this publication, with the odds perceived at roughly 20% for the required regulatory approvals and successful completion.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

Comments

[Mad Max]

Let this merger go through! What is stopping this? I agree with Cramer that this has taken longer than Exxon Mobil merger and its high time for this to merge.

[User 163696]

Your superbowl argument is stupid. An individual driving from Boston to Washington with XM could not listen to the game either because Sirius has exclusive rights to the NFL. A merger would not change the fact. And that same driver could turn on FREE radio in that same car and hear the superbowl for free. Please get your facts straight before you write your next article.

[correct]

Yes. SatRad is the only way to listen to games uninterrupted.. but you forgot to mention what the competitors have that SatRad doesn't have.. like FREE music (terrestial radio), the ability to pick your own play list (internet, ipod, etc). All of these different media outlets have their own advantages... that is why they compete with each other...

[User 163708]

This is a horrible argument you're making. There is nothing stopping networks like sprint/vz/att from broadcasting NFL or any other professional sports games over their networks right now. 3G and even edge networks have the bandwidth to support this kind of entertainment on your phone for a monthly fee without a problem and you could even use a slingbox right now and watch the game uninterrupted from boston to new york if you have a compatible phone. The technology is there and those companies choose not to utilize it because of the cost barriers put in place by the professional sports. They gave exclusive rights to sirius or xm just like the NFL gave rights to broadcast sunday ticket to directv. Does the advantage of being the only tv company to be able to broadcast every NFL game everywhere in the US make Directv a monopoly? Of course not.

Did you know your article was going to be such ideal flame fodder that you purposely didn't put your real name on it? Gimme a break. Looking at your past articles, none of them faired very well either. Stick to research and leave reporting to journalists.

[simpsonic]

Duh! Doesn't anyone see that you will be able to get everything (tv, radio, whatever you want) over the iPhone - over the internet.

Everything. Look to the future and think global.

Pass the freak'n merger! (The politics involved make me sick)

[stinkaroo]

Wow... way to use examples to prove your opinion wrong. That was a tremdously biased article for someone who hasn't done their research. The NFL broadcast example you used makes no sense in support your point... especially since XM subscribers would currently have to use various free-radio stations to hear the Super too. You know, what really bothers me about this article is not your opinion but that you would publish such a strong argument, certain to make investors nervous, while not doing your homework. Shame on you!

[rheeb]

"...there is not one device or current service which can provide the national coverage, variety, and overall convenience of satellite radio. That is precisely why consumers choose to subscribe to the services in the first place......"

You obviously don't have sat radio. I did NOT buy it for the "national coverage". I, like everyone else, bought it because it offers better music playlists without commercials and better organizations of channels. Besides just music, I can get CNBC or CNN or Entertainment news in my car or listen to sports game that I can't get on tv. Could I get that sports game on the internet too? Sure. Can I listen to music on the internet? Yes. Can I download Jim Cramer on iTunes? Sure. Can I watch Lost for free on ABC online? Yes.

The internet is "international&qu... I can get music on itunes or my cell phone nationally too. And as for terrestial local radio -- bottom line here -- it sucks, has lame djs, and too many commercials. The product is simply not as good as what innovative substitutes offer....and it isn't willing to change and is scared of competition and is trying to do everything to block this merger.

Go buy sat radio and you'll see how it compares. It's not a "national coverage" thing -- it's a better product thing!

[billi]

More merger B.S..... Approve already, oh and then get a life.

[Indiana Joe]

Each of the services mentioned in the article have their own uniqueness of features and benefits however that does not disprove the argument that I as a consumer have the choice of listening to sat rad, terrestrial radio, the internet, CD's, iPod, music on my cell phone, etc, etc, etc. By definition, since I can choose to listen to one of these services and not listen to the others, they compete with each other.

[Ace22]

what kind of fancy words can i use to say UR A JACKA SS! and you dont know what ur talking about. u cant listen to nfl with x.m. just like you cant listen to baseball with sirius. so if you had x.m. you coulndt listen to the super bowl. If the to companys dont merge x.m. going under anyway so let them merge if i want to pay so i can listen to music without commercials i should be able to. and if you dont want to pay listen to your regular sh*tty radio

[Gregg]

Have we ever seen a merger dragged out so long where a documented 85-90% of CONSUMERS are in favor of approval? Even the NAB has conceded that FCC feedback is not in their favor.

5 years from now we'll laugh at this debacle while we drive down the road with our always-on internet connected radios.

The DOJ/FCC has much more important topics. Approve this merger!

[bosch1974]

I would like to point out that the Super Bowl comes with interruptions built into the game. It's called "TV advertising." And you know what I can listen to through my Ipod that you can't on satellite radio? A little thing called podcasts. I hear that they might be popular someday. I personally could care less if the merger passes or not, but I have found it humorous that google can buy double click and gigantic oil industries combine and no one blink an eye!

[Ben Williams]

This article has one fact that I agree with and the rest sounds like a commercial for terrestial radio and all the pinheads that want this merger to be defeated. The fact is that the merger is still a long shot and has a small percentage to be approved in a favorable way to XM & Sirius.

The true reason behind this fact is not based on the author's comments though about competition and monopoly, but instead on terrestial radio's lobbyist and members of Congress getting their palms greased by this local stations to help defeat this merger. I am not a subscriber to either satellite radio company, but as a person who still believes in a free market society and capitalism, this deals needs a decision much sooner than later. Typical government slow decision stalled by red tape and $ passing hands. Call your Senator and Representative today and raise hell asking them why this is taking so long. Decision should be made one way or the other, we can go to war in a day, crush the economy with knee jerk reactions from the fed in a few minutes, but cannot approve a merger within a year. What a freaking joke. Approve this and move on!

[User 163772]

You ignorant blankety blank blank. If consumers do not want to pay for satellite radio, they still have access to similar stations/broadcast thru free radio and other media.

[pfreak]

I've been a dual sub since 2001 and am dead against this merger. It offers nothing for consumers but higher prices and less choice. I did indeed get it for the national coverage. I travel a lot and want to hear the stations I listen to no matter where I am. Free radio & iPods are no substitute for SDARS. BTW, my XM receiver can indeed play podcasts as well as mp3's.l If you want to make the argument that SDARS competes with all audio entertainment then you need to extend that to all entertainment period. When I have free time I usually decide between TV, watching a movie, playing video games or listening to XM, FM, AM, internet radio and my iPod don't even factor in. They all pale in comparison.

[User 163772]

pfreak, did you write the original article? Regardless, my response at 10:20 am applies to you as well. What is your basis for stating that the merger offers higher prices and less choices for the consumer?

[User 163772]

Ace22, now tell us what you really think. PS, I like your style, direct and to the point and with substance.

[SenorBuckwheat]

I could see if this was something essential for life (i.e. water,oil) but for godsake, we are talking about satellite radio which is not a necessity. It is not a birth right to have satellite radio. If you don't like it then don't get it.

Nobody is going to die if this merger passes. Approve it now!!!!

[scotty 48]

I read this article out loud with a Texas accent pretending I was Gene Green. I would say this was Gene Green but there was too many big words in there. It might as well have been with the lack of facts, knowledge and overall stupidity in posting such a bias article.

[Ace22]

M&A you suck! Know one cares what you think anyway. I used to beat kids like you up in highschool.

[163888]

He makes a good arguement! You know I could not get a certain organic vegetable at Kroger or Wild Oats that I only could get at Whole Foods. Can you believe the court let Whole Foods and Wild Oats merge. Sieck, LOL, his arguement makes as much sence as mine did. To argue that there should not be a merger on content is ridiculous.

[stinkaroo]

I don't get what PFreak is saying. How is it less choice? How will it be more subscription fee? The only thing I can think of is that he is citing that they won't dublicate content when they merge the product... ie there wont be two "70 rock" stations.... but that isn't less choice, thats just less stations to avoid redundancy and the only people who have that redundancy now are paying two subscriptions, whereas they would only be paying for one after the merger and there are price increase restrictions that the new company will be held to. Why again are you dead set against the merger PFreak? I really am sorry to call you out like this and I'm not going to throw insults at you like Ace... but I really would like to know your explantation for your position because the ones you gave don't stand up.

[163888]

Thats because he (PFreak) doesn't even know what he is saying. If he had 2 subcribtions he is paying 25.9, that would be reduced to 16.95, a savings of 8.95 for almost the same thing. Will he have two "70 rock" to pick from, no but most would rather save the 8.95. It is simple and he can't comprehend it.

[manuelgdz]

If this doen't get approved XM will go down the drain leaving SIRI all its customers and business anyways and how many makes a monopoly?

[stinkaroo]

The difference is that Sirius won't obtain all of the current XM subscribers, or their equipment, or thier contracts (like MLB) etc... True that some customers would come over and they would likely sign new contracts with MLB and the like but it will cost sirius much more that way and the turn around to realize profit would be much farther off....

[Tie D]

Interesting. We are supposed to take equity advice from an anonymous source that claims to have no interest in any security of any kind. How are you saving for retirement? Rare stamps? Your mattress stuffed with dollar bills? Most analysts tout their credentials, and you attempt to remain anonymous. Care to show your work and tell us what probability model you used to come up with 20 percent? Thought so.

[Smarty Pants]

The time spent reading this rehash of the author's no-realistic-analysis-... position is gone forever. The most encouraging statement in the article:

"This will possibly be the final detailed analytical entry for this transaction."

We should all be thankful if that turns out to be true.

Good riddance.

[163888]

Gentlemen, XMSR might file chapter 11,then come out stronger then before. Or they might go from 11 to 13 inwhich case another company or enity will buy them (screwing shareholders). Ether way nether company is going to disappear altogether. To many assets linked directly to the satilite radio industry for them to be used any other way.

[User 163772]

This will possibly be my final assessment of the above article. Initially, my thoughts were that it was nothing more than a piece of garbage. After reviewing it again, and giving consideration to the opinions of other readers, it is my humble opinion that the article is really an entire pile of trash.

[CAFFPM]

Have you ever USED these products?!?! Satellite cannot do what you say it can do, I.E. travel between two major markets "uninterrupted&qu...

As a Sirius AND XM user, I have never been able to travel more than about 50-75 miles without having to pause or leave the broadcast I was listening to in order to search for an available FM frequency. I would speculate that the same would hold true in the Boston to New York example cited.

As a result, the broadcast is not only "interrupted"... I have actually found myself exposed and listening to a wider number of terrestrial radio stations, which without satellite radio I would never have taken time to find. I had my morning commute and drive home radio stations and didn't care or bother to seek alternatives. Satellite has forever changed that for me.

The technologies competing for "ear-time" ALL offer unique and exclusive features as well as remarkable overlaps. These nuisances create only a small competitive advantage for each provider and none create an appreciable reasoning to deny a merger on the cited grounds.

You want a Texas example?

I can shoot you with a gun. I can't shoot you with a knife, but I can kill you with both. The unique properties of knives shouldn't preclude Ginsu and Bowie from merging.

In many mergers, one or both of the merging companies have unique abilities that competitors lack and visa-versa. Thus the concept of merging for business advantages. If Justice wants to benefit this consumer, they can do it by eliminating one of my Satrad bills...GET THIS DEAL DONE!!!

[Common Man]

Since I have heard about the merger, and the talk about a monopoly, one thought has come to my mind that many people are not talking about. Satelite Radio is not a necessity! You don't have to have it! In fact up till a couple of years ago, you couldn't. Let them merge and if they decide to trpple their prics like the gas companies have, the consumer will send a message and drop their service. That is the definition of a free market.

Let me ask a question of someone smarter than me. If i developed a product to shave my ass with out a blade and I had a competitor who developed a similar product, and we sat down and decided if we merged, we would have a better chance at success, would that be something we would need the goverment to approve? Do the citizens of this country want to spend their tax dollars examining this deal? But with our present form of goverment, Gillette will have a venue to make it difficult, and your elected politicians will have a venue to line their pockets. And Free Enterprise and citizens suffer!!

Our Goverment is getting way to involved and actually taking powers away from the citizens. In order to get anything done in this country anymore, you need to have money to grease the elected politicians. Its a JOKE.

And the most ironic thing is our federal goverment feels compelled to impose our political belefs on the rest of the world.

This country needs citizens like Ben Franklin and Thomas Jefferson to start another revolutionary war. Your being taxed, double taxed at every transaction. The goverment has the best racket going.

Let me ask another question, Why are not goverment workers income not tax free? Example, a teacher needs 45K to live on, the goverment pays her 60K so they can take back 15K ad tell the tax payers their expenses are 60K for that teacher. Make all goverment workers tax exempt and your property and inclome taxes will go down 20%.

Another question, Dow we really need 50 states and a million or so municipalities? or is it just another clever way to give more people goverment jobs?

We need new leaders with no ties to parties

[OldGADawg]

Hey Folks... This is a NO BRAIN'R... As long as dirty money spreads, the politicians pockets get filled and the special interest groups that oppose the merger - In the overall aspect of who wins verses who looses - We the people are the ones who are not heard and will eventually loose if the merger is not approved.
It is however a luxury item that not all can afford..
I'm a subscriber to Sirius and have been for a number of years. I would love to see the merger approved with NO STRINGS ATTACHED from Clear Radio or that from others that claim that "minorities are not benefiting" from this for reason of equal ownership. Another I think is a "Witch Hunt" for Howard Stearn. And how the terrestrial radio station are working to bring censorship to SatRad.
To end... Is that.. if the merger is not approved - And the final reason for none approval is not a reasonable one?
I certainly hope to see "If possible" - A huge law-suit brought against those to whom made a sizable profit of not listening to the people and decided that "monies in there pockets" out weight justice.
.. Old Ga. Dawg...

[truth101]

I have XM and can't listen To NFL broadcasts. You've make a very poor analogy. Also even with Sirus radio driving from NY to Boston you would have to change FM stations because different area FM broadcasts interfere with satelite radio. You must have never actually tried preform your analogy and in truth it's just a biased opinion.

[FLA]

There is no reason for the insane time frame that this merger has taken so far. Sat Radio is essentially a luxury item like cable TV. Let's just say the merger happened and a monopoly was created (which is not the case). Now this BIG BAD Monopoly raised prices from $13/month to $3000/month because there is no competition and they can presumably do whatever they want. What would happen? They would lose all their subscribers and quickly be out of business. There wouldn't be massive marches on Washington, rioting, bloody battles on foreign soils, long lines at gas stations, people freezing in the winter or starving babies with flies buzzing around them. It is an excellent media source of music, talk and sports and nothing more. The Gov. needs to stop looking at this like its the last decision being made to avoid Armagedon and stop being so serious (yes, pun fully intended).