Merger or No Merger????
June 27, 2006
Many assume the FCC and FTC would not allow the merger of XM and Sirius. There is no doubt it would be very difficult to get approval, but a lot as changed in the competitive landscape since the two SDARS licenses were granted. These changes in the competitive landscape may make it possible to win approval. At the time that the satellite radio licenses were issued there was NOT a prevalence of Ipod/MP3 players, internet radio, and HD radio. The method by which consumers obtain musical and other content has dramitically eveloved since those early days of satellite radio.
It easily could be demonstrated that a merger would benefit the consumer by providing him/her with more content and more choices, not less. By combining the bandwidth, the service could eliminate duplicate music channels and make available that bandwidth for more and better content. Effectively one of the FCC original goals could be achieved, an interoperable service. For those that may argue that reduced competition might hurt the consumer, they would be reminded that these services are competing with other music and entertainment choices, not just each other, and therefore would need to maintain a high level of service and content to continue attracting that consumer.
As to "how can either company afford to buy the other", it could be done with a stock exchange and the resulting company should have a higher valuation together than the two separately -- the revenue potential would remain at least the same, and likely would be even greater, given the potential for an improved service offering and more net content, but the costs of the combined entity would be reduced substantially.
While we here at SSG would agree with most that combining these companies at this stage is an unlikely event, we do believe it would benefit shareholders from both companies.
6/27/2006 11:12:00 AM
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