Sirius and XM Get the Justice Go-Ahead

(page 2 of 2)

But XM and Sirius also have to hope that access to the best names from each service will fuel broader adoption of satellite radio. Despite a roster with such stellar names as Howard Stern, Martha Stewart, and ESPN Radio (Sirius) and Oprah Winfrey, Bob Dylan, and Major League Baseball (XM), neither service has made much headway in the booming market for portable players, for instance. But those devices are making headway in autos and SUVs, the core market for XM and Sirius. About 40% of cars sold in the U.S. today come with sound systems that are compatible with Apple's iPod music player. That's the same percentage of consumers who told J.D. Power and Associates in 2007 that they had satellite radio capability in their cars.

The merger would present myriad technical issues (BusinessWeek.com, 3/5/07), such as making the competing players compatible with a combined service. Both companies maintain that they can sell radios capable of playing stations from both services within 12 months of regulatory approval. But it's not clear what kind of initial investment that would take and how it could contribute to more short-term losses. Radios capable of playing both services are currently in development, according to company spokespersons.

The companies also have to solidify what subscription packages would look like under the combined service. They have said they would offer eight different subscriber options, two of them enabling subscribers to pick and choose which stations they want from either service. Those à la carte options, which are likely to cost more than a simple music-only offering, will be available only to subscribers with the new combined radios.

Outraged Opponents

Opponents of the merger, such as Consumers Union and Common Cause, worry that it would lead to higher prices for both satellite radios and subscription fees. Justice ultimately decided pricing was not an issue since, once subscribers shell out $100 or more for a device, they often will not switch satellite providers because one lowers its subscription price by a couple of dollars.

The combination has also been opposed by the powerful National Association of Broadcasters, which represents traditional radio broadcasters. In a statement released by the group, NAB Executive Vice-President Dennis Wharton said: "We are astonished that the Justice Dept. would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius' refusal to deliver on a promise of interoperable radios is nothing short of breathtaking."

Both Sirius and XM have long maintained that subscribers want the services to merge (BusinessWeek.com, 7/14/05). After Justice's announcement, the companies released a list of dozens of consumer groups and corporate advertisers that favor the combination, including Ford Motor (F), the National Taxpayers Union, and the NAACP. General Motors (GM), which puts the radios in many of its new cars, says a merged company would be able to offer more programming choices.

Holahan is a writer for BusinessWeek.com in New York . Hesseldahl is a reporter for BusinessWeek.com.